Artificial intelligence can help small businesses work more efficiently, but its use can raise legal questions involving confidentiality, privacy, intellectual property, employment decisions, and accuracy. Massachusetts businesses do not need to avoid AI, but they should establish clear rules for how employees use it and when human review is required. A practical AI policy can help businesses benefit from these tools while managing legal and operational risk.
Key Takeaways
- Small businesses can use AI productively, but they should establish safeguards for confidentiality, privacy, intellectual property, employment decisions, and accuracy.
- Employees should not enter sensitive customer, employee, or proprietary business information into unapproved AI platforms.
- AI-generated content can raise copyright and ownership questions, so commercially important output should receive meaningful human review.
- Businesses using AI in hiring or other employment decisions remain responsible for complying with applicable employment and discrimination laws.
- A written AI use policy can establish approved tools, prohibited uses, human review requirements, and rules for handling sensitive information.
What Legal Risks Should Small Businesses Consider When Using AI?
AI is increasingly part of everyday business operations. Employees use generative AI to draft emails, create marketing content, analyze information, write software, and perform research. Other AI systems help businesses screen job applicants, automate customer service or make recommendations based on customer data.
The legal concern is often not the technology itself. Problems arise from how it is used, what information goes into it, and how businesses rely on its output. Small businesses should consider several areas before making AI part of routine operations.
How Can AI Create Confidentiality and Privacy Issues?
Employees may enter information into an AI platform without considering what happens to that data afterward. Customer information, financial records, internal business plans and trade secrets can all create problems if entered into an external system without appropriate safeguards.
Before approving an AI platform, businesses should understand:
- What information the provider collects
- Whether prompts or uploaded documents are retained
- Whether data may be used to improve the provider’s models
- What security protections apply
- Whether users can control or delete submitted information
Businesses should also establish clear rules prohibiting employees from entering confidential or sensitive information into unapproved AI systems.
Who Owns Content Created With AI?
AI-generated marketing copy, images, software and other content can raise intellectual property questions. The U.S. Copyright Office has confirmed that copyright protection requires sufficient human authorship. AI can assist a human creator, but material generated entirely by AI may not qualify for copyright protection.
Businesses should therefore avoid assuming that every AI-generated asset can be exclusively owned or protected. Moreover, AI output may resemble or incorporate elements of existing copyrighted material. Before commercially publishing important AI-generated content, businesses should identify potential copyright infringement concerns.
Can Businesses Rely on AI-Generated Information?
Generative AI can produce convincing information that is incomplete, inaccurate or simply wrong. That becomes a legal concern when a business relies on the output for customer communications, contracts, regulatory compliance or representations about its products.
Federal regulators have already taken action involving unsupported or misleading claims about AI capabilities. The Federal Trade Commission, for example, has pursued companies over claims concerning the accuracy, performance and capabilities of AI-powered products.
Human review should therefore remain part of important business decisions. AI can assist with drafting or analysis, but someone who understands the subject should verify the final output before the business relies on it.
What Employment Issues Can AI Create?
Businesses increasingly use automated tools in recruiting, résumé screening, performance management, and other employment decisions. These uses deserve particular attention because an automated system can produce outcomes that affect applicants or employees.
An employer should not assume that using third-party software transfers responsibility for the resulting employment decision to the vendor.
Businesses using AI-assisted employment tools should understand how those systems operate, monitor outcomes, and maintain meaningful human involvement in consequential decisions. Existing discrimination and employment laws still apply when technology assists with the decision-making process.
Why Should Businesses Review AI Vendor Contracts?
The terms governing an AI platform matter. Clicking “accept” can establish important rights concerning submitted data, generated content, and responsibility when something goes wrong.
Before relying heavily on an AI vendor, businesses should consider provisions addressing:
- Ownership of inputs and outputs
- Confidentiality and data retention
- Use of customer data for model training
- Security obligations
- Indemnification
- Limitations of liability
- Termination and deletion of stored information
The more important the AI system becomes to business operations, the more important these contractual terms become.
Should Your Business Have an AI Use Policy?
For many small businesses, yes. Employees may already be using AI even if management has never formally approved it. An internal AI policy can establish practical boundaries without preventing productive use of the technology.
A policy may address:
- Which AI platforms employees may use
- What information cannot be entered into AI tools
- When human review is required
- Rules for AI-generated marketing and customer communications
- Use of AI in hiring or employment decisions
- Intellectual property considerations
- Who approves new AI tools
The policy should reflect how the company actually uses technology rather than relying on a generic template.
Use AI With a Business Strategy, Not on Autopilot
AI can provide meaningful benefits to small businesses, from improving productivity to helping employees work with information more efficiently. Managing the legal side requires deciding where AI fits within existing business policies and where additional safeguards are appropriate.
At Seder Law, we help businesses review AI practices, vendor agreements, and internal policies so they can use emerging technology thoughtfully while managing legal risk. Contact us today to discuss your AI concerns in confidence.