It is not surprising that small business owners are tempted to use AI for legal advice, particularly in employment matters due to accessibility and little to no cost. However, relying on AI instead of employment lawyers can expose your business to significant financial liability and legal consequences that far exceed any short-term cost savings.
The Hidden Dangers of AI Legal Advice
How you implement AI in your business shapes your liability. AI tools that communicate with consumers can inadvertently create enforceable contracts or make binding promises on behalf of your company. Unlike human employees who understand context and limitations, AI systems can overstep.1
In Moffat v. Air Canada,2 an AI chatbot did just that. Here, the chatbot told a customer he could receive a bereavement discount by booking first and requesting a refund within 90 days, contradicting the company’s actual policy requiring advance approval. When the customer was denied the refund, he sued successfully, and the British Columbia Civil Resolution Tribunal held Air Canada liable for the chatbot’s misrepresentation, forcing the airline to honor the discount.3
Such corporate liability for AI actions stems from the fact that AI will be considered an agent for your business in most cases under the doctrine of apparent authority. This means that AI system interactions with employees, customers, or vendors can be legally binding for your company.
This is not to say AI cannot be a great tool for business, but you must ensure your use is not exposing your company to liability.4 Employment lawyers understand these nuances and can help structure your AI implementations to avoid unintended legal consequences.
Common Questions Business Owners Have Concerning AI
Can AI Draft Employee Handbooks Legally?
While AI can generate text that resembles an employee handbook, the policies contained in the handbook may not be legal. Using AI to draft an employment policy creates several compliance issues, as the generated text may not consider your jurisdiction or have access to recent case law. Without an understanding of binding law or access to court decisions, you will end up with a generic policy that will keep your business from reaching its true potential.
Employment lawyers prioritize compliance issues that AI might miss, such as required leave policies, wage and hour provisions, or discrimination protections specific to your state. An employment lawyer’s legal review of your employee handbook can ensure your policies are compliant with specific industry standards.
Can my Company be Bound to Agreements Made by AI?
Yes, you are liable for agreements made by AI systems. AI is considered an extension of your business operations; when AI provides incorrect legal advice or creates unintended obligations, your company bears the responsibility for those consequences.5 Therefore, your company can be sued for what AI says, resulting in AI contract liability and legal consequences.
How Can an Employment Lawyer Protect my Business from AI Mistakes and Help Implement AI in My Business Safely?
An employment lawyer can protect your business from using AI in ways that create legal risk, while empowering you to harness these tools in a legally compliant manner. Compliant implementation depends upon numerous factors concerning your business practices. A lawyer can help you identify where to implement AI in your business by helping you choose the right software and creating policies around AI use to ensure it is only used under certain conditions.
If you are considering hiring an employment or workplace policy compliance lawyer, scheduling an employment law consultation for your small business to assess any risks is a great first step to avoid costly lawsuits.
Employment Lawyers Provide Superior Protection
Benefits of hiring an employment lawyer vs AI tools include receiving advice specifically tailored to your business circumstances, industry, and risk profile. They understand the nuances of your operations and can identify potential liability issues that generic AI responses would miss. Failing to incorporate key language into agreements or handbooks can render you liable.
Additionally, AI would not be up to date on current case law and legal trends. AI has developed a reputation in the legal field for developing “fake cases” that don’t exist and several attorneys have been sanctioned for using make believe AI cases.
Short-Term Savings, Long-Term Costs: The Air Canada Lawsuit Explained
While AI tools may seem cost-effective initially, the potential AI business liability exposure far exceeds any savings. Consider the Air Canada case: the company likely spent more defending the lawsuit and honoring the incorrect discount than they would have spent on proper legal review of its AI chatbot legal risks.6 Free your business of costly litigation by speaking with a lawyer before issues arise.
When to Consult Employment Lawyers
- Policy Development: Always have employment lawyers review employee handbooks, policies, and procedures;
- AI Implementation: Before deploying AI tools that interact with employees or handle employment-related inquiries;
- Compliance Reviews: Regular audits of your employment practices to ensure ongoing compliance;
- Dispute Resolution: Any employment-related complaints or potential legal issues.
How We Can Help
If you do use AI tools in your business, The Law Office of Bhavleen Sabharwal can help you implement proper safeguards, including prominent disclaimers and clear limitations on the AI’s apparent authority. Our experienced team offers confidential consultations to review your processes and protocols related to the use of AI and help to safeguard your business against risk.
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1 Brendan Bernicker, The Legal Risks of AI Speaking for Your Business, ABA J. (June 18, 2025), https://www.americanbar.org/news/abanews/aba-news-archives/2025/06/the-legal-risks-of-ai-speaking-for-your-business/.
2 Moffat v. Air Canada, 2024 BCCRT 149 (B.C. Civ. Res. Trib.).
3 Brendan Bernicker, The Legal Risks of AI Speaking for Your Business, ABA J. (June 18, 2025), https://www.americanbar.org/news/abanews/aba-news-archives/2025/06/the-legal-risks-of-ai-speaking-for-your-business/.
4 Legal Issues with AI: Ethics, Risks, and Policy (2025).
5 Brendan Bernicker, The Legal Risks of AI Speaking for Your Business, ABA J. (June 18, 2025), https://www.americanbar.org/news/abanews/aba-news-archives/2025/06/the-legal-risks-of-ai-speaking-for-your-business/.
6Brendan Bernicker, The Legal Risks of AI Speaking 6 for Your Business, ABA J. (June 18, 2025), https://www.americanbar.org/news/abanews/aba-news-archives/2025/06/the-legal-risks-of-ai-speaking-for-your-business/.