The use of artificial intelligence-powered technology in the workplace will continue to be regulated at the state and local level after a proposed moratorium on a limited but growing set of laws fell short in Congress.
The House of Representatives passed a 10-year ban blocking states from regulating AI technology, but the Senate stripped it from the Republicans’ budget bill that President Donald Trump signed on July 4. This leaves the door open for states and localities to continue developing and enforcing their own AI regulations.
The Senate voted 99-1 to strike the AI provision from the legislation after weeks of criticism from both Republican and Democratic lawmakers.
Those in favor of the AI moratorium argued that a patchwork of state and local AI laws is hindering innovation, while opponents of the ban criticized it as undermining state efforts to protect people from AI-based harms absent federal law. Congress has yet to enact comprehensive regulations related to the emerging technology.
Prior to its resounding defeat, the moratorium provision had been watered down in the Senate, reduced in duration to five years and limited to states that wanted access to new federal funding for AI infrastructure and broadband deployment.
“The AI moratorium would have stopped in their tracks more than 1,000 AI regulatory bills making their way through state legislative processes in state capitals,” said Omer Tene, a partner in the Boston office of law firm Goodwin. “While the moratorium is no longer part of the legislative package, its brief and contentious history illustrates the complex challenge of developing a cohesive national AI policy while allowing the laboratories of democracy to operate in state capitals.
“The episode reflects a larger unresolved debate — how to reconcile the desire for federal consistency with the need for agile, local responses to emerging AI harms,” Tene continued. For now, he said, businesses should prepare to implement and comply with a wave of new state AI laws.
The demise of the moratorium “will clear a path for more laws to be passed in states across the country and almost certainly lead to compliance headaches for multistate employers given the impending regulatory patchwork,” said Benjamin Ebbink, a partner with Fisher Phillips in Sacramento, Calif., and Washington, D.C. “While the tech industry will certainly lobby Congress to consider future legislative proposals to ease regulation on the use of AI, attention now turns to the states, where efforts are well underway to build guardrails and compliance hurdles that employers will need to navigate.”
Next Steps for Employers
Ebbink recommended employers audit their AI tools for explainability, bias, and disparate impact before new laws are enacted. “If your vendor can’t explain how their system works or prove it’s compliant with civil rights laws, it’s time to rethink that partnership,” he said. “Risk assessments, transparency, and human oversight remain essential tools for preventing AI-based discrimination.”
In expectation of new state regulations to roll out over the next few years, Ebbink said that compliance systems should be designed with flexibility in mind.
Currently, laws in Illinois limiting AI-evaluated video job interviews and in New York City requiring bias audits of automated employment decision-making tools have seen very little — if any — enforcement.
Impending laws include:
- California regulations enforcing anti-discrimination laws as they apply to automated decision systems, scheduled to take effect Oct. 1.
- A Texas measure that bans intentionally discriminatory AI uses, including in employment decisions, but specifies that disparate impact alone doesn’t equal bias, scheduled to take effect Jan. 1, 2026.
- Colorado’s law, set to be the most expansive thus far, imposing significant obligations on employers, including requiring impact assessments, AI disclosures, and anti-discrimination mitigation steps. It is scheduled to take effect Feb. 1, 2026.
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