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Navigating Illinois’s New AI Legislation – What Business Owners Need to Know

WHITEPAPER FROM BURKE LAW
by: Nikhil Mehta

Thank you to EFBC Strategic Partner Burke, Warren, MacKay & Serritella, P.C. for sharing this resource with the EFBC community. Burke Warren provides legal counsel across a wide range of business needs, with deep experience serving closely held and family-owned businesses, including succession planning, ownership transitions, estate planning, corporate matters, and more.

Learn more about Burke Warren and their services at burkelaw.com.

 Artificial Intelligence (AI) has rapidly shifted from a futuristic, far-fetched possibility to an everyday business reality. Whether your business uses AI to draft marketing emails, screen job applicants, or manage inventory, the regulatory landscape is catching up fast.

Illinois recently enacted two AI-specific laws which have positioned it as a national leader in AI regulation. For EFBC members, understanding these changes is critical to avoiding unintended legal pitfalls. The two new pieces of legislation passed in Illinois are House Bill 3773 (effective January 1, 2026) and Senate Bill 315 (just signed into law on July 6, 2026 by Governor Pritzker).

Here is what these updates mean for your business and how you can prepare.

HB 3773: The AI Workplace Transparency & Discrimination Rules

Effective January 1, 2026, HB 3773 amended the Illinois Human Rights Act (IHRA), introducing strict rules for employers using AI in the workplace. If you use automated software or predictive data analytics to make or assist with employment decisions, this law applies directly to you.

Pause in Rulemaking: Note, however, that the Illinois Department of Human Rights, which was tasked with implementing rules under HB 3773, has withdrawn and indefinitely postponed its rulemaking process. Despite this postponement, all obligations under the law remain in effect and businesses must continue to comply with the requirements of HB 3773.

What it mandates:

• The Disclosure Requirement: Employers must formally notify employees and job applicants if AI systems are being used to make or assist with workplace decisions. Employers must provide extensive information about the systems being used. This applies broadly—not just to hiring, but also to promotions, renewals, discipline, training selection, and terminations.
• The Anti-Discrimination Clause: The law explicitly prohibits using AI tools that result in a discriminatory effect against protected classes.
• The “Zip Code” Trap: Crucially, the law bans using geographical data like ZIP codes as a “proxy” for race or other protected traits within predictive models.

Why it matters to business owners:

Some small businesses use off-the-shelf HR software, automated resume screeners, or applicant tracking systems (ATS) to save time. Under HB 3773, intent is no longer a defense. If a vendor’s tool inadvertently creates a biased hurdle for applicants, your business can be held strictly liable for a civil rights violation. Importantly, claiming “we didn’t know the software did that” will not shield you from liability.

SB 315: The Artificial Intelligence Safety Measures Act

Signed into law this week by Governor JB Pritzker, SB 315 targets the foundation of the AI industry. Known as the Artificial Intelligence Safety Measures Act, this landmark bill aims to regulate the development of advanced AI models to prevent severe or catastrophic risks.

What it mandates:

• Targeting “Frontier” Developers: The law imposes strict governance, mandatory transparency frameworks, and annual independent third-party audits on “large frontier developers”—tech giants with over $500 million in revenue building massive, highly complex AI models.
• Strict Incident Reporting: Developers must report severe safety or cybersecurity incidents to the state within tight windows (as fast as 24 to 72 hours).

Why it matters to business owners:

The good news is that SB 315 does not directly penalize downstream businesses that simply use commercial AI tools or build basic applications on top of existing platforms (like OpenAI’s ChatGPT or Google’s Gemini).

However, it impacts the EFBC community in two ways:

1. Supply Chain Confidence: It gives small businesses peace of mind that the foundational software they rely on is being audited and regulated for catastrophic vulnerabilities.
2. A Regulatory Blueprint: SB 315 establishes a strict precedent. The concepts introduced here—like formal governance frameworks and mandatory external audits—will likely trickle down into future regulations affecting smaller software developers and mid-sized commercial entities.

Action Items for EFBC Members

Compliance does not mean pausing your technology adoption. Instead, it means implementing smart governance. To protect your business, it is now critical to take the following steps:

• Provide Notice of AI Use: If your business is using AI in employment decisions, immediately implement a process by which you can provide notice to applicants regarding the use of AI by your company and the nature of such use.
• Audit Your HR Tech Stack: Ask your HR department or external payroll/recruitment providers to identify exactly what AI tools are embedded in their software.
• Get Vendor Guarantees: When buying new software, ask vendors for written confirmation that their tools comply with Illinois HB 3773, specifically ensuring their algorithms do not use geographic proxies like ZIP codes to screen candidates.
• Draft Clear Disclosures: Update your application portals and employee handbooks to include clear, accessible notices stating if, when, and how AI is used to evaluate personnel data.
• Establish an Internal AI Policy: Define what tools employees are allowed to use for daily operations, ensuring sensitive client data or proprietary family business metrics are never fed into unsecured public AI models.
• Human in the Loop: Always have a human employee double check and carefully review any AI-generated outputs for mistakes, biases, or missing items.

Moving Forward

Illinois has signaled that AI compliance is a statutory obligation, not an optional practice. For business owners, safeguarding your legacy means proactive risk management. By taking a few practical compliance steps today, you can leverage the power of AI to grow your business safely, efficiently, and in compliance with regulatory requirements.