Colorado’s Artificial Intelligence (“AI”) Law Reform Could Apply Discrimination Liability on AI Developers

Colorado’s Artificial Intelligence (“AI”) Law Reform Could Apply Discrimination Liability on AI Developers

 Bayan Biazar, Associate

  Colorado’s efforts to regulate artificial intelligence (“AI”) in employment decisions have reached a critical turning point. The most recent reform proposals under Senate Bill 25B-004 (“SB-004”) include liability provisions that would significantly expand  exposure to AI developers under both the Colorado Anti-Discrimination Act (“CADA”), Colo. Rev. Stat. § 24-34-401 et seq., and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (“Title VII”), despite the AI developer not being an employer.  

 Brief Background

            In 2024, the Colorado General Assembly enacted Senate Bill 24-205 (“SB-205”), which introduced consumer protections in the use of “high-risk”[1] AI-systems that cover such things as employment, housing, education, and healthcare and are subject to documentation, testing, disclosure, and bias-mitigation requirements. Employers deploying (using) these AI tools in the workplace for such things as hiring or reduction in force (“RIFs”) analysis, were required to conduct impact assessments and provide disclosure notices when AI significantly influenced an adverse decision in areas like hiring, firing, or promotions.

             Following technology-industry backlash, Colorado lawmakers returned for a special legislative session in August 2025, and Senator Robert Rodriguez and Representative Jennifer Bacon sponsored SB-004 to try to refine transparency laws under the AI framework by attempting to reduce the burdens of detailed disclosure imposed on developers and deployers[2] of AI-systems. However, in doing so, SB-004 added a proposed liability provision that reignited concern about the AI legislation by potentially extending legal exposure for discrimination claims for both developers and deployers of AI-systems.[3]

 The Liability Provision

            The August 2025 revisions to SB-004 provided that developers and deployers may be held jointly and severally liable for discrimination resulting where: (1) the deployer of the AI-system used the system for its intended or advertised purpose; (2) the deployer used the AI-system in a manner intended or reasonably anticipated by the developer; or (3) the output of the AI-system was not materially altered by data that the deployer provided and that involved the deployer’s independent judgment or discretion. The liability provision of SB-004 has the potential to expand anti-discrimination liability to AI developers, even though they are not the employer of an applicant or employee who may have suffered an adverse action as a result of the AI-system that developer created. The proposed legislation also has the potential to confer liability upon an employer who used an AI-system developed by someone else that may result in an adverse action against an applicant or employee.

              Under both Colorado and federal anti-discrimination law, in order for there to be liability, the entity alleged to be discriminating must first be an employer, i.e., the entity must employ at least one employee under CADA or up to 15 or more employees under Title VII. See Colo. Rev. Stat. § 24-34-401(3); and 42 U.S.C. § 2000e(b). SB-004’s joint and several liability could bring claims against AI developers under CADA and Title VII, despite the AI developer not having any employees or fewer than the employees required for a CADA or Title VII claim.[4]

             Liability under CADA and Title VII can be fairly significant and could include back and front pay; compensatory and punitive damages; and attorneys’ fees and cost for litigation. See Colo. Rev. Stat. §§ 24-34-405 and (3)(d)(I)-(III); 42 U.S.C. § 2000e-5(g)(1); and 42 U.S.C. § 1981a(b)(3). Such liability could be extremely damaging to an AI developer who may be a one-person shop but provides AI support to a company with 500 or more employees, if the AI results in an adverse employment action. If an AI-system disproportionately screens out applicants or employees in a protected class, whether intended or not, employers could face claims under both CADA and Title VII—even if they lacked intent or direct knowledge of the systems impact. If SB-004 passes, AI developers too, may be drawn into employment litigation, despite them not being employers under either CADA or Title VII.

 Employer Considerations

            For employers, the central risk lies in how AI-driven adverse decisions, such as rejections of job applicants, denials of promotions, or terminations, will intersect with statutory prohibitions on discrimination. What once may have been characterized as a “neutral” third-party tool may now serve as the basis for liability. Employers using AI in recruiting, hiring, or employee management should evaluate: whether their AI-system can be shown to avoid discriminatory outcomes; what documentation is available to demonstrate compliance with CADA and Title VII; and how adverse decisions are explained and disclosed to applicants and employees.

             These reforms signal a significant shift in potential liability where liability under CADA and Title VII may no longer be limited to human decision-makers. Employers that integrate AI into their hiring and Human Resources processes risk exposure if those systems yield discriminatory results and if SB-004 becomes law, AI developers may be jointly and severally liable for an adverse employment decision. Campbell Litigation can assist employers in auditing AI-related practices and preparing for compliance as Colorado’s regulatory landscape develops.

[1] High-risk AI-systems are defined as: systems that make or significantly influence consequential decisions affected areas such as employment, housing, education, and healthcare. See The Colorado Artificial Intelligence Act, p. 2.

[2] “Deployer” means a person doing business in the state of Colorado that deploys a high-risk AI-system. See Colo. Rev. Stat. § 6-1-1701(6).  

[3] See https://leg.colorado.gov/sites/default/files/documents/2025B/bills/2025b_004_enr.pdf  for the Final Act of SB-205.

[4] Under CADA, it is a discriminatory or unfair employment practice for an employer “to refuse to hire, to discharge, to promote or demote, to harass during the course of employment, or to discriminate in matters of compensation, terms, conditions, or privileges of employment against any individual otherwise qualified because of disability, race, creed, color, sex, sexual orientation, gender identity, gender expression, marital status, religion, age, national origin, or ancestry.” Colo. Rev. Stat. § 24-34-402. Title VII, likewise, prohibits employers from employment practices that “discriminate against any individual with respect to compensation, terms, conditions, or privileges of employment based on protected characteristics.” 42 U.S.C. § 2000e-2(a)(1).