How A.I. Is Transforming Labor & Employment Law: What Employers Need To Know

Written By Tim Calpin

Artificial intelligence (AI) is reshaping nearly every industry, and the workplace is no exception. From automated hiring systems to productivity monitoring software, predictive analytics, and AI-driven management tools, employers are increasingly relying on advanced technologies to run their businesses more efficiently. But with these innovations come new legal risks, evolving regulations, and important questions about fairness, privacy, compliance, and employee rights.

For employers, staying ahead of the curve is no longer optional — it is essential. Labor and employment law is adapting rapidly to the realities of AI, and businesses that fail to adjust may face lawsuits, regulatory penalties, or reputational damage. Below, we explore the biggest ways AI is transforming the employment landscape and identify key legal issues every employer should watch closely.

AI in Hiring: The Promise and the Legal Pitfalls

AI-powered recruitment tools promise faster screening, reduced bias, and more consistent hiring decisions. Employers use algorithms to:

  • Scan résumés

  • Predict candidate “fit”

  • Evaluate video interviews

  • Review social media

  • Score applicants based on pattern recognition

But the law is catching up fast. Regulators and courts are increasingly scrutinizing whether these tools unintentionally discriminate based on protected characteristics such as race, gender, age, or disability.

The Risk: Algorithmic Bias

AI systems learn from historical data — and historical data often reflects human bias. If a company typically hired more men for technical positions, an algorithm may “learn” that gender correlates with competency, reproducing discrimination unintentionally.

This triggers potential violations of:

  • Title VII

  • The ADA

  • The ADEA

  • State and local anti-discrimination laws

Emerging Regulations

Several jurisdictions, including New York City, have already passed laws requiring:

  • Annual audits of automated hiring tools

  • Notice to applicants when AI is used

  • Public disclosure of audit results

More states are expected to follow suit.

What Employers Should Do Now:
Conduct impact assessments on any automated hiring tools, ensure human oversight, and document every step of the decision-making process.

AI-Powered Employee Monitoring: Where Efficiency Meets Privacy Law

Employee monitoring has expanded dramatically with AI-enhanced tools that track:

  • Keystrokes and screen activity

  • Location and movement

  • Productivity and performance metrics

  • Email and communication patterns

Some systems can even scan for “sentiment” to assess morale.

The Legal Problem: Privacy, Consent & Reasonableness

While employers have legitimate interests in monitoring productivity, the law requires balance. Issues include:

  • The Electronic Communications Privacy Act (ECPA)

  • NLRA protections for concerted activity

  • ADA restrictions related to health or biometric data

  • State privacy laws such as CCPA and CPRA

  • Workplace surveillance laws in Illinois, Connecticut, and others

Excessive or intrusive monitoring may also create a hostile work environment — or lead to retaliation claims if used improperly.

The Coming Wave: Biometric Regulations

Tools that scan facial expressions, fingerprints, or voice patterns are subject to biometric privacy laws. Illinois’ BIPA (Biometric Information Privacy Act) has already produced major class actions, and other states are adopting similar laws.

What Employers Should Do Now:
Create a written monitoring policy, notify employees, safeguard data, and limit monitoring to what is truly necessary.

AI and Workforce Management: Predictive Scheduling, Discipline, and Termination

AI tools now help employers with scheduling, attendance, performance evaluations, and even termination decisions. While useful, these tools introduce legal exposure in areas such as:

  • Wage and hour compliance

  • Reasonable accommodations

  • Disparate impact discrimination

  • Wrongful termination

  • Retaliation claims

The Big Issue: Transparency

If an algorithm flags employees for discipline, employers must be able to explain—and legally defend—that decision.

If the underlying data is flawed or discriminatory, the employer is on the hook.

The Role of the NLRB

The National Labor Relations Board has signaled that AI-driven management tools may interfere with employee rights. In 2023, the NLRB’s General Counsel warned that:

  • AI cannot be used to retaliate

  • Surveillance cannot chill union activity

  • Automated discipline is subject to NLRA protections

We expect more formal decisions in the coming years.

What Employers Should Do Now:
Ensure AI-based decisions are reviewable by humans and document the legitimate business reasons for any disciplinary actions.

AI Training Data and Trade Secret Risks

Employers often upload internal documents, customer lists, or proprietary data into AI systems to enhance performance. But doing so may expose:

  • Trade secrets

  • Confidential business information

  • Personal employee data

  • HIPAA-protected information

  • Attorney–client privileged materials

Legal Risk: Loss of Trade Secret Protection

If confidential information is shared with third-party AI platforms without proper safeguards, courts may deem it “disclosed,” weakening trade secret protections.

Regulatory Concerns

State and federal agencies are crafting rules about how employer data can be used to train public AI models — and who is liable if that data leaks.

What Employers Should Do Now:
Establish strict AI-use guidelines and work only with tools that provide enforceable data protection commitments.

The ADA and AI: New Frontiers in Accommodation

AI can unintentionally disadvantage individuals with disabilities. For example:

  • Timed tests may disadvantage individuals with learning disabilities

  • Speech-recognition tools may misinterpret neurological disorders

  • Video-based analysis tools may misread facial expressions

Under the ADA, employers must provide reasonable accommodations — and must ensure that AI systems do not screen out qualified individuals.

What Employers Should Do Now:
Build accommodation pathways into any AI-driven hiring or evaluation process.

What Employers Should Do Now: A Practical Action Plan

AI in the workplace is not going anywhere. To stay legally compliant and minimize risk, employers should:

1. Conduct AI Audits

Review all hiring, monitoring, scheduling, and decision-making tools for potential discriminatory impact.

2. Update Policies

Add AI-specific language to:

  • Employee handbooks

  • Hiring and recruitment procedures

  • Monitoring and privacy notices

  • Data governance policies

3. Train HR and Management

Human oversight is essential. AI cannot make legally compliant decisions on its own.

4. Build Transparency

Document how AI is used and notify employees and applicants.

5. Stay Ahead of State and Federal Trends

Regulation is expanding rapidly — and varies by jurisdiction.

6. Use Legal Review Before Deployment

Labor and employment counsel should vet any AI tool before it goes live.

The Bottom Line: AI Is Reshaping Employment Law — And Employers Must Prepare Now

Artificial intelligence offers remarkable opportunities to improve efficiency, reduce costs, and streamline workforce management. But these benefits come with significant legal responsibilities. For employers, the challenge is not simply adopting new technology — it’s adopting it responsibly.

The labor and employment landscape is evolving rapidly, and staying compliant requires expertise, foresight, and a clear understanding of the risks.

Joyce, Carmody & Moran stands ready to help employers navigate this new frontier, ensuring that innovation never comes at the expense of compliance, fairness, or employee rights.

Tim Calpin