AI at Work: Legal Risks Employers Can’t Afford to Ignore in 2025

(A Legal Guide for Those Facing False Allegations)

By Natalie Popova, Legal Consultant | Express Law Solutions

Disclaimer: This article is for general information only and does not constitute legal advice. For specific guidance, contact Express Law Solutions.

A Corporate–Elegant Hybrid Analysis for UK Businesses and HR Leaders

Introduction: AI Is No Longer Optional – But Liability Is Not Optional Either

Artificial Intelligence is now woven into the daily operations of UK organisations from automated hiring tools and productivity analytics to AI-assisted decision-making, customer service automation, and algorithmic management. By 2025, over 60% of UK employers report using AI in at least one HR, managerial, or operational function (CIPD, 2024).

But with rapid adoption comes an equally rapid increase in legal exposure.

The UK government’s position has shifted from “light-touch regulation” in 2022 to intensified scrutiny in 2024–2025, especially through:

Equality Act 2010
Data Protection Act 2018 & UK GDPR
Employment Rights Act 1996
Health and Safety at Work Act 1974
Trade Union and Labour Relations (Consolidation) Act 1992
Case law on algorithmic discrimination and unfair dismissal
ICO guidance on AI and Workplace Monitoring (2023–2024)

AI can increase efficiency but it can also unlawfully discriminate, breach data duties, or make employment decisions that the employer cannot justify.

And legally, there is one rule employers cannot ignore:

Employers remain fully liable for the actions, errors, and discriminatory outcomes of their AI systems.

(ICO, “AI and Data Protection” Guidance; EHRC Technical Advice)

This article provides a corporate-sharp yet elegant, authoritative breakdown of the principal legal risks employers face in 2025 — and how to mitigate them before they escalate into claims, investigations, or reputational damage.

Risk Area 1: Discrimination & Bias in AI Decision-Making

Equality Act 2010 – The Largest Legal Exposure for UK Employers Using AI

AI used for hiring, promotions, redundancy selection, and performance analytics can unintentionally produce discriminatory outcomes.

Relevant Legal Provisions

Equality Act 2010, ss. 13–19 – prohibits direct & indirect discrimination.
Section 39 – prohibits discriminatory decisions in recruitment and employment.
Section 60 – regulates pre-employment health questions.

Why AI Creates Risk

AI models “learn” from historical data. If past hiring or performance data contains bias (gender, ethnicity, age), the system can replicate or amplify that bias.

Example:

An AI hiring tool trained on 10 years of company data where engineering roles were dominated by men may rank female candidates lower — even without explicit gender indicators.

Case Law Support

While UK case law on AI discrimination is emerging, the following precedents are critical:

Allay (UK) Ltd v Gehlen (2021) – employers are responsible for discriminatory environments unless training is effective. This applies analogously to AI: ineffective bias mitigation = employer liability.
Home Office v Essop (2017) – indirect discrimination applies even if the cause of disadvantage is not fully understood extremely relevant to opaque AI systems.

Employer Exposure

If AI results in discriminatory outcomes, the employer faces:

Uncapped compensation
Injunctions
Mandatory data disclosures
EHRC investigations
Reputational harm

Compliance Strategies

Conduct Equality Impact Assessments (EIAs) for all AI tools.
Require vendors to provide bias mitigation documentation.
Maintain human oversight for all high-risk decisions.
Avoid “black-box” systems where reasoning is not transparent.

Risk Area 2: Data Protection & Employee Monitoring

UK GDPR + ICO Guidance on Workplace AI

Employers increasingly deploy AI tools to monitor productivity, analyse keystrokes, evaluate performance metrics, or track behaviour.

This creates risk under:

UK GDPR Articles 5, 6, 22
Data Protection Act 2018
ICO “Employment Practices: Monitoring at Work” (2023)
ICO “AI and Data Protection” Guidance (updated 2024)

Key Legal Breaches Employers Risk

Lack of lawful basis for monitoring employees
Excessive data collection (violates minimisation principle)
Automated decision-making without human review
Failure to conduct Data Protection Impact Assessments (DPIAs)
Failure to inform employees transparently

Special Risk: Article 22 UK GDPR

Prohibits decisions “based solely on automated processing” if they produce “legal or similarly significant effects.”

This includes:

Dismissal
Redundancy selection
Disciplinary action
Promotion or pay decisions

Direct Consequence

An employer using AI to trigger disciplinary warnings or identify “low productivity” without human oversight risks unlawful automated decision-making.

Risk Area 3: Unfair Dismissal & Algorithmic Management

Employment Rights Act 1996

Workplace AI increasingly informs dismissal decisions, for example:

Productivity scoring
Behaviour analytics
Automated shift allocation systems
Attendance monitoring
Performance deviation metrics

Relevant Law

ERA 1996, s. 98 – employer must show a fair reason and follow a fair procedure.
Polkey v A E Dayton Services Ltd [1987] – failure to follow fair procedure renders dismissal unfair.
Burchell test – employer must have reasonable grounds for belief (challenging when AI cannot explain reasoning).

Practical Legal Problem

AI often cannot explain why it recommended dismissal or penalty.

Lack of explainability = failure of fair procedure.

Real-World Example (Platform Work Case)

In Uber BV v Aslam (2021 UKSC), algorithmic management contributed to the finding that Uber exercised worker control.

While not a dismissal case, the principle is clear:

AI-driven management decisions are attributable to the employer.

Risk Area 4: Health & Safety + Stress from Algorithmic Workloads

Health and Safety at Work Act 1974

AI systems that automatically allocate tasks or evaluate performance can increase:

Workload pressure
Employee stress
Health risks
Burnout

The HASWA 1974 imposes a duty on employers to ensure employee welfare.

If AI management leads to unsafe workloads or stress, employers may face:

HSE investigations
Personal injury claims
Union disputes

Risk Area 5: Trade Unions, Consultation Duties & Algorithmic Transparency

TULRCA 1992 + Worker Information Rights

Under section 188 TULRCA, employers must consult unions on “substantial changes” to work organisation including introduction of AI affecting:

Job roles
Redundancy selection
Evaluation methods
Shift allocation

Failure to consult unions may result in a Protective Award up to 90 days’ pay per employee.

Artificial intelligence (AI) refers to computer systems that perform tasks traditionally requiring human judgment. In employment contexts, AI can make significant decisions affecting workers, including hiring, task allocation, performance evaluation, disciplinary measures, promotions, and redundancies. When AI assumes functions normally carried out by human managers, it constitutes algorithmic management. This practice has wide-ranging implications for employees, potentially increasing work intensity, introducing health and safety risks, producing discriminatory or unfair outcomes, limiting control over personal and performance data, eroding privacy, and diminishing worker autonomy, judgment, and professional skill. The Trades Union Congress (TUC) has conducted an extensive four-year project examining the use of AI in the workplace, with particular focus on algorithmic management. Supported by a dedicated AI Working Group, the project included research studies, a commissioned legal report, guidance for trade union representatives, and the publication of a manifesto articulating ethical principles and policy recommendations for the deployment of AI. These outputs are publicly accessible through the TUC AI Project resources.

Current UK legislation offers some protection against risks associated with AI at work. The Equality Act 2010 safeguards employees from discrimination based on protected characteristics, while the UK General Data Protection Regulation (UK GDPR) establishes rights over personal data processing. Additional legal frameworks, including the Information and Consultation of Employees Regulations, health and safety legislation, and the European Convention on Human Rights, provide mechanisms for consultation, welfare protection, and the enforcement of fundamental rights. Despite these provisions, substantial legal gaps remain. The TUC AI Project’s legal report, AI Managing People: The Legal Implications (Robin Allen KC and Dee Masters), identifies several deficiencies, including the lack of transparency and explainability in algorithmic decision-making, insufficient safeguards against biased or discriminatory AI, imbalances in control over data, and limited opportunities for worker participation and consultation.

In response to the growing impact of algorithmic management, the TUC established an AI taskforce in 2023 to draft an AI Bill for the workplace. This initiative builds on the TUC AI Manifesto and the Dignity at Work principles, aiming to codify fairness, accountability, transparency, and the protection of worker rights in AI-driven employment practices. The Bill seeks to ensure that AI enhances, rather than replaces, human judgment, providing both employers and employees with a framework to innovate responsibly while mitigating legal and ethical risks.

Risk Area 6: Intellectual Property, Confidentiality & AI Use by Employees

Employees using generative AI tools may unintentionally:

Upload confidential files
Disclose trade secrets
Generate content where IP ownership is unclear

UK IP law (Copyright, Designs and Patents Act 1988) does not automatically protect AI-generated content unless specific conditions are met.

Businesses need:

Clear AI-use policies
Confidentiality clauses
Restrictions on uploading sensitive data to third-party systems

Artificial intelligence introduces a new layer of complexity to intellectual property (IP) management within organisations. As more employers integrate AI tools into daily operations, several legal questions become increasingly urgent.

Who owns AI-generated content?

When employees use AI to draft documents, design materials, or produce creative outputs, determining copyright ownership is no longer straightforward. In many jurisdictions, including the UK, copyright requires a human author. This means that content generated with or by AI may not be protected in the traditional sense and, depending on how it was created, the ownership may default to the employer, the user, or in some cases, may not qualify for copyright at all.

Is AI-generated output safe if the model was trained on copyrighted material?

AI systems are typically trained on vast datasets that may include protected works. If an AI tool reproduces elements of the training material, even indirectly, the output can trigger copyright disputes. Employers relying on AI for commercial use must therefore consider whether the model uses licensed data, whether it is compliant with UK and international IP law, and whether the output could infringe third-party rights.

Could your organisation inadvertently breach another company’s IP?

Improper use of AI tools. especially for marketing materials, product designs, reports, or software code can expose businesses to claims of copyright infringement, trade mark misuse, or breach of confidentiality. Employees may assume that AI-assisted content is automatically “safe,” but this is a misconception that can create serious legal exposure.

Human judgment remains essential

AI can streamline workflows and increase efficiency, but it cannot replace professional skill, ethical reasoning, or legal judgment. Decisions involving recruitment, performance, risk assessments, and creative work still require careful human oversight to ensure fairness, legality, and accuracy.

An organisation that relies too heavily on automated systems without proper controls risks financial loss, litigation, and reputational damage. Conversely, businesses that integrate AI responsibly can benefit from improved decision-making and operational clarity.

Why employers need a clear AI policy

Any employer deploying AI tools should articulate:

how employees may use AI
what types of content require human review
where AI use is prohibited
who is responsible for compliance with data protection and IP laws
how risks will be monitored and mitigated

Transparent policy and training protect both the organisation and its workforce, ensuring that innovation aligns with legal obligations.

Professional Support

A specialist employment law team can provide:

drafting of a comprehensive workplace AI policy
training on lawful and responsible AI use
guidance on data protection, discrimination risks, and intellectual property compliance

This ensures that businesses adopt AI with confidence, clarity, and full awareness of their legal responsibilities.

High-Risk Scenarios Where Employers Commonly Breach the Law (2025)

Automated hiring without human review
AI productivity scoring used for dismissals
AI attendance monitoring triggering disciplinary action
AI analysing messages or keystrokes without lawful basis
AI tools used without a DPIA
AI recommending redundancy pools
AI ranking employees for promotion

Each of these exposes employers to liability under multiple laws simultaneously.

Regulatory Outlook: What UK Employers Must Prepare For by 2025–2026

The UK’s regulatory approach is evolving faster than many anticipate.

Key Developments

EHRC is preparing strengthened enforcement guidance on AI discrimination.
ICO has announced priority audits of high-risk workplace AI tools.
A future UK AI Act (based on the 2023 White Paper) will likely impose:
- Transparency duties
- Auditing obligations
- Registration for high-risk AI systems

Employers must prepare for increasing scrutiny.

Over recent years, organisations have increasingly embraced digital transformation, improving hybrid working, developing staff skills, and strengthening governance and decision-making structures. Building on this progress, AI is emerging as a key tool to enhance productivity, streamline operations, and optimise the use of resources without necessarily increasing budgets.

Between 2025 and 2028, institutions aim to become more agile, independent, and authoritative regulators, investing in leadership, legal, and regulatory expertise. AI can play a pivotal role in supporting staff to perform effectively, enabling better engagement with stakeholders, and helping to identify and address wrongdoing efficiently. Responsible adoption of AI technologies can strengthen both regulatory and corporate delivery, improve prioritisation and resource allocation, and enhance the analysis of data to better understand emerging equality and human rights issues.

By integrating AI thoughtfully, organisations can achieve higher operational efficiency while maintaining accountability, transparency, and responsiveness to evolving challenges.

Corporate Compliance Checklist (2025 Edition)

10 Essential Steps for UK Employers Using AI

AI Governance Framework – assign senior accountability (required under UK GDPR).
Data Protection Impact Assessments (DPIAs) for all AI systems.
Equality Impact Assessments (EIAs) on hiring and HR tools.
Human Oversight Policies – no fully automated HR decisions.
Transparent Employee Notices explaining AI use.
Vendor Contracts requiring bias, data, and compliance assurances.
AI Audits – annual bias testing and HR reviews.
Training for HR & Managers on legal obligations.
Health & Safety Stress Assessments where AI affects workload.
Union Consultation Protocols for organisational changes.

Conclusion: AI Can Transform Work, But Only If the Law Is Understood

AI offers extraordinary benefits to UK organisations, efficiency, accuracy, reduced costs.

But it also brings legal risks that are non-negotiable under UK law:

Employers remain liable for discriminatory or unsafe AI systems.
Automated decisions without human oversight are unlawful.
Data and transparency obligations are strict.
HR, legal teams, and leadership must collaborate proactively.

This Article is related to Case Studies > Q&A and Examples: AI in the Workplace – Your Most Important Legal Questions Answered (UK 2025)

For more comprehensive insights, explore our Case Studies page and review the applicable UK legal framework.

Disclosure / Legal Notice:

All names and identifying details in the following case studies have been changed to protect client confidentiality. These examples are based on real scenarios, but any resemblance to actual persons or entities is purely coincidental.

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