5 State Employment Law Trends To Watch In 2026 |
States are increasingly stepping into the void created by congressional inactivity on employment regulation. State employment law developments have been accelerating across a wide range of workplace issues, from artificial intelligence to menopause. In many areas, including paid family and sick leave, state laws are not only becoming more individualized, they are actually moving in opposite directions. This means it is crucial for employers to know which state an employee lives in and for job seekers to consider which states offer the best opportunities.
The result of state-by-state regulation is an increasingly complex legal landscape for multi-state employers. As state-driven employment regulations gain momentum, employers should monitor five key developments this year.
State legislators are scrutinizing employers’ use of AI in employee hiring, promotion, and other employment-related decisions. Interest in regulating AI use is fueled, in part, by several pending lawsuits alleging that AI algorithms discriminate against job applicants on the basis of race, age, sexual orientation and other protected statuses. The ongoing Workday lawsuit in California offers just one of many examples.
That’s why Illinois is leading the way with a new law prohibiting employers from using AI systems that have discriminatory impacts based on protected characteristics, which took effect on January 1, 2026. The Civil Rights Department in California similarly clarified in 2025 that the state’s employment discrimination laws apply to the use of AI and automated decision systems. In addition, Colorado and New York City have also enacted laws imposing risk management, auditing and notice requirements on private sector employers’ use of AI.
These states are not anomalies.
“The rapidly evolving legal landscape on the regulation of AI in the workplace, including the introduction of such legislation by over 25 states to date, makes clear that AI governance is on track to become as foundational as wage-and-hour compliance," said Dimiana Saad, an attorney at Sheppard Mullin, via email. "Employers can proactively mitigate risk by carefully documenting how workplace technologies collect data, updating privacy policies, and ensuring human judgment remains central to any employment decision influenced by algorithms.”
At the same time that states are ramping up activity on AI legislation, the Trump administration is seeking to block state and local regulation of AI in employment decisions, in favor of developing a uniform federal approach.
Republican-led efforts to include a ban on state and local AI regulations in the “One Big Beautiful Bill Act” failed in July 2025, when the Senate struck down the provision. President Donald Trump responded by signing an executive order on December 11, 2025, directing the federal government to take actions against states that regulate AI, including filing lawsuits and cutting discretionary federal funding.
While this new EO sets up a showdown between federal and state control over AI use, it does not overturn existing state and local laws. Two bills seeking to regulate AI in the workplace were introduced in Congress at the end of 2025. But until Congress enacts a preemptive........