Artificial intelligence is changing the way businesses operate. Employees are using AI tools to draft emails, summarise documents, analyse information, write code and create content in a matter of seconds. Many businesses are also investing in generative AI to improve efficiency and reduce administrative tasks.
The challenge for employers is that AI is often adopted before clear rules are put in place. Employees may be using public AI platforms without understanding the risks. They may upload confidential information, rely on inaccurate outputs or use AI to support decisions that require human judgment. As an employer, an AI policy gives you a framework for the responsible use of AI. It explains what employees can and cannot do, helps protect the business and supports compliance with existing legal obligations. It also gives employees the confidence to use AI appropriately while reducing uncertainty.
In this article, our employment law solicitors look at why employers should have an AI policy, what it should cover and the practical steps businesses can take to manage the risks.
Contents:
- Why should employers have an AI policy in place?
- Is it a legal requirement for an employer to have an AI policy?
- What legal risks arise when employees use AI without clear guidance?
- Which businesses are most likely to benefit from an AI policy?
- Should every employer have the same AI policy, or should it be tailored to your organisation?
- What should a workplace AI policy include?
- How can employers prevent sensitive business information being entered into AI platforms?
- How often should employers review and update their AI policy?
- Summary
Why should employers have an AI policy in place?
An AI policy sets clear expectations for employees. It explains how AI can be used at work, which tools have been approved and what rules employees must follow. Many employees already use AI as part of their working day. Some use it to improve productivity. Others use it to generate ideas, produce documents or carry out research. Without clear guidance, employees will decide for themselves what is acceptable. An AI policy creates consistency across the business. It helps employees understand their responsibilities and makes it easier for employers to address issues if the policy is not followed. It also shows clients, investors and regulators that the business is taking a responsible approach to AI.
Is it a legal requirement for an employer to have an AI policy?
AI is becoming part of everyday business operations. Even if an organisation has not introduced AI tools, employees may already be using freely available platforms such as ChatGPT, Microsoft Copilot or Google Gemini.
This is often referred to as shadow AI. Employees use AI without approval or oversight because the tools are easy to access and can save time.
An AI policy gives employers visibility. It allows businesses to encourage innovation while setting sensible boundaries. It might also set out how the business intends to develop its knowledge of, and use of, AI in the future. Employees know which tools they can use, what information they can share and when they should seek approval before using AI. Many businesses already have policies covering IT, data protection, cyber security and social media. An AI policy is becoming another part of that framework.
What legal risks arise when employees use AI without clear guidance?
AI can create legal risks across several areas of employment law and business regulation. One of the biggest concerns is confidentiality. Employees may enter commercially sensitive information into public AI platforms without understanding how that information is stored or used. This could expose confidential business information or client data because that information is then in the public domain. Most service agreements and settlement agreements have confidentiality provisions within them which state that the obligation of confidentiality does not apply to confidential information that is disclosed by another party. Inadvertent disclosure of that information by using AI outside of the boundaries of a clear policy could have significant consequences for an unlucky business.
Data protection is another key issue. Employees must handle personal data in line with UK GDPR and the Data Protection Act 2018. Using AI tools to process personal information without appropriate protections could place employers in breach of their legal obligations.
Use of AI to process personal data can also affect other employment practices. For example, if AI is used during recruitment, performance management or disciplinary processes, employers must make sure decisions remain fair, objective and free from unlawful discrimination and must also ensure that there is always a lawful basis for processing the information. Automated decision making occurs where a decision is made about an individual purely by automated means, such as a recruitment decision. Where that process is used, additional protections arise under UK GDPR, which employers must comply with.
AI generated content also creates risks. AI systems can produce inaccurate information, invent facts or generate misleading conclusions. If employees rely on those outputs without checking them, the business could make poor commercial decisions or provide inaccurate advice to customers. For those businesses where professional qualifications are required and practitioners are regulated, the use of AI without appropriate other checks can result in professional misconduct allegations. For example, there are already reports of solicitor referrals to the Solicitors Regulatory Authority for the use of ‘hallucinated cases’, where AI has created a document that has not been fact checked by the lawyer and which has cited imaginary cases or legislation. Embarrassing? Certainly. A matter of professional misconduct? Quite possibly, say the courts. Similar expectations are likely to apply to other regulated professions, which underlines the importance of a suitable policy with clear boundaries as to the use of AI.
Intellectual property is another area to consider. Employees should understand who owns AI generated work and whether AI generated content can be used safely without infringing another person's rights. A clear policy helps reduce these risks by setting practical rules that employees can follow.
Which businesses are most likely to benefit from an AI policy?
All businesses can benefit from having a policy. To varying degrees, all businesses handle confidential information, client data, financial information, trade secrets and commercially sensitive documents, so are likely to face risks. Companies that process large amounts of personal data should also consider how AI fits within their existing data protection framework.
This is not just an issue for technology companies. AI is now used across professional services, manufacturing, retail, healthcare, education, financial services and the public sector.
An AI policy can really help in encouraging innovation. Employees often want to use AI to improve efficiency. A policy gives them confidence to do this safely instead of avoiding AI altogether or using it without guidance. Small businesses should not assume these issues only affect larger organisations. A single employee using AI inappropriately can expose any business to legal, financial and reputational damage.
Should every employer have the same AI policy, or should it be tailored to your organisation?
Each organisation uses AI differently. A software company may encourage employees to use AI throughout the development process. A law firm may limit AI use when handling confidential client information. A manufacturer may focus on operational systems rather than content creation.
The policy should reflect how AI is used across the business and the level of risk involved. Employers should also consider the sectors they operate in. Businesses working in regulated industries may need stricter controls and additional approval processes.
An AI policy should fit alongside existing workplace policies. It should complement data protection policies, IT policies, cyber security procedures and employee handbooks. Employees should receive one consistent message about how technology should be used. A tailored policy is more likely to be followed because it reflects the reality of how employees work.
What should a workplace AI policy include?
Every AI policy will look slightly different. The content should reflect the organisation's size, sector and use of AI.
Most employers should include:
- the purpose of the policy and who it applies to
- the AI tools or applications employees are permitted to use
- any AI tools that are prohibited
- the circumstances in which AI can be used, for example how and when it may be used in recruitment
- rules on handling confidential information and in particular the rules that should be followed before confidential information is inputted into any AI software, such as the level of management authority required to do so
- guidance on processing personal data
- expectations around checking AI generated content before relying on it
- situations where human approval is required before AI can be used
- rules on intellectual property and ownership of work
- employee responsibilities when using AI
- training requirements
- reporting procedures if AI is used incorrectly
- the consequences of failing to comply with the policy
The policy should be practical rather than overly technical. Employees need clear guidance that they can apply during their working day. It is also important to explain why these rules exist. Employees are more likely to follow a policy if they understand the risks it is designed to manage.
How can employers prevent sensitive business information being entered into AI platforms?
An AI policy is only one part of the solution. Employers should also consider practical measures that reduce the likelihood of mistakes. The first step is understanding how AI is already being used across the business. Many employers are surprised to discover that employees have adopted AI tools without formal approval. Carrying out an internal review can help identify where AI is being used and whether any risks need to be addressed.
Once employers understand how AI is being used, they can decide which tools should be approved and whether any should be restricted. Technical controls may also help. Businesses may decide to block access to certain AI platforms, use enterprise versions with stronger security controls or introduce approval processes before employees can access new AI tools.
Clear guidance is equally important. Employees should know what information can be entered into AI systems and what information must always remain within the business. Employers should also review the terms offered by AI providers. It is important to understand how information is stored, whether it is used to train AI models (and how to opt out of that, if preferred) and what security measures are in place. Regular training helps keep the policy front of mind. AI technology is changing quickly and employees should understand both the opportunities and the risks that come with new tools. Managers also have an important role. They should understand the organisation's approach to AI and be able to answer questions from their teams. Consistent management helps create a culture where employees feel comfortable asking for guidance before using AI in new ways.
How often should employers review and update their AI policy?
AI technology is evolving at a rapid pace. New tools are released regularly and businesses are finding new ways to use existing technology. The legal landscape is also developing as regulators publish new guidance and governments consider future legislation.
Most employers should review their AI policy at least once a year. An earlier review may be appropriate if the business introduces new AI systems, changes the way employees use AI or experiences a data security incident involving AI. Employers should also review the policy after significant legal or regulatory developments. This helps make sure the guidance remains accurate and reflects current best practice.
Employee feedback can also be valuable. Staff who use AI every day are often well placed to identify areas where additional guidance would be helpful or where existing rules are difficult to apply in practice. Reviewing the policy should form part of a wider governance process. Employers should also consider whether related policies, including data protection, cyber security and IT policies, need updating to reflect changes in technology. Regular reviews help ensure the policy remains relevant and gives employees clear guidance as AI continues to develop.
Summary
Considering the rapidly growing area of AI development and adoption, introducing an AI policy can help set clear ground rules for employees on how you will or will not allow for AI to be used in the workplace. To best protect your business from any risks, including IP or confidential information leaks, or professionally embarrassing errors, it is prudent to draft a thorough and clear policy whilst still benefiting from the efficiencies and other benefits of AI usage.
Implementing an effective AI policy requires balancing innovation opportunities with legal compliance and risk management. Getting this balance wrong could expose your business to discrimination claims, data protection breaches, or confidentiality leaks that far outweigh any efficiency gains. Our employment law solicitors specialise in drafting bespoke AI policies that protect your business while enabling you to harness AI's competitive advantages. With extensive experience helping businesses across diverse industries navigate AI governance challenges, we will ensure your policy covers all legal bases while remaining practical for day to day operations.
