AI in the Workplace: Are Employers Creating Legal Risks Without Realizing It?

Artificial intelligence (AI) is changing how businesses hire, manage, and evaluate employees. From automated résumé screening to AI-powered performance evaluations, employers are discovering exciting opportunities to improve efficiency and reduce administrative work.

But there’s a catch: Using AI does not eliminate an employer’s responsibility to comply with employment laws.

In fact, employers may be creating new legal risks without even realizing it.

The Hidden Risks of AI in HR

Imagine using an AI recruiting platform that automatically ranks job applicants. The software promises to identify the most qualified candidates, saving hours of screening time.

Sounds great, right?

But what happens if the software consistently disadvantages applicants based on age, disability, race, sex, or another protected characteristic?

Even if the employer never intended to discriminate, the selection process could violate federal employment discrimination laws.

The Equal Employment Opportunity Commission (EEOC) has made clear that existing federal civil rights laws apply to automated employment selection procedures.

Employers cannot simply blame their technology vendors when discriminatory hiring practices occur.

AI Creates More Than Hiring Concerns

AI-related risks can arise throughout the employment relationship, including:

• Recruitment: Automated screening tools may unintentionally exclude qualified candidates.
• Performance evaluations: AI-generated assessments may rely on incomplete, inaccurate, or biased information.
• Employee monitoring: AI surveillance tools can create privacy, employee relations, and legal concerns.
• Discipline and termination: Decisions based on algorithmic recommendations may lack sufficient individualized review.
• Confidentiality: Employees may enter sensitive personnel information into AI platforms that are not approved for confidential business data.

These concerns do not mean employers should avoid AI. They mean employers need clear guardrails.

Five Best Practices for Responsible AI Use

1. Establish an AI workplace policy. Identify which AI platforms employees may use, what information may be entered, and which employment decisions require human approval.

2. Require human oversight. AI should support HR decision-making, not replace professional judgment. Qualified personnel should review consequential recommendations before taking action.

3. Evaluate vendors carefully. Ask vendors how their tools are tested for accuracy, job-relatedness, potential discrimination, accessibility, and data security.

4. Train managers and HR personnel. Employees using AI must understand its limitations, including inaccurate responses, potential bias, and confidentiality concerns.

5. Review applicable state and local laws. Some jurisdictions impose additional requirements involving automated employment decisions, notices, audits, or privacy.

What Employers Should Do Next

Start by conducting an inventory of every AI tool currently used in recruiting, scheduling, employee management, and performance evaluations.

Determine who approved each tool, how it works, what information it collects, and whether someone evaluates its recommendations.

Next, establish a written AI governance process addressing acceptable use, vendor oversight, employee training, and periodic compliance reviews.

The Bottom Line

AI can be an incredible business resource, but efficiency should never come at the expense of fairness, confidentiality, or legal compliance.

Employers that establish thoughtful AI policies today will be better positioned to benefit from emerging technologies while managing tomorrow’s risks.

Smart technology needs smart HR leadership.

Lisa Smith, SPHR, SCP