Is it legal for an employer to restrict 401K in service distribution to employees 59-1/2 years of age or older?
Is the employer liable if this restriction was not clearly explained at the time of a change of service provider?
Yes. An employer can restrict regular (non-hardship) in-service distributions until age 59 1/2 or later.
Salary deferrals (and Roth deferrals) are required to be restricted until at least age 59 1/2 as a requirement for the plan to be qualified under Internal Revenue Code (aka 26 USC) Section 401(a)(2). Employer contributions are permitted to be restricted to a specific age, but are under no requirement to do so.
This will most likely be explained in the Summary Plan Description your employer should have given you when you were hired or became eligible for the plan. However, if it's worded vaguely, it may point you to the actual plan document for the specifics of when an in-service distribution could be taken.