By Eric D. Morton
Artificial intelligence tools are quickly being used in everyday business operations. Companies must decide to embrace AI responsibly or risk significant legal, financial, and reputational exposure.
Employees and contractors will use AI in their work. However, there are a myriad of dangers to that use. Businesses cannot wait to react. A company AI Use Policy is now essential.
The Hidden Risks of Everyday AI Use
AI tools such as large language models and embedded workplace assistants offer powerful efficiencies. They also introduce serious risks, particularly when employees input sensitive information into these systems.
The dangers include:
- Confidential Company Information
Employees may disclose trade secrets, strategic plans, or internal communications when using public AI tools. Once entered, that data may be stored, processed, or even reused outside the company’s control. AI companies use and retain customer input in their AI systems to train their models. - Customer and Client Data
Inputting customer data into AI systems—especially public or unapproved platforms—can trigger violations of privacy laws, contractual obligations, and data protection regulations. - Personal Information
Using personally identifiable information (PII) in a public platform is a violation of privacy laws and can create an obligation for data breach notification. - Intellectual Property Risks
Sharing proprietary code, designs, or content with AI tools can undermine ownership rights or inadvertently grant third parties access to protected IP. Creating code, designs or content undermines the ownership of a company to those works. - Data Leakage Through “Shadow AI”
Employees frequently adopt unapproved AI tools to increase productivity. Without visibility or controls, this “shadow AI” creates inconsistent practices and significant exposure.
Why an AI Policy Matters
Some organizations respond to AI risk by banning its use entirely. While this may reduce short-term exposure, it often drives employees toward unauthorized tools—ironically increasing risk.
A more effective approach is structured adoption: allow AI use within clearly defined boundaries, supported by governance, monitoring, and regular policy updates. A well-crafted AI Use Policy will establish clear rules for how employees can and cannot use AI, while protecting the organization and its assets.
Based on current best practices, a strong AI policy should include:
- Clear Scope and Definitions
Identify which tools are covered, including public AI platforms, internal tools, and embedded AI features. - Acceptable and Prohibited Uses
Provide concrete examples of permitted uses (e.g., drafting content) and prohibited conduct (e.g., entering confidential data into public systems). - Data Classification Rules
Define categories such as public, internal, confidential, and restricted data—and specify what can be used with AI tools. - Mandatory Human Oversight
AI should assist—not replace—human judgment. Final decisions must remain with accountable personnel. - Security Controls and Access Restrictions
Limit AI use to approved tools, devices, and accounts, with appropriate authentication and monitoring. - Training and Employee Awareness
Policies are only effective if employees understand them. Ongoing training is essential. - Incident Reporting and Enforcement
Establish clear procedures for reporting misuse, data exposure, or AI-related errors.
A Moving Target Requires Ongoing Attention
AI technology—and the legal landscape surrounding it—is evolving rapidly. Policies must be reviewed and updated regularly, with input from legal, IT, and risk management.
Conclusion
AI presents extraordinary opportunities—but also unprecedented risks. Organizations that act now to implement thoughtful, enforceable AI policies will be best positioned to harness its benefits while safeguarding their data, their clients, and their intellectual property.
If your organization has not yet adopted an AI Use Policy—or would like assistance reviewing or strengthening an existing one—our team is available to help.
Eric D. Morton is the principal attorney at Clear Sky Law Group, P.C. He can be reached at 760-722-6582, 510-556-0367, and emorton@clearskylaw.com.