Perspectives
Navigating AI in Employment: Key Legal Risks and Protections
As artificial intelligence (AI) becomes more integrated into employment processes like screening and hiring, it offers potential efficiencies but introduces new legal challenges. Employer are now navigating complex anti-discrimination laws that apply equally, whether decisions are made by humans or AI tools. This post covers key concerns for employers and how to mitigate the risks of AI-driven employment decisions.
Discrimination Risks in AI-Driven Hiring
AI tools can unintentionally lead to discriminatory outcomes, even when used with the best intentions. One concern is the potential for disparate impact-when seemingly neutral criteria disproportionately affects protected groups. For instance, if an AI system screens candidates based on years of experience, it may inadvertently discriminate against older applicants or recent graduates, violating federal or state anti-discrimination laws.
Moreover, the “black box” nature of AI means that decision-making processes are often opaque. When faced with claims of discrimination, employers may struggle to prove that their AI system made decisions for non-discriminatory reasons, posing a significant legal risk.
Privacy and Data Security Concerns
When using AI tools in recruitment, privacy issues must also be addressed. Employers should ensure compliance with data protection regulations like the EU’s General Data Protection Regulation (GDPR) and U.S. laws concerning password privacy and biometric data. Additionally, tools that analyze physical characteristics, such as eye movements or voice tone, could violate laws like the Employee Polygraph Protections Act, which restricts lie detection practices in employment.
Wage and Hour Considerations
AI tools that monitor work activities, track employee time, or auto-populate time records could lead to wage and hour violations under the Fair Labor Standards Act (FLSA). For example, AI that tracks keystrokes may miss compensable work activities, or it may not accurately track break times that must be compensated under the FLSA. Employers must oversee AI’s’ wage calculations to ensure compliance with regular and overtime pay rates.
AI and Disability Discrimination
Employers should also be aware of the risk of unintentional disability discrimination. AI systems that assess speech patterns, facial expressions, or physical movements may misinterpret characteristics associated with disabilities. For example, an AI system could penalize a candidate with a speech impediment or a disability that affects facial expression, even though they are fully qualified for the job.
States like Illinois are taking steps to regulate AI in employment through legislation such as the Artificial Intelligence Video Interview Act, which requires employers to notify candidates and obtain consent before using AI in video interviews.
Layoffs and Worker Protections
When automation leads to layoffs, employers must ensure compliance with the Worker Adjustment and Retraining Notification (WARN) Act and state-specific laws that require advance notice before mass layoffs. Employers should also take care to avoid age discrimination in layoffs, as older workers may be disproportionately affected by automation and must be offered the same retraining opportunities as other workers.
Staying Ahead of State and Local AI Regulations
Several states and cities are leading the charge in regulating AI in employment. In New York City, for example, the Automated Employment Decision Tools Law requires bias audits for AI hiring tools and mandates that employers notify candidates when AI is being used. Similarly, Colorado’s Senate Bill 24-205, effective in 2026, will require “reasonable care” from employers deploying high-risk AI systems to prevent algorithm discriminatory outcomes.
As AI continues to transform hiring and employment practices, staying compliant with evolving laws is essential to protect your organization. Working with experienced legal counsel can help you navigate complex AI-related employment regulations, keep your policies up to date, and ensure your hiring practices are fair and legally sound. Don’t wait for compliance issues to arise-proactively safeguard your company and foster a workplace that values equity and transparency. Contact our team to review your current practices and build a robust compliance strategy that supports your organization’s growth.