Legal Update: AI and employment law

Artificial intelligence is revolutionising the workplace, but for employers, the legal implications are only just beginning to unfold. While AI offers powerful tools to streamline operations and reduce costs, its use in employment-related decisions is not without risk. Employers who overlook the risks or fail to address potential pitfalls in the use of AI could face legal, reputational and operational consequences later.

One such risk arises in the context of recruitment. AI tools are increasingly used to filter high volumes of job applications, but these systems can be susceptible to the unintentional embedding and amplifying of bias. If the criteria used can be shown to have disadvantaged protected groups, employers may leave themselves open to discrimination claims – even where decisions have been made by the AI. Accountability remains with the employer. Ensuring fairness requires careful oversight of inputs, review of filtering logic and monitoring of outcomes.

Transparency is another challenge. AI tools can be notoriously opaque, with decisions that are difficult to explain. Yet in the context of employment, justification matters. Employers must be able to justify decisions particularly in hiring, promotions, and redundancies and must ensure that processes are documented and compliant with employment and equality laws.

The risk of job displacement also looms large. As AI systems automate more roles, redundancies are inevitable, but they must still be managed within the existing legal framework. Employers must follow fair procedures, consider alternatives to dismissal and consult meaningfully with staff. Upskilling and internal redeployment should be actively explored, both as a legal safeguard and as a business opportunity.

Data protection laws add another layer of complexity. The use of AI typically involves collecting and processing significant amounts of personal data, from employee performance metrics to application histories. Employers must ensure compliance with GDPR and related laws, securing informed consent, updating privacy notices and training staff on proper data handling practices.

Internal governance in relation to the use of AI is crucial. Without clear policies, employees may begin using generative AI tools like ChatGPT informally or without properly understanding the legal risks. Employers should define how AI may be used within the organisation, update contracts and policies, and check how AI usage is treated under their insurance coverage. Policies must be clear about what is (and isn’t) permitted.

This is not just a technical shift, but a cultural one. The move towards AI demands a rethinking of organisational structures, workflows and employee engagement. Employers should involve staff in these changes, provide clear communication, and build an inclusive, forward-looking strategy for responsible AI adoption.

AI brings significant opportunities, but the legal risks are equally real. Businesses that act now to assess, regulate and communicate clearly about their use of AI will be best placed to navigate the challenges ahead.

The content of this article is not legal advice, which it may be sensible to obtain before you take any decisions or actions in the areas covered.

Peter Workman, CEO

‍