Tara Humma is a partner at Rimon Law, where she focuses her practice on labor and employment matters.
Businesses have quickly embedded artificial intelligence in workplace decision-making for fear of being left behind. Employers are routinely using AI tools to screen applicants or resumes, analyze interviews, monitor employee productivity and make promotional or disciplinary decisions.
Some companies and HR leaders assume legal risk lies with the software vendor that created or licensed the tools, but this is not the case in many situations. Just like with any other tool used by businesses, the employer may own the liability for decisions made with AI assistance, even if the technology was purchased or licensed from a vendor.
Many states are increasing scrutiny of AI-driven employment decisions, and we can anticipate more state action ahead. That’s especially true given the current administration’s position on enforcement of disparate impact claims, including the rescission of specific AI guidance issued by the U. S. Equal Employment Opportunity Commission in prior years.
The federal approach
Under the Biden administration, EEOC issued guidance related to employers’ use of AI in making employment decisions. That guidance cautioned employers and raised concerns about disparate impact discrimination, disability discrimination, lack of transparency in using AI tools, biased training data and a potential for lack of human oversight. It also made clear that employers could still be liable for discrimination that occurred with tools that were developed and purchased from third parties, even without an intent to discriminate.
In early 2025, the Trump administration issued an executive order directing federal agencies to deprioritize disparate impact enforcement, and the EEOC rescinded its guidance on AI shortly thereafter.
While the actions of the current administration may signal to employers that AI-related risks in the discrimination context are no longer a concern, that is not the case. The doctrine of disparate impact discrimination — which is focused on results, rather than intent — is still viable under federal court precedent. Neither an executive order nor rescission of agency guidance can overturn years of judicial precedent.
State and local action
On top of that, states are actively stepping in to fill the gaps left by federal law. Illinois now prohibits the use of AI that results in employment discrimination based on protected characteristics, even when the discrimination is unintentional, and requires employers to disclose when AI tools are being used. New York City requires bias audits for AI tools used in employment decisions and mandates that employers notify candidates and employees about their use. Several other states have passed or proposed similar laws, either codifying disparate impact protections or placing specific guardrails on how employers can use AI in hiring and workforce decisions.
So while EEOC enforcement on disparate impact may be reduced, the litigation risk is far from eliminated. State agencies and individuals can still bring these claims against employers under both state and federal law.
What employers need to understand
Organizations may begin using AI in hiring or workforce decisions without knowing what data the system relies on, how the AI was trained, whether protected characteristics are considered indirectly, whether results create an adverse impact or how to explain the decision-making process.
This lack of understanding creates risk, and courts are unlikely to give credit to a defense that blames the creator or vendor if a claim arises.
HR teams need a clear picture of where AI tools are being used across the organization. Many employers are using tools in the applicant screening, interview, scheduling, productivity monitoring, promotion and disciplinary decision-making processes, sometimes without even knowing it.
Employers should also understand how the tools are being used in each of those contexts. Are managers following AI-suggested outcomes without reviewing them, or is there human oversight and review involved? Relying on AI for decision-making without sufficient human oversight heightens risk.
Protecting against discrimination claims
After building an understanding, employers should review whether these tools are producing disparate outcomes. Bias audits may be required under state or local law, but even where they aren’t, they’re one of the strongest defenses available if a claim comes up. Employers should evaluate whether they have documentation that explains what audits and controls are in place to ensure tools are not producing those disparate outcomes.
There should also be documentation to explain how AI is being used in making workplace decisions, including internal policies on employee use of AI and human oversight, vendor materials and training documents.
Employers should also ensure that AI tool use is disclosed as required under state and local laws and explain how the tools are used to employees and applicants where required.
Finally, employers should take a look at their vendor contracts to understand what promises vendors have made about how their tools are trained, what audits they’ve conducted and where liability falls. If contracts don’t align with your organization’s compliance obligations, it’s best to get on the same page about those policies now, rather than after a claim is filed.
Employers that can demonstrate compliant implementation will be the best suited to defend claims based on employer use of AI tools. The technology is going to keep evolving faster than the laws that govern it, but the underlying liability hasn’t changed.
Employers are responsible for the outcomes of their own workplace decisions, whether those decisions are made by a person, an algorithm or something in between.
