Artificial intelligence is transforming the way businesses recruit, manage employees, and interact with clients. But with innovation comes complexity—and for staffing firms, the legal and compliance risks tied to AI are multiplying fast. From data privacy to bias audits to vendor contracts, staffing leaders must be prepared to navigate a rapidly evolving regulatory landscape.

Chris Leddy, Partner at Becker LLC, has been working with staffing firms nationwide for more than a decade. He emphasized that while AI offers tremendous efficiency gains, it also brings legal obligations that can’t be ignored. Leddy says, “AI is everywhere. And employers have to understand not only how they’re using AI, but also how laws are changing around it.”

The Expanding Patchwork of AI Laws

At the federal level, there is no single AI law yet—but states and cities are moving quickly. Laws in New York City, Illinois, Maryland, Colorado, New Jersey, and California already impose requirements ranging from bias audits to disclosure notices.

For example:

• New York City’s Automated Employment Decision Tools law requires annual independent audits of AI hiring systems and public posting of results.

• Illinois prohibits using zip codes in AI screening to prevent disparate impact and regulates video interviews analyzed by AI.

• California now requires employers to preserve AI audit findings for four years and extends liability to staffing firms acting as agents of employers.

These laws matter even if your firm isn’t physically located in those states. If you’re recruiting remote candidates or working with clients based in these jurisdictions, the regulations may apply. Leddy notes, “It’s not just where you’re headquartered—it’s where your candidates are, where your clients are, and where the work is performed. That’s why staffing companies in every state need to pay attention.”

Bias, Privacy, and ADA Concerns

AI can improve efficiency, but it also risks perpetuating bias if data sets are flawed. Discrimination doesn’t have to be intentional—disparate impact is enough to create liability.

The EEOC has already warned that employers may be responsible for discriminatory outcomes from AI tools, even if the software comes from a third-party vendor. Similarly, the ADA creates risk if AI screening tools unintentionally exclude individuals who could perform a role with reasonable accommodation.

Data privacy adds another layer of exposure. Using open systems to process client or employee information could compromise trade secrets or protected health information. Leddy urged firms to be proactive, saying that “Employers are ultimately responsible for the information that goes into AI systems and the outputs that come out of them. If you’re using confidential data, keep it in-house with vendors you trust—not in public AI systems.”

Contracts and Vendor Management

Given the risks, contracts with AI vendors are now critical. Staffing firms must ensure agreements contain strong indemnification, representations, and warranties. That includes requiring vendors to:

• Defend and indemnify your firm against claims tied to their technology.

• Prove compliance with applicable AI, privacy, and anti-discrimination laws.

• Perform (and share results of) bias audits.

• Maintain cybersecurity standards and carry sufficient insurance.

Leddy was clear that leaders should not accept vague vendor promises, emphasizing that “Just because your AI vendor claims to be compliant doesn’t mean you’re protected. You are still responsible for how data is used. Push liability back on your vendors and make sure they have the pockets to back it up.”

Employment Policies and Handbooks

AI is reshaping HR processes—from resume screening to payroll monitoring. But if not managed carefully, these tools can trigger wage-and-hour violations, ADA claims, or labor relations disputes.

For example:

• Productivity tracking based on keystrokes or mouse clicks may fail to capture compensable time, leading to wage claims.

• Automated break deductions can violate FLSA rules if employees don’t actually take those breaks.

• Monitoring communications with AI tools may cross into NLRA-protected activity.

To mitigate risk, firms should:

• Update employee handbooks with AI usage policies.

• Provide clear notice when AI systems are used.

• Train managers and recruiters on compliance.

• Ensure humans make the final decision on hiring, promotion, and termination.

Leddy emphasized, “Never let AI make the final decision. Employers should use AI as a tool, but ultimate responsibility has to remain with humans.”

Practical Steps for Staffing Leaders

To future-proof compliance while still leveraging AI, staffing leaders should:

• Monitor emerging laws at the federal, state, and local levels.

• Conduct bias and impact audits regularly—even where not yet required.

• Review and update contracts with AI vendors to ensure proper protections.

• Strengthen data privacy practices and avoid entering sensitive information into open AI tools.

• Revise employee handbooks to reflect AI use policies, privacy rights, and accommodations.

• Train and retrain employees on responsible AI use.

The bottom line: AI will continue to evolve faster than most employment laws. Staying ahead requires a proactive strategy that blends legal awareness with practical safeguards.

For staffing firms, that means embracing AI’s benefits—while ensuring compliance, protecting data, and keeping people, not algorithms, in charge of final decisions.

Watch the full webinar about the future-proofing compliance here.