Artificial intelligence is quickly becoming part of the hiring and employment process. Employers may use AI-powered tools to screen resumes, rank applicants, schedule interviews, evaluate candidates, analyze assessments, or assist with other employment decisions. For small and mid-sized federal contractors operating across multiple states, this creates a new compliance challenge: there is no single set of AI hiring laws that apply nationwide. Instead, states and local jurisdictions are developing their own AI employment laws, creating a growing patchwork of requirements for employers that use artificial intelligence and automated employment decision tools.

For government contractors with employees and applicants in multiple states, understanding these requirements should be part of an overall multi-state HR compliance strategy.

Why AI Hiring Compliance Matters

Using artificial intelligence in the hiring process does not eliminate an employer's existing obligations under federal employment laws. The Equal Employment Opportunity Commission (EEOC) has recognized that employers can potentially violate federal nondiscrimination laws when artificial intelligence or other automated systems are used in employment decisions. AI tools may create discriminatory outcomes involving protected characteristics, including disability, race, sex and age. This means employers should consider AI discrimination in hiring as part of their broader employment compliance program. The EEOC lists examples of how applicants and employees may see AI used in the workplace:

• Job Search (such as during recruiting, screening, or hiring)

• Providing you different job ads depending on your profile or actions online.

• Screening your resume for key words or experiences.

• Evaluating your recorded video interview.

• Encouraging you via chatbot to apply to positions.

• Workplace Surveillance

• Monitoring how long it takes you to do a task.

• Tracking your location through wearable technology trackers, apps, or other devices.

• Evaluating your facial expression, voice, or other movements.

• Monitoring your email, keystrokes, or cursor activity.

• Analyzing customer surveys about your work.

• Promotion or Pay Decisions

• Deciding or making recommendations on your training.

• Determining who gets pay raises and how much they are.

• Layoffs or Termination Decisions

• Influencing or deciding who will be let go.

The Hiring Volume Problem

The increased use of AI in recruiting is occurring against a backdrop of dramatically higher application volumes. According to Greenhouse's 2026 recruiting benchmarks, the average number of applications per job more than doubled from 116 in 2022 to 244 in 2025—a 111% increase. During the same period, average time to fill increased 37%, from approximately 44 days to nearly 60 days, while applications handled per recruiter increased more than fourfold. For small and mid-sized employers, these trends help explain the appeal of AI-powered recruiting tools. Employers may use technology to screen resumes, rank candidates, schedule interviews, or identify potentially qualified applicants. But as AI becomes more involved in employment decisions, employers also need to understand the potential compliance risks.

AI Is Changing the Applicant Side of Hiring, Too

The AI hiring challenge is not limited to employers using technology to evaluate applicants. Candidates—and, in some cases, fraudulent actors—can also use AI to scale applications, create highly polished or fabricated résumés, generate interview responses, and even construct false identities. The result can be a hiring process in which employers try to use AI to manage a growing volume of applications while simultaneously dealing with applications that may not accurately represent the candidate's identity, experience, or abilities. The concern is more than theoretical. Gartner reported that 6% of job candidates surveyed admitted to interview fraud and predicts that one in four candidate profiles worldwide could be fake by 2028.

For employers, particularly those hiring remotely or for positions involving sensitive government, client, or company information, this creates an additional reason to maintain meaningful human involvement in the hiring process. Resume screening should not be the only validation of a candidate's qualifications. Employers should consider appropriate opportunities to verify identity, employment history, credentials, and job-related skills before making a final hiring decision.

Federal Contractor Refresher: Section 503 and VEVRAA

For covered federal contractors, AI hiring practices must also be considered in the context of existing federal contractor obligations.

Section 503 of the Rehabilitation Act prohibits discrimination against qualified individuals with disabilities and requires covered contractors to take proactive steps to recruit, hire, retain, and advance qualified individuals with disabilities. Contractors must give applicants an opportunity to voluntarily self-identify as an individual with a disability at both the pre-offer and post-offer stages using Office of Federal Contract Compliance Program’s (OFCCP) Form CC-305, Voluntary Self-Identification of Disability. C2 Essentials utilizes a compliant form in the applicant process and new hire onboarding process.

Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA) prohibits discrimination against protected veterans and requires covered contractors to take proactive steps to recruit and employ protected veterans. Despite its name, VEVRAA is not limited to Vietnam-era veterans. The law protects four categories of “protected veterans,” including disabled veterans, recently separated veterans, active-duty wartime or campaign badge veterans, and Armed Forces service medal veterans. Contractors must likewise give applicants an opportunity to voluntarily self-identify as a protected veteran. OFCCP does not require a specific form for this invitation. C2 Essentials utilizes a compliant form in the applicant process and new hire onboarding process.

Importantly, contractors do not have to know that an applicant has a disability or is a protected veteran before these requirements become relevant. The voluntary self-identification process at both the pre-offer and post-offer stages provides applicants an opportunity to disclose this information. Self-identification is voluntary and the information must be treated as confidential.

How Can AI Create Bias in Hiring?

One of the biggest concerns with AI hiring tools is that artificial intelligence can reproduce or amplify bias contained in the data used to develop or train it. This is sometimes described as “bias in, bias out.”

AI can learn and amplify patterns contained in the data or criteria used to train or configure it.

If historical hiring data reflects a pattern of favoring men for certain positions, an AI recruiting tool may learn that pattern and rank similar candidates more favorably—even if gender is not an explicit factor in the system.

Existing historical gender disparities can be reproduced at scale. Amazon reportedly developed an AI recruiting tool trained on about 10 years of historical resumes. Because the technology industry and Amazon's historical applicant pool were heavily male-dominated, the system learned patterns associated with previous successful hires. The problem: the system reportedly penalized resumes containing terms associated with women, including references to women's colleges or women's organizations.

AI-based facial-analysis and video-interview systems are generating concerns about whether characteristics such as facial expressions, eye movements, speech patterns, accents, or other behavioral signals can disadvantage certain groups. “Eye contact” might appear to be a neutral measure of engagement but using it as a hiring signal could create problems if the system interprets different communication or behavioral patterns as evidence of lower suitability.

Employers should not assume that an AI tool is unbiased simply because it is automated or because a vendor describes it as compliant. Employers should ask vendors about the data used to develop the tool, how the system is tested for bias, and how potential discriminatory outcomes are identified and addressed. Using an AI tool does not transfer responsibility for employment decisions to the vendor. Employers should maintain appropriate human oversight and periodically evaluate whether their AI-enabled hiring tools are producing fair and consistent results.

State AI Employment Laws Are Creating a Compliance Patchwork

A growing number of states and local jurisdictions have enacted or proposed laws addressing artificial intelligence and automated decision-making in employment. The requirements can vary significantly from one jurisdiction to another. State AI employment laws can address issues such as:

• Notice to applicants or employees

• Disclosure of AI use

• Bias or impact assessments

• Transparency regarding automated decision-making

• Recordkeeping

• Nondiscrimination

• Reasonable accommodations

• Employer obligations when using third-party AI technology

  
  

These jurisdictions illustrate the different approaches employers may encounter as AI regulation develops, including requirements addressing discriminatory use, notice and transparency, and the use of automated employment decision tools.

Illinois - Illinois has enacted requirements addressing the use of artificial intelligence in employment decisions. Among other provisions, the law addresses discriminatory use of AI and notice requirements when employers use AI in employment-related decisions. For employers operating across multiple states, Illinois illustrates an important point: AI hiring compliance may depend on where the employee or applicant is located, not simply where the employer's headquarters is located.

New York City - New York City's Local Law 144 establishes requirements for employers and employment agencies using covered automated employment decision tools. Among other requirements, covered employers may need to address independent bias audits, certain disclosure requirements and advance notice to candidates or employees. A company headquartered outside New York may therefore have compliance obligations if it uses a covered automated employment decision tool in connection with candidates or employees in New York City. For more information and a FAQ see this site.

Colorado and Other States - Colorado has also established requirements addressing artificial intelligence, including AI systems used in employment-related decisions. The state's requirements have continued to evolve, illustrating one of the primary challenges employers face with AI employment laws: the regulatory landscape is changing rapidly. Other states have enacted or proposed legislation addressing artificial intelligence, automated decision-making, discrimination and employment practices. As more jurisdictions adopt their own requirements, employers should expect AI hiring laws by state to continue developing rather than assuming that one nationwide policy will address every requirement.

What Does This Mean for Small and Mid-Sized Government Contractors?

Many employers may already be using AI in their recruiting process without realizing how many employment decisions technology influences. For example, your organization may use:

• AI-powered applicant tracking or resume-screening software

• Automated candidate ranking or matching

• Recruiting chatbots

• AI-assisted interview or assessment tools

• Video interview analysis

• Automated skills or personality assessments

• Software that recommends or ranks candidates

• AI tools used to evaluate employee performance

• Generative AI to create or modify job advertisements

  
  

The first step is not necessarily to stop using these technologies. The first step is to identify where artificial intelligence is being used in your employment processes.

Five Steps Employers Can Take Now

1. Inventory Your Employment Technology - Identify the technology used throughout your recruiting and employment processes. Determine whether any component uses artificial intelligence, machine learning, automated decision-making or algorithmic scoring. Do not rely solely on a product's name or marketing description. Ask the vendor what the technology actually does and how it influences employment decisions.

   
   

2. Identify Which States Are Involved - For employers recruiting employees across multiple states, determine where applicants and employees are located. A single recruiting process may involve candidates in several states, each potentially subject to different AI employment laws. This makes AI hiring compliance another component of multi-state HR compliance.

   
   

3. Review Your Vendors - When evaluating an AI-enabled employment tool, consider asking the vendor:

   1. What employment decisions does the tool influence?

   2. Does the tool rank, score or eliminate candidates?

   3. What data does the system use?

   4. Does the vendor conduct bias or impact testing?

   5. Can the vendor provide documentation regarding testing?

   6. Can the vendor explain what happens when an applicant requests reasonable accommodation?

   7. Can the employer obtain information necessary to satisfy applicable notice, disclosure or recordkeeping requirements?

   8. A vendor's statement that a product is “AI compliant” should not replace the employer's own compliance review.

      
      

4. Review Applicant and Employee Notices - Some jurisdictions require employers to provide notice when AI or automated employment decision tools are used. Employers should review their existing application, recruiting and employee communications to determine whether additional disclosures or notices may be required. This is particularly important for employers recruiting remotely because candidates may be subject to different requirements based on their location.

   
   

5. Maintain Human Oversight - AI should be treated as a tool—not as a substitute for appropriate human judgment. Employers should establish procedures for reviewing AI-generated recommendations and addressing potential errors, discrimination concerns and reasonable accommodation requests. Maintaining appropriate human oversight can also help employers better document how employment decisions are made when automated technology is involved.

The Bottom Line

Artificial intelligence can provide significant benefits to employers, particularly small and mid-sized organizations looking for ways to make recruiting and HR processes more efficient. But employers should not assume that using a third-party AI tool eliminates their compliance responsibilities.

AI hiring laws and AI employment laws will continue to evolve. Employers that establish a process for monitoring these requirements now will be better positioned to adapt as additional states and jurisdictions adopt new rules.

For small and mid-sized federal contractors, AI hiring compliance should be viewed as part of the broader multi-state HR compliance process—not as a separate technology issue.

C2 Essentials helps government contractors navigate the complex federal, state and local employment compliance requirements that affect their workforce.