Artificial Intelligence (“AI”) is rapidly reshaping the way workplaces function, especially in health care. While AI offers meaningful opportunities to streamline employer processes and increase efficiency, its adoption is outpacing the development of legal standards and governance structures. Moreover, a patchwork of state and local laws that seemingly conflict with current federal policy further muddy the waters for employers attempting to assess and navigate the risks associated with AI use in the employment space.
AI’s Growing Role in Employment Functions
AI is increasingly making an impact on our workforces at both the employer and employee levels. SHRM’s 2025 Talent Trends Report notes that 43% of all employers now use AI in HR tasks, nearly doubling within the past year. Employees are also independently incorporating AI tools into their daily work. For example, 66% of physicians report using AI at work, according to the American Medical Association. Despite this widespread adoption of AI in the workforce, only 18% of health care organizations report having a mature AI governance structure. This gap between widespread use and limited oversight creates significant exposure for employers.
Application of Existing Employment Laws to AI
Some risks associated with AI use in the employment space fall under existing legal frameworks. For example, just as the ADA prohibits employers from discriminating against employees or applicants based on their disabilities, employers are similarly prohibited from utilizing AI tools to filter applicants based on indicators that they may be disabled. However, there are a multitude of new risks posed by AI that are not explicitly addressed by current laws. Although the applicability of pre-existing federal employment-related laws to AI use has not been explicitly addressed by federal law or guidance, several recent cases address this issue. For example, in Mobley v. Workday, a pending class action in California federal court, a job applicant alleges that Workday’s AI-based screening tools systematically rejected him and other applicants on the basis of their protected characteristics, specifically age. The plaintiff claims that Workday’s AI-based applicant recommendation system was designed in a manner that reflects employer biases and relies on biased training data—a common flaw in AI systems that train on historical data. The court granted conditional certification of the Age Discrimination in Employment Act claims in May of 2025. In court filings, Workday has represented that 1.1 billion applicants were rejected using its software tools during the relevant time period, so the collective could potentially include hundreds of millions of members.
Patchwork of State and Local Laws
In the absence of a federal law regulating AI use in employment decision-making, several states and localities have begun enacting their own requirements. Common employer obligations under these laws include notice, transparency, consent, bias mitigation and auditing, and recordkeeping. Examples include, but are not limited to, the following:
- California amended its Fair Employment and Housing Act to include rules that expressly prohibit employers from using AI and Automated Decision Systems in a manner that causes discrimination. The law also requires implementation of proactive measures and anti-bias testing, as well as recordkeeping obligations.
- Illinois amended the Illinois Human Rights Act to prevent discrimination and mandate notice and transparency when employers utilize AI in employment decisions.
- New York City passed Local Law 144, which imposes bias evaluation and transparency obligations on employers and employment agencies that utilize Automated Employment Decision Tools to screen candidates for hire or employees for promotion.
- Texas takes a narrower, more employer-friendly approach with the Texas Responsible Artificial Intelligence Act, which prohibits intentional discrimination using AI against any protected class under Texas or federal laws.
- Colorado passed the Artificial Intelligence Act (effective January 1, 2027), which was recently amended to reduce to the burden on employers after the Department of Justice intervened in a lawsuit challenging the law, which will require employers to: (i) provide notice before using automated decision tools in employment decision-making; (ii) implement robust adverse action processes including notice, a right to correct and a right to meaningful human review; and (iii) retain records about the use of AI for a minimum of three years.
Federal Involvement and Conflict With State Regulation
A December 2025 Executive Order (“EO”) announced a federal preference for a “minimally burdensome” national AI framework, signaling potential preemption of state and local laws that impose significant burdens on employers utilizing AI in employment functions. The EO directs a federal task force to challenge state laws deemed inconsistent with the EO. The Department of Justice’s decision to intervene in litigation challenging Colorado’s AI law in April 2026, further signals the federal government’s willingness to actively oppose state-level AI regulations it views as overly burdensome. The ongoing conflict between state and federal positions on this area of the law underscores the uncertainty employers face in navigating the uncharted waters of AI use in the employment space.
Practical Takeaways
Employers should anticipate continued AI use in the workplace—both sanctioned and unsanctioned—and take proactive steps to mitigate risk, which may include the following:
- Develop an AI governance framework and clear AI use policies that address employee and HR use of generative tools.
- Implement approved AI tools that meet operational needs and reduce reliance on unmonitored platforms.
- In order to mitigate potential risk, ensure human review is a part of any adverse employment decision processes involving AI tools in order to catch and avoid any unintentional bias or discriminatory outcomes.
- Train employees on permissible and impermissible uses of AI, particularly with respect to employees who handle sensitive and confidential information such as patient data.
- Monitor AI tools, consistent with AI governance, to identify impermissible bias.
- Continuously monitor federal, state and local developments related to the regulation of AI use in employment decision-making.
If you have questions about the AI’s impact on employment law or how these developments may affect your organization, please feel free to contact:
- Becca Foerder at (317) 429-3683 or bfoerder@hallrender.com;
- Michael Batt at (317) 977-1417 or mbatt@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
