Navigating AI in Employment Practices – A Guide for High-Growth Tech Companies
Navigating the AI Frontier in Employment: Insights for Tech Leaders
In the dynamic world of high-growth tech companies, artificial intelligence (AI) has emerged as a powerful tool for scaling operations efficiently—particularly within human resources and people operations. From automating resume screenings to enhancing employee engagement strategies, AI offers transformative potential. But with this great power, business leaders must balance innovation with thoughtful governance and compliance with an emerging patchwork of U.S. regulations.
The Promise of AI in HR
AI's integration into HR functions can fundamentally reshape how fast-growing companies manage their people practices:
Recruitment: AI-driven platforms can analyze large applicant pools quickly, surfacing candidates who best match the job description based on predefined criteria.
Monitoring: AI tools can track productivity and behavioral trends, identifying areas of efficiency and areas that need attention.
Performance Management: Machine learning models can help set fair benchmarks, provide real-time feedback, and personalize professional development pathways.
These capabilities can help lean teams punch above their weight, allowing high-growth startups to scale quickly and with ease.
Risks and Challenges
Despite these advantages, AI's application in employment practices carries meaningful risks:
Bias and Discrimination: Algorithms trained on historical data can perpetuate or even exacerbate existing biases, leading to discriminatory hiring or promotion outcomes.
Privacy Concerns: Monitoring tools that capture employee activity may infringe on privacy if employers fail to transparently inform employees about their use and the purpose of data collection.
Accountability: When decisions are made by opaque algorithms, assigning responsibility for adverse outcomes becomes murky—raising questions about who is responsible—the employer or the third party vendor.
U.S. Legal Landscape: A Patchwork of Regulations
U.S. federal law has yet to fully address the use of AI in employment practices, leaving states and municipalities to lead the charge. Below is a snapshot of the current regulatory environment all employers should keep in mind when hiring and operating in these jurisdictions:
Enacted Legislation
New York City (Local Law 144): Effective July 2023, employers using Automated Employment Decision Tools (AEDTs) must conduct independent annual bias audits, give candidates 10 business days' advance notice, and publicly post audit results.
Illinois:
AI Video Interview Act: Requires employers to inform candidates when AI is used in video interviews, explain its functionality, and obtain consent. It also restricts video sharing and mandates deletion upon request.
House Bill 3773 (Effective Jan 2026): Mandates notice to employees when AI is used in hiring or HR decisions and prohibits discriminatory outcomes.
Colorado:
Colorado AI Act (Effective Feb 2026): Applies to "high-risk" AI systems used in employment decisions. Requires risk assessments, documentation of compliance steps, and safeguards against algorithmic discrimination.
Pending Legislation
New Jersey, New York State, Connecticut, and Maryland each have pending legislation that aims to require employers to conduct impact assessments and issue written disclosures about AI usage in their employment practices.
In addition to state and local requirements, it is important to keep in mind that if the use of AI results in discriminatory outcomes despite its intended use (i.e. disparate impact), existing federal anti-discrimination laws including Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act will apply all 50 states.
Best Practices for Implementation
For founders, CEOs, GCs, and CPOs of high-growth tech companies, staying ahead of how AI is used in your employment practices isn’t just smart—it’s essential. Here’s how to adopt these tools with integrity, compliance, and impact in mind:
Inventory and Map AI Tools
Identify all AI systems currently used in employment-related decisions (e.g., sourcing, screening, interviewing, monitoring, performance evaluation) and document their purpose, functionality, and decision-making role.
Establish a Cross-Functional Oversight Group
Create an internal task force including HR, Legal, Engineering/Product leaders to vet and monitor AI tools. This group should set standards for use and regularly review outcomes.
Conduct Bias Audits and Impact Assessments
Engage external auditors or use validated tools to assess AI systems for discriminatory impact. Conduct these audits regularly and before rolling out new tools or major updates.
Build in Transparency and Consent
Clearly disclose to candidates and employees when AI is used, how it works, and what data it relies on.
Ensure Humans are in the Loop
AI tools should inform but not replace human judgment, especially for high-stakes employment decisions like hiring and firing.
Monitor the Evolving Regulatory Landscape
Assign a team member (or engage outside counsel) to track developments in state and federal legislation. Adjust policies and practices as new laws come into effect.
Choose Responsible Vendors
Vet third-party providers for ethical AI development practices, clear documentation, and compliance readiness. Request transparency about their training data, audit practices, and model explainability.
AI can be a powerful ally for fast-moving tech companies, enabling smarter, more scalable HR processes. But as scrutiny mounts and regulation becomes more nuanced, tech leaders must approach AI adoption in their employment practices thoughtfully. By combining innovation with intentional governance, companies can unlock AI’s full potential while building workplaces that are fair, transparent, and future-ready.
If you're navigating these challenges and want pragmatic, business-savvy guidance, Co/Factor is here to help. Let’s build the future of work—together.
