Legal and Practical Issues Every Employer Should Know
In 2025, the landscape of employment law is evolving rapidly, particularly concerning the integration of artificial intelligence (AI) into human resources (HR) practices. While AI can enhance efficiency in recruiting, performance management, and compliance, it also presents significant legal risks and compliance considerations. Employers must navigate these challenges carefully to avoid potential pitfalls, including discrimination claims, privacy violations, and liability disputes.
The Role of AI in HR
Artificial intelligence has transitioned from a futuristic notion to a practicality in HR, where it is utilized for various tasks such as drafting job descriptions, scanning résumés, conducting interviews, and generating performance reviews. According to the Society for Human Resource Management’s 2025 Talent Trends report, over half of employers have already adopted AI for recruiting.
While AI tools promise streamlined processes and cost savings, their implementation is fraught with challenges. For instance, issues such as algorithmic bias, transparency, and human oversight are critical to consider. As noted by Helen Bloch of the Law Offices of Helen Bloch, there are various laws that apply to AI in HR, necessitating a deep understanding of compliance requirements.
Legal Risks Associated with AI
Disparate Impact and Discrimination:
One of the foremost legal concerns when employing AI in hiring processes is the potential for disparate impact—a situation where seemingly neutral practices inadvertently disadvantage protected groups. The 2025 class-action lawsuit, Mobley v. Workday, highlights the risks associated with AI-driven hiring practices. In this case, plaintiffs allege that the software discriminated against applicants over the age of 40, violating the Age Discrimination in Employment Act (ADEA). Employers must conduct bias audits and ensure that AI systems are devoid of discriminatory algorithms to mitigate these risks.
Disparate impact claims pose significant danger for companies, often surfacing only when litigation begins. The Equal Employment Opportunity Commission (EEOC) has provided guidance asserting that automated decision-making tools are subject to the same anti-discrimination laws as traditional recruitment methods. This makes it crucial for employers to be vigilant, as legal claims could arise not only from rejected applicants but also from government agencies enforcing civil rights laws.
Liability for AI Mistakes:
Employers often believe outsourcing HR functions to AI vendors will shield them from liability; however, this is a miscalculation. According to Max Barack of the Garfinkel Group, companies remain accountable for compliance with discrimination and privacy regulations, regardless of whether the AI tools were developed in-house or by third parties.
Contracts with vendors should clearly outline risk allocation and responsibilities. Employers should also assess their insurance coverage. Employment practices liability insurance (EPLI) typically does not cover AI-related claims unless specific provisions are included. The principle of joint liability adds another layer of complexity, as both the external provider and the employer may face consequences if AI tools are found to discriminate against job applicants.
Regulatory Environment Surrounding AI
As AI adoption in hiring grows, so does the regulatory framework governing these practices. For instance, Illinois has implemented the Artificial Intelligence Video Interview Act, mandating employers disclose their use of AI in video interviews and obtain applicant consent. New York has introduced similar regulations concerning AI-generated likenesses of employees. These regulations reflect a larger trend towards transparency and informed consent, indicating employers must stay updated with evolving laws.
On a broader scale, international bodies like the European Union are advancing regulations, such as the AI Act, which classifies specific uses of AI in employment as high-risk, requiring rigorous transparency and auditing. With states like Maryland and California also looking to regulate AI in hiring, organizations must remain proactive and prepared to adapt to changing legal landscapes.
Best Practices for Employers
To mitigate risks associated with AI in HR, employers should develop comprehensive strategies that prioritize compliance, transparency, and human oversight. Here are some recommended best practices:
Conduct Regular Bias Audits:
Employers should assess AI tools for bias regularly to ensure equitable outcomes in recruiting and performance evaluations.Implement Human Review Processes:
AI-generated outputs should be scrutinized by human personnel to validate accuracy, fairness, and compliance with employment laws.Stay Informed on Regulations:
Continuously monitor federal and state laws related to AI in employment to ensure compliance with regulatory requirements.Review Vendor Contracts:
Contracts with AI vendors should clearly delineate risk responsibilities and ensure compliance with applicable laws, while also considering insurance coverage for AI-related claims.Educate and Train HR Teams:
Providing training on AI’s implications can equip HR professionals to identify potential risks and navigate red flags effectively.Communicate Transparently:
Employers should maintain open communication with employees and applicants regarding the use of AI systems in HR processes.- Integrate AI Responsibly:
Employers should explore AI applications that improve efficiency without compromising fairness or legal compliance.
Conclusion
The integration of AI into HR functions brings both opportunities and challenges for employers in 2025. While AI can significantly enhance operational efficiency, it also introduces complexities in compliance and legal risks. By adopting a proactive approach that emphasizes transparency, human oversight, and compliance with evolving regulations, employers can harness the benefits of AI while minimizing exposure to litigation and reputational damage. The key lies in recognizing the dual nature of AI—as a powerful tool for operational improvement and a potential source of legal challenges—and responding responsibly to that reality.
