Is AI in HR Becoming a Liability for Your Clients?

ENGAGE PEO

By Ailene Dewar Costello

Artificial intelligence is rapidly changing how employers manage hiring, employee relations, performance management, and workforce planning. While these tools can help employers become more efficient, they can also create significant legal, compliance, and employee-relations concerns when used without proper oversight. For insurance brokers advising employer clients, questions around AI governance are becoming more common, especially as organizations adopt AI tools faster than policies and training can keep up.

Where Employers Are Running into Trouble

At Engage, our HR Consultants, all licensed attorneys with extensive labor and employment law experience, are actively advising employers on the evolving role of AI in the workplace. Through ongoing client conversations, we are seeing recurring concerns tied to compliance, employee relations, privacy, and risk management as organizations adopt AI tools into everyday HR functions.

Based on these conversations, several patterns are emerging as employers incorporate AI into HR operations. Common problem areas include:

• Unapproved use of public AI platforms: Employees may enter confidential business information, personnel details, compensation data, or internal strategy discussions into publicly available AI tools without understanding how that information may be retained or processed externally. Without clear internal guidance, organizations may unintentionally create cybersecurity, confidentiality, or record-retention concerns.
• Inconsistent manager use: Some managers use AI tools to draft performance documentation, corrective-action summaries, or employee communications, while others do not. Without review standards, this can create inconsistencies in tone, documentation quality, and decision-making practices across departments.
• Automated decision support without review protocols: AI-generated recommendations related to hiring, scheduling, productivity, or workforce reductions may appear objective while still relying on incomplete or historically biased data inputs. Employers that fail to document independent managerial review may have difficulty defending employment decisions later challenged by employees or regulators.
• AI transcription and meeting tools: Employees and managers may use AI-powered transcription or meeting-assistant tools during internal discussions, interviews, performance conversations, or workforce planning meetings without fully evaluating where recordings and transcripts are stored or who may access them later. Without clear usage standards and vendor review processes, organizations may unintentionally create confidentiality, cybersecurity, record-retention, or multistate compliance concerns tied to sensitive workplace discussions.
• AI-assisted employee communications: Managers may also use AI tools to draft disciplinary notices, performance feedback, restructuring announcements, or other sensitive employee communications to improve efficiency or consistency. Without established review protocols, organizations may create employee-relations risks tied to inaccurate messaging, inconsistent communication practices, or overly impersonal language during high-impact workplace interactions.

In most of these cases, the risk comes from overreliance on automation and the absence of experienced human judgment.

“AI can support HR functions, but it cannot replace experienced professional judgment.”

AI Cannot Replace Human Experience and Judgment

One of the most consistent themes emerging from our HR Consultants’ conversations with employers is that AI can support HR functions, but it cannot replace experienced professional judgment. AI tools may improve administrative efficiency, summarize large amounts of information, or help identify operational trends. However, workplace decisions still require context, discretion, and judgment that technology cannot independently provide.

Areas where direct human review remains particularly important include:

• Accommodation discussions
• Employee investigations
• Workplace dynamics
• Performance coaching
• Disciplinary decisions
• Workforce restructuring and
• Sensitive employee communications

Replacing the interpersonal dynamics, credibility assessments, historical context, and legal nuance of HR with automated systems can expose employers to avoidable liability. AI should not be viewed as a replacement for HR expertise, but instead a tool that supports it.

Why This Matters to Brokers

As clients navigate evolving workplace trends and technologies, brokers, who are often viewed as trusted strategic partners, may be approached to provide guidance. When it comes to AI, you may have clients ask you questions such as:

• Whether they should establish a formal AI-use policy
• What workplace AI tools are recommended
• Which AI tools employees are authorized to use
• Whether confidential or employee information may be entered into public platforms
• How AI-assisted employment decisions are reviewed and documented
• Whether their managers should receive training regarding appropriate AI use
• How partnering vendors store, retain, or access workplace data
• Whether internal cybersecurity protocols address AI-related risks and
• Which departments are responsible for oversight and governance.

For those that don’t have the answers to these inquiries, access to experienced HR and employment-law guidance can help employers make informed decisions before problems escalate.

Expanding Workplace-Risk Conversations

When discussing AI with clients, remember that many of the decisions being made can impact governance, documentation, accountability, and more. Many employers may not initially view workplace AI adoption as a traditional employment-risk issue but, in reality, AI use may intersect with:

• Employment practices liability
• Cybersecurity exposure
• Privacy and data-governance obligations
• Internal training deficiencies
• Inconsistent manager practices and
• Employee-retention concerns.

These conversations can create opportunities for brokers to help clients identify gaps in internal policies, manager training, vendor oversight, and workplace decision-making processes before issues escalate into larger operational or legal challenges.

A Resource for Your Clients

As we’ve discussed, rapid adoption of workplace AI without governance controls can create unintended consequences. However, organizations that establish clear review standards, manager training, and internal accountability processes are often better positioned to balance innovation with workforce risk management. Engage PEO’s HR Consultants can serve as an extension of your advisory network, helping employer clients navigate the risks and compliance challenges associated with AI and other HR matters.

If your clients are asking questions about AI in the workplace, our team can provide guidance on this evolving area, and many other HR and employment-related challenges. Engage is here to support you and your clients every step of the way. Reach out today to explore how a trusted PEO partner can safeguard your relationships, enhance client satisfaction, and create lasting value.

This article does not constitute legal advice and does not address state or local law.

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