In a pivotal move, the U.S. Senate has eliminated a proposed 10-year ban on state-level artificial intelligence (AI) regulation from former President Donald Trump’s expansive tax-cut and spending bill. The decision, which is being hailed as a victory for employers, has sparked concerns among major technology companies about potential fragmentation in AI governance.
“This is a win for employers only insofar as it reduces the uncertainty—or turmoil—that the moratorium would’ve created,” said Niloy Ray, a shareholder at Littler and a member of its AI and Technology Practice Group.
Tech Firms Worry About Fragmented Rules
While employers may be relieved, tech giants like Google, Meta, and Microsoft are voicing apprehension. INCOMPAS, a trade group representing these and other technology firms, cautioned against allowing states to implement individual AI regulations.
“With over 1,000 AI-related bills nationwide, a pause is needed to avoid regulatory fragmentation that could harm U.S. AI leadership,” the group said in a statement prior to the Senate’s decision. It emphasized the need for a unified national strategy, arguing that competing state laws could undermine the country’s leadership in AI. “This isn’t California’s race against China—or New York’s or Colorado’s. It’s America’s race,” the group added.
Employers Prefer Clarity Over Federal Legal Chaos
Ray pointed out that a federal ban might have sparked legal battles and constitutional challenges, which would have created a far more chaotic situation for employers trying to stay compliant.
Although state-level regulations may be complex and uneven, he believes this scenario is preferable to the confusion that a sweeping federal moratorium could have unleashed. “While the current arrangement is unwieldy, it’s more predictable than federal legal chaos,” Ray explained.
AI Use in Workplaces Continues to Grow
According to Littler’s 2025 Annual Employer Survey released in May, nearly one-third of employers plan to increase their use of AI. However, Ray clarified that this growth in AI adoption is not directly tied to the lifting of the moratorium, as the survey was conducted before the proposal was introduced.
Rather, employers are capitalizing on the lax enforcement environment and the expectation of a more permissive federal stance under the Trump administration. “The lack of comprehensive federal oversight is a more significant driver of AI adoption than any legislative change,” Ray said.
State-Level Progress Could Shape National Policy
Despite fears of fragmentation, some legal experts view the current state actions as potentially beneficial. Ray cited California’s recent updates to the Fair Employment and Housing Act as an example of AI legislation evolving in a manageable and practical way. These developments could inspire other states to scale back overly aggressive proposals and work toward a more consistent national framework.
This emerging state-led model might focus on transparency, risk assessments, ADA alignment, and high-risk AI use, offering a clearer path forward for employers.
What Employers Should Watch Next
Legal experts Danielle Ochs and Zachary V. Zagger from Ogletree Deakins warned HR leaders to remain vigilant. Although the moratorium was removed from the bill, its initial presence reveals the Trump administration’s intent to limit federal AI oversight. “Employers may want to stay tuned to new developments,” they advised.
