How Recruitment Firms Can Thrive Under the AI Act… As Long as They Are Compliant

The EU's AI Act becomes law on August 1 which represents a momentous watergate moment for the tech landscape. The landmark legislation will have far-reaching implications for recruitment businesses using AI, both within and outside the EU.

This comes as research conducted by Public First and commissioned by Google, revealed that nearly two-thirds (61%) of UK jobs will experience radical transformation due to AI integration.

In the recruitment sphere, the use of AI systems to support the hiring of new staff or internal decision-making affecting existing employees is set to be more tightly regulated when the EU AI Act takes effect.

So now, more than ever, taking the time to understand the potential impact of this legislation is crucial to avoid costly mistakes and protect company reputations, all while ensuring businesses operations, processes and frameworks are compliant with the act.

First off, what is the purpose of the AI Act?

This new regulation aims to establish cohesive rules to ensure that AI systems in the EU respect fundamental human rights and ensure that peoples’ safety is protected. This is with a view to encouraging investment and innovation into this expansive - and increasingly complex - technology.

Who does it apply to?

The AI Act affects businesses operating within the EU, whether they are providers - who are those developing the systems, - users - also known as deployers, - importers, distributors or manufacturers of AI systems.

The legislation provides clear definitions for the various roles people and organisations play across AI systems. This means that all stakeholders must ensure that their AI practices comply with the requirements outlined in the act.

Key elements of the AI Act and the impact on UK recruitment businesses 

The AI Act will introduce new obligations for those producers, deployers, importers and distributors of AI systems under a new risk-based system of regulation. The most stringent regulatory requirements will apply to AI systems that can be classed as ‘high-risk’ AI applications. 

This means that recruitment businesses using AI for high-stakes decisions must adhere to stricter compliance measures. This includes where AI is used in the selection process, such as placing targeted job advertisements, analysing and filtering job applications and evaluating candidates.

Other areas considered high risk for the purposes of the regulation include instances when AI systems are used to make decisions affecting work-related, contractual relationships, such as promotions and terminations. 

It also encompasses the allocation of certain tasks based on individual behaviour or personal characteristics and to then monitor and evaluate the performance of employees because of those traits.

Going one step further, AI applications deemed to pose an unacceptable risk will be banned altogether. While this is unlikely to directly impact standard recruitment practices, it will be crucial, moving forward, to stay informed about the evolving definition of high-risk AI functions.

As a result of stricter requirements, high-risk AI systems will be subject to certain obligations, including risk assessments, governance, maintaining documentation, meeting specific quality standards and implementing robust risk management measures. Recruitment businesses using AI for critical hiring decisions may need to demonstrate compliance with these standards to avoid legal and reputational detriment.

The AI Act emphasises transparency and accountability for users, requiring clear explanations of AI systems' decision-making processes. Recruitment firms must be able to explain how AI is used in their processes and demonstrate fairness, a lack of bias and non-discrimination while upholding data protection and privacy rights.

High-risk AI systems will therefore need to conform to certain requirements, including risk management, data quality, human oversight and accuracy. The businesses deploying that technology will face obligations around registration, quality management, monitoring, record-keeping and incident reporting.

So, while AI has been met with excitement in the recruitment marketing world, it’s now time to cease joyriding the technology, by ensuring businesses have a risk register in relation to all aspects of AI and its use. Companies essentially need to know about the origin of the AI tools they use across hiring processes as this is the first clue as to how seriously to take this tech.  This index ranks the best AI audit compliance tools.

Failure to understand the AI Act's implications 

• Legal and financial penalties: Non-compliance with the AI Act can result in hefty fines and legal repercussions.
• Reputational damage: Public backlash and loss of trust can occur if a recruitment business is found to use AI unfairly or without transparency.
• Competitive disadvantage: Companies that are compliant with AI regulations will have a competitive edge over those that are not.

What are the sanctions?
The penalties for non-compliance with the AI Act are significant. They range from €750,000 to €35000,000 or from 1% to 7% of the company's global annual turnover, depending on the severity of the infringement.

How recruitment business can prepare

The obligations pertaining to high-risk AI systems will apply 36 months after the legislation enters into force. This is why it will be good practice for recruitment firms to establish appropriate governance and monitoring measures to ensure that their AI systems adhere to and comply with the AI Act.

Steps they can take include: 

• Classify AI systems and models according to risk levels and the organisation’s role.
• Use high-risk AI systems in accordance with the instructions of use issued by the provider.
• Comply with relevant sector legislation as they will vary across industries when it comes to deploying AI. 
• Ensure that the input data is relevant and sufficiently representative in view of the intended purpose of the high-risk AI system
• Monitor the high-risk AI system’s compliance with its own terms of use. Subsequently suspend use and file a report when any serious incident is identified.
• Keep records of logs generated by the AI systems in an organised and well-documented manner.
• Conduct a data protection impact assessment and a fundamental rights impact assessment before using the relevant system.
• Establish where key stakeholders will fit in and what information they need.
  Create a library of legal risks with playbooks to allow some evaluation by non-experts.

Where high-risk AI systems are not currently in use but their use is planned, recruitment professionals should begin to factor the above obligations into any implementation process. They should also consider any practical, ethical or legal barriers that might arise in respect of meeting the obligations.

Organisations developing their own AI systems should ensure that they are aware of their obligations as providers of high-risk systems under the act. When they put into service a high-risk AI system under their own name or trademark, or make a ‘substantial modification’ to an existing system, the organisation will be classified a ‘provider’ and additional obligations will apply.

Recruitment firms should implement robust AI governance, on a timely basis, to implement controls, policies and frameworks to address the challenges brought by hiring processes that feature and to train employees on how to use it. It is also strongly recommended to monitor implementation of the EU AI Act across relevant EU member states and review any associated EU-wide or national guidance that is published.

It is essential for UK recruitment businesses to stay informed about the AI Act and ensure that they fully understand its potential impact and comply accordingly. its potential impact. As AI continues to evolve, the regulatory outlook will inevitably shift and change, which means maintaining ongoing vigilance will be vital. 

And there are already several AI consultancy firms which are leading the way when it comes to offering support and advice around AI, including FTI Consulting and Deeper Insights.