If you run a business in Illinois and use any kind of software to screen resumes, filter job applicants, or evaluate employee performance, there’s a law you need to know about. It’s already in effect. And the penalties for ignoring it are steep.Speaking with a Chicago, IL business formation lawyer can help ensure your company stays compliant and avoids costly legal issues.
House Bill 3773 took effect on January 1, 2026. It amended the Illinois Human Rights Act to regulate how employers use artificial intelligence in employment decisions. The short version? If AI plays any role in how you hire, promote, discipline, or fire someone, you have to tell them. And you have to make sure the tool isn’t producing discriminatory outcomes.
Most business owners we talk to at our firm don’t realize how broad this law actually is. Let’s walk through it.
Who Does This Law Apply To?
Basically every employer in Illinois. If you have one or more employees in the state — even remote workers — you’re covered. It doesn’t matter if your company is headquartered in Texas or Florida. If you hire people who work in Illinois, this applies to you. There is no small business exemption.
What Counts as AI Under Illinois Law?
This is where it gets interesting. Illinois defines artificial intelligence as any machine-based system that generates outputs like predictions, recommendations, or decisions that influence physical or virtual environments. That’s a wide net.
Think about the tools your HR team uses every day. An applicant tracking system that scores resumes? That’s AI under this law. A chatbot that pre-screens candidates? AI. Software that analyzes video interviews, evaluating tone of voice or facial expressions? Definitely AI. Performance management platforms that flag employees for promotion or termination? Also covered.
What’s not covered: basic office software like Word or Excel, spam filters, or AI tools used for non-employment purposes like drafting marketing emails. The key question is whether the tool makes predictions, recommendations, or decisions that influence an employment decision.
The Notice Requirement Is Not Optional
Here’s the part that catches employers off guard. Failing to notify employees and applicants that you’re using AI is itself a civil rights violation. Not a paperwork issue. A civil rights violation under the Illinois Human Rights Act.
The Illinois Department of Human Rights has released draft rules spelling out what the notice needs to include. At a minimum, it should describe what the AI system does, what categories of employee data it processes, and which job positions it applies to. The notice has to be written in plain language, offered in the languages your workforce commonly speaks, and be accessible to employees with disabilities.
Current employees need to receive notice every year, plus within 30 days of any time you adopt a new or substantially updated AI system. Job applicants need notice right in the job posting. And you need to post these disclosures at your physical workplace and on your intranet or careers page.
The notice also has to include a statement that you aren’t using AI to discriminate based on protected classes — and that you aren’t using zip codes as a stand-in for race, ethnicity, or other protected characteristics. That zip code provision is new and specific to this law.
The Penalties Are Real
An employee or applicant who wasn’t properly notified can file a charge with the Illinois Department of Human Rights. If the Department or the Human Rights Commission finds a violation, the employer faces uncapped compensatory damages, back pay, front pay, emotional distress damages, and attorneys’ fees.
On top of that, a separate 2026 amendment (Senate Bill 2487) gave the Human Rights Commission the power to impose civil penalties. First offense: up to $16,000. One prior violation within five years: up to $42,500. Two or more violations in seven years: up to $70,000 per violation. These penalties stack on top of any damages owed to the employee.
What You Should Do This Week
Start by auditing every piece of software your company uses in connection with hiring, evaluating, promoting, or firing employees. You’d be surprised how many common HR platforms have AI features baked in that your team may not even realize they’re using.
Then draft your disclosures. Don’t wait for the Department of Human Rights to finalize its rules — the statute itself is already enforceable. Get language in front of your employees and into your job postings now.
Update your employee handbook and your nondiscrimination policies to specifically reference AI. Train your HR staff so they know which tools trigger disclosure requirements and how to respond to employee questions.
And consider running a bias audit. The law doesn’t explicitly require one, but if your AI tools are producing discriminatory outcomes — even unintentionally — you’re liable. A proactive assessment is the best protection you have.
Talk to an Illinois Business Attorney
This law moves fast and the exposure is significant. If you’re not sure whether your company is in compliance, don’t guess. Contact Kravets Law Group to schedule a consultation. We help Illinois business owners stay ahead of regulatory changes — so you can focus on growing your company, not defending lawsuits.
For more details on filing and enforcement, visit the Illinois Department of Human Rights at dhr.illinois.gov.