AI Tools in Human Resources: Benefits, Risks and How to Stay Compliant

Artificial intelligence (AI) is rapidly becoming a strategic priority for many organizations. Many companies feel the urgency to adopt it, and as employment attorneys, we have observed how quickly it is influencing human resources (HR) practices. Generative AI, in particular, offers significant potential for operational efficiency. However, its adoption also presents legal risks that require careful consideration. We are here to help navigate those complexities.

If your company is using (or considering using) AI in HR, this article will walk you through the benefits, the legal landmines and the practical steps you can take to stay compliant.

Understanding the Difference Between Generative AI and Traditional AI

First, understanding the distinction between generative AI and traditional AI is essential for legal and HR professionals navigating the evolving landscape of workplace technology and compliance.

Traditional AI, also known as non-generative AI, operates based on predefined rules and structured data to perform specific tasks such as sorting resumes, flagging compliance issues or automating routine workflows. These systems have been around for more than a decade and are designed to deliver consistent and predictable outcomes by following explicit programming logic.

In contrast, Gen AI refers to a class of AI models capable of creating new content — such as text, images, audio or code — by learning patterns from large datasets. Gen AI tools, like ChatGPT or image generators, produce dynamic and original outputs in response to user prompts. While this capability offers powerful applications in drafting documents, generating training materials or simulating conversations, it also introduces challenges related to accuracy, explainability and legal compliance, particularly in sensitive domains like human resources and legal operations.

For simplicity and readability, this article will use the term “AI” to refer broadly to both generative and traditional forms unless a distinction is necessary.

The Benefits of AI in HR

One of the most compelling advantages of AI in HR is its ability to handle large volumes of data quickly and accurately. For example, AI-powered resume screening tools can analyze thousands of applications in seconds, identifying candidates who meet specific job criteria. This not only saves time but also helps reduce human error and unconscious bias in the initial screening process.

AI also enhances consistency in decision-making. By applying uniform criteria to all applicants, AI tools can help ensure that hiring decisions are based on objective data rather than subjective impressions. For instance, structured scoring systems can be used to evaluate candidates’ responses to pre-employment assessments, providing a standardized method for comparison.

Beyond recruitment, AI supports strategic workforce planning. It can identify skill gaps within an organization, recommend training programs and even suggest internal candidates for promotion based on performance data and career trajectories. These insights enable HR professionals to make informed decisions that align with long-term business goals.

AI can also provide real-time feedback analysis. By aggregating peer reviews, customer feedback and behavioral data, AI can help HR identify performance trends and areas for improvement — enabling more informed coaching and development

Moreover, AI tools can improve accessibility. For example, AI-driven platforms can offer alternative formats for assessments, such as text-to-speech or adjustable pacing, which can be particularly beneficial for neurodiverse individuals or those with disabilities.

Legal and Ethical Risks

Despite its advantages, the use of AI in HR is fraught with legal and ethical challenges. One of the primary concerns is algorithmic bias. AI systems trained on historical data may inadvertently replicate or amplify existing biases, leading to discriminatory outcomes. For example, if a company’s past hiring data favored male candidates, an AI tool trained on that data might continue to prioritize male applicants, potentially violating anti-discrimination laws such as Title VII of the Civil Rights Act.

Another significant issue is the lack of transparency in AI decision-making. Many AI tools function as ‘black boxes,’ making it difficult to understand how decisions are made. This opacity can be problematic in the event of federal, state or local civil rights investigations or any eventual litigation, where employers must be able to explain and justify their hiring practices. Additionally, Gen AI tools can generate plausible-sounding but false information. When legal or HR departments use these tools to draft legal documents, policies or performance reviews without thorough human oversight, they risk introducing serious errors that could raise significant ethical concerns and expose your organization to legal liability.

Privacy concerns also arise, particularly with the use of biometric data. Tools that rely on facial recognition, fingerprint scanning or voice analysis may run afoul of privacy laws such as the Illinois Biometric Information Privacy Act (BIPA) or the California Consumer Privacy Act (CCPA). Unlike the mainstream use of Gen AI, these laws are not new. In fact, Illinois’ BIPA has been in place since 2008. Employers must ensure they obtain proper consent and implement safeguards to protect sensitive information.

Furthermore, regulatory compliance is becoming increasingly complex. Over 20 states have enacted or proposed laws specifically targeting the use of AI in employment decisions, and 47 states and Washington, D.C. have enacted or proposed laws that target the use of AI in some form. These new laws often require bias audits, candidate notifications and transparency measures, adding another layer of responsibility for HR departments.

Best Practices for Employers

• Start Small: Use AI for low-risk tasks like scheduling interviews or screening resumes. Avoid using it for final hiring decisions without human oversight.
• Implement a Company-Wide Gen AI Policy: Adopt a clear policy that outlines approved tools, prohibited uses (e.g., entering confidential data) and review procedures.
• Conduct Regular AI Audits: Audit your AI tools, policies and processes to ensure legal compliance and identify potential risks. Where bias is detected, adjust algorithms accordingly and document mitigation efforts. To preserve confidentiality, employers should engage legal counsel and structure audits to fall under attorney-client privilege. Some jurisdictions have specific requirements relating to AI audits and may require employers to use independent auditors and to share the audit results publicly.
• Demand Transparency: Look for vendors that can clearly explain how their tools work and provide documentation to support their decision-making processes. This is especially important if you ever need to defend your practices in court.
• Train Your Team: HR and legal staff should understand how AI tools work and where they can go wrong. Make sure your staff understands how AI tools function, what their limitations are, the ethical issues with each tool and how to monitor them effectively. Update your employee handbooks, privacy policies and vendor contracts to reflect your use of AI.
• Use Vetted, Approved AI Tools Only: Maintain a list of company-approved Gen AI platforms and other AI tools that meet security and compliance standards. Avoid using public tools unless explicitly permitted
• Notify Candidates: Let applicants know when AI is being used in the hiring process. Give them the option to opt out or request a human review. Transparency builds trust and helps you stay compliant with emerging laws.

Conclusion

AI can be a powerful ally in HR, but only if used responsibly. Employers who rush into adoption without understanding the legal landscape risk costly litigation and reputational damage. By taking a thoughtful, informed approach, you can harness the benefits of AI while protecting your company and your workforce.

If you are unsure whether your current AI practices are compliant, or if you are considering new tools, reach out to your Fredrikson legal counsel early. The laws are evolving fast — and staying ahead of them is key.