BlogLine

With great innovation comes great responsibility: AI, digital workforces, and emerging employment risks

11/11/25

By: Sunshine Fellows

Imagine hiring a new manager who never sleeps, never takes a vacation and never complains. Sounds perfect, right? But what if that manager is an algorithm? In today’s workplace, that’s not science fiction. It’s reality. AI systems now conduct interviews, monitor performance and even recommend terminations. They promise efficiency, but they also introduce risks that could make defense counsel, claims professionals and HR teams feel like they’re navigating a legal asteroid field.

Recent headlines underscore the stakes. AI-generated deepfakes have fooled foreign ministers into thinking they were speaking with U.S. officials, and synthetic influencers rack up millions of followers without anyone realizing they’re not real humans. If bots can convincingly impersonate world leaders and celebrities, just imagine the risks they pose within an HR department or as a digital employee embedded in a company. The question isn’t whether AI will change employment practices; it already has. The question is whether your compliance strategy can keep up.

Think of AI in the workplace like Data, the non-human android from Star Trek: The Next Generation: brilliant, tireless and capable of outperforming any human, but still learning what it means to make judgment calls and navigate emotions. When Data misinterprets human nuance, it’s a plot twist. When AI misinterprets an accommodation request, it’s a lawsuit.

When the Boss Is a Bot: Supervisory Liability in the Digital Age

Employers increasingly deploy digital employees like virtual assistants and automated systems who perform and assign tasks, monitor progress and even deliver performance feedback. While these tools promise speed and consistency, they also create liability similar to human employees and supervisors.

We already know that algorithms can embed bias, potentially triggering discrimination claims. But what many don’t realize is that digital employees have officially entered the stage of Corporate America, complete with employee ID cards, access credentials and the tools needed to perform their roles. What happens to the human employee who is replaced by a digital counterpart? Could that scenario create new liabilities? We’re told that digital employees will support their human colleagues by taking over routine tasks, freeing up time for strategic thinking and innovation. But is that truly what will happen, or just a convenient narrative?

Now consider digital managers, algorithms tasked with evaluating human performance. What happens when they misinterpret limitations as underperformance? That misjudgment could trigger ADA accommodation issues. And what about vendors? They’re not shields. Employers remain fully accountable for the actions of their systems. Add reputational risk and increasing regulatory scrutiny, and the stakes for early adopters become clear: oversight isn’t optional, it’s essential. Will this bubble up to the boardroom at some point?

The defense playbook starts with inventorying all digital decision-making systems, demanding contractual warranties for algorithmic fairness and requiring human review for adverse actions. Regular audits (e.g., bias and otherwise) and transparency checks should become standard practice.

AI in Hiring: The “Glitch” Liability

AI-driven screening and interviewing tools are now commonplace, but even minor technical glitches can lead to major legal consequences. You may have heard of the AI screener conducting initial interviews. But have you heard from candidates whose interviews were derailed when the system got stuck on a single question, repeating it until the session ended prematurely, disqualifying them from further consideration?

Beyond glitches, algorithms can inadvertently exclude older workers, non-native English speakers or individuals with disabilities. These are textbook disparate impact scenarios. Mis-scored interviews due to accents or background noise? That’s not just unfortunate, it’s actionable.

Employers share liability even when third-party vendors are involved. In fact, some states now require disclosure when AI influences hiring decisions. Mitigation demands rigorous audits, including bias audits, before deployment, documentation of demographic data and human review of AI-based rejections. Vendor contracts must guarantee transparency and audit rights.

Predictive Workforce Analytics: Privacy and Termination Risks

Predictive analytics and performance-monitoring AI introduce a cocktail of risks: privacy intrusions, failure to hire cases, discrimination claims and wrongful termination allegations. Monitoring tools can correlate protected traits with productivity data, and terminations based on predictive models invite challenges over biased inputs. Continuous monitoring also raises wage/hour and off-duty intrusion concerns.

Defense strategy? Disclose monitoring tools in employee policies, conduct demographic impact assessments, preserve audit logs and coordinate EPL with Tech-E&O coverage to ensure comprehensive protection.

HR Chatbots: Small Errors, Big Consequences

AI-powered HR assistants streamline communication but can misclassify accommodation requests or issue incorrect guidance. These errors carry ADA and wrongful termination exposure. Bots should be clearly labeled as informational tools, not decision-makers. Employers must maintain audit logs, vet vendors for bias in training data and preserve chatbot interactions as part of personnel records.

Conclusion: Don’t Boldly Go Alone. Chart Your AI Compliance Course Now

AI isn’t just a tool. It’s your co-pilot in employment generally and decision-making specifically. But like any powerful technology, it needs guardrails. Employers should audit systems for bias and accurate programming, maintain human oversight and document every decision. For defense counsel and carriers, proactive compliance and coverage coordination aren’t optional. They’re mission-critical.

Whether you’re a defense lawyer, an EPLI claims professional, a risk manager or an HR leader, the time to act is now.

• Defense Counsel: Advise clients on AI-related risks, review vendor contracts and integrate audits into litigation strategies.
• Employers/HR: Audit AI tools, train staff on compliance and update policies to prevent bias and privacy violations.
• EPLI Claims Professionals: Coordinate with underwriting and legal teams, evaluate policy language, track emerging AI-related claims and prepare for coverage disputes.

In the age of AI, risk management isn’t just about defending claims. It’s about preventing them.

For more information, please contact Sunshine Fellows at sunshine.fellows@fmglaw.com or your local FMG attorney. 

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.