General requirements to tell customers, employees, or the public when AI is being used in decisions. Here is what California businesses need to know in 2026.
Under SB 942 (AI Transparency Act), businesses using AI for decisions affecting Californians must disclose AI use and provide opt-out options. The AG can enforce with civil penalties.
State law does not replace federal law — you must comply with both. These federal rules apply to ai disclosure nationwide:
California's SB 942 — AI Transparency Act applies to most businesses with limited exemptions. Even businesses with under 50 employees should review requirements. Always review the specific statute for employee count and revenue thresholds.
The key deadline in California is August 2, 2026. The law is enacted and compliance is required by the deadline above.
California penalties for AI non-compliance: $5,000/day per violation. Enforcement is active. The state AG has authority to investigate and fine without prior warning.
Federal law does not currently preempt state AI laws. California's SB 942 — AI Transparency Act applies independently of federal rules. Federal laws like ECOA, FCRA, and HIPAA also apply alongside state law — so you must comply with both.
Best practice: document all AI systems used, conduct an internal audit, implement required disclosures, and keep records for at least 3 years. For high-risk uses like ai disclosure, consider hiring an independent third-party auditor to validate compliance.
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