Posted on: July 9, 2025
Is AI in Hiring a Powerful Tool or a Legal Minefield?
Artificial intelligence has gone from buzzword to business reality, especially in hiring.
If you’re running an SME and juggling a pile of job applications, AI-powered recruitment tools could seem like a game-changer.
These are the problems the technology aims to address: Employers are overwhelmed by a flood of low-quality applications from job boards, with many CVs now AI-generated to falsely match job ads. This has eroded trust on both sides – applicants don’t hear back, and employers no longer believe the CVs or the platforms delivering them. The result is frustration and wasted time as hiring managers struggle to identify genuinely qualified candidates.
But beneath the promise of efficiency of the new tech, AI also raises new legal and reputational risks. If you’re not careful, what looks like a time-saver could become a liability for your business. Oh, and you might not be aware that in some sectors, AI-skilled workers can earn a 56% wage premium, according to PWC.
Why SMEs Are Embracing AI Tools
SMEs are under pressure to achieve more with fewer resources. AI can seem like a smart solution for automating repetitive tasks, finding stronger candidates, and reducing recruitment costs. It also saves the time and effort of sorting through applications from candidates who aren’t the right fit.
In fact, more than six in 10 Australian organisations used AI for hiring in 2024. This year, spending on AI tech is set to reach $3.6 billion.
Reasons That AI for Hiring is Catching On:
- Automates job posting, CV screening, and shortlisting
- Speeds up interview scheduling and candidate communication
- Tracks applicants and manages recruitment workflows
- Sources candidates across multiple platforms (handy for headhunting talent that may not be actively job hunting)
- Matches candidates based on skills and reduces bias
- Uses predictive analytics to inform hiring decisions
- Tests for technical and soft skills
- Provides insights through reporting and hiring analytics
- Enhances candidate experience with personalised communication
For SMEs without in-house HR teams, this kind of tech can feel like hiring a virtual recruiter.
But AI Can Also Backfire
AI may streamline hiring, but it’s not immune to human error, it just hides it better. Relying on historical data, these tools can reflect and reinforce bias, especially if the data that trained the system is skewed or incomplete.
Recent research shows that AI tools are more likely to misread candidates with non-native English accents, regional addresses, or gaps in their CVs. Even video interview analysis tools could penalise neurodiverse candidates or misinterpret cultural body language.
As well as posing an ethical concern, these issues could put your business in breach of Australian anti-discrimination laws.
What the Law Says
You might think that if an algorithm made the decision, it’s neutral. But under Australian law, you’re still liable.
The Racial Discrimination Act 1975 and Sex Discrimination Act 1984 both apply to decisions that AI makes, just as they would to human managers.
Legal experts are warning that liability for AI-driven hiring decisions is very real. If someone makes a claim of unfair rejection due to bias in your tech, you may find yourself defending not just your company, but your choice of software too.
Universities are Already Changing Course
It’s not just employers catching on. A UNSW BusinessThink report found that as AI hiring grows, university students, especially international ones, are already tailoring their applications and career prep to deal with the tech.
Some are even using AI to ‘read’ the AI, trying to optimise their CVs to pass the initial algorithmic filters. This arms race between human and machine will only accelerate, and SMEs could get caught in the middle if they don’t understand the risks.
What to Do to Stay Compliant
If you’re using or planning to use AI in hiring, ensure you bolster your due diligence and review your risk exposure.
Here’s what SMEs can do now:
- Audit your AI tools: Check for bias or patterns of exclusion and make sure the software complies with Fair Work and anti-discrimination laws
- Build in human oversight: Don’t rely on automation alone; have a human review the AI’s shortlist before making decisions
- Be transparent: Let candidates know when AI is being used and give them the chance to contest decisions
- Train your team: Ensure your hiring managers understand both the strengths and blind spots of the tech
- Document your decisions: Keep a paper trail that shows how hiring choices were made and reviewed
Where Your Insurance Fits In
AI hiring looks like it’s here to stay, but so are the risks. Whether you’re considering, trialling, or already using these tools, ensure your current management liability reflects the reality of how you hire.
AI may be the future of hiring, but it’s your reputation and business on the line if something goes wrong. Let’s make sure you’re covered.
