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Artificial intelligence (AI) in law is not new, although a lot has changed with the introduction of large language models (LLMs) like ChatGPT. In 2020, AI adoption in firms increased by 23%, but tools for research were the main driver of growth because they can speed up case law research by as much as 30%.
DIY approaches to business law are on the rise, too.
Owners are turning to do-it-yourself solutions to try and save money in, often, cash-strapped businesses. We caution against this approach, although we do understand the appeal.
Which Business Agreements and Contracts Are People Making with AI?
Business agreements and contracts seem like logical first steps into using AI as a business owner. You need a fast contract. You don’t have time to go to a lawyer, so you draft one using AI.
If you’re not a lawyer, you might assume every term looks great and that the agreement is legally binding.
We’ve seen people draft contracts and agreements for the following:
- Founder agreements, which govern business relationships for company founders.
- Franchise agreements, which sets the rules of a franchising relationship.
- Commercial lease contracts, which outline landlord and tenant rights and obligations when renting commercial property.
- Contractor agreements, which outline the scope and obligations of the business relationship.
- Employment agreements, which define the rules, rights, and responsibilities of a work position.
- Privacy policies/terms of use, which outline how businesses handle their user data.
- Sales contracts, which set the terms of a purchase or sale.
All these agreements have major implications for your business. AI, in its current state, does not know the nuances of the law, nor does it stay on top of every new law that passes like a lawyer does.
While these tools and contracts may look impressive, AI and LLMs cannot think and process the same way humans do – not now, at least. AI didn’t go to law school, and doesn’t have the years of experience and judgement that a lawyer brings to the table.
You may draft a sales contract, and it may look great to a non-legal professional. However, it may not consider all the terms and conditions that safeguard you to the fullest extent of the law. For example, if the contract is for the sale of goods (as opposed to services), does it take into account the Uniform Commercial Code? Maybe, maybe not. Does it include provisions for indemnification, limitations on liability, or alternative dispute resolution? There are pros and cons to adding these, but also a lot of nuance in how they should operate.
AI provides a false sense of security for business owners, and it’s a growing concern that could have major financial consequences for you in the future. Imagine a founder agreement that is invalid or doesn’t put the proper verbiage in place to outline your rights, responsibilities, and obligations.
One issue is that “AI passed the Bar Exam.” GPT-4 passed the Bar Exam, but while it was previously claimed that the technology ranked near the 90th percentile, a recent re-examination by MIT researcher Eric Martinez showed that it actually only scored in the 48th percentile.
With the subject matter fed into AI’s training data, it had the answers to legal questions. However, if you need complex documents or want to add a special use case, AI might not be able to help you.
In fact, using AI may be a costly mistake.
AI has already been shown to be problematic in courts. In 2023, two lawyers were fined $5,000 by a New York judge because they trusted AI to draft a brief to the court. The brief, generated by ChatGPT, fabricated rulings and case law to persuade the court. Let’s dwell on that for a moment. ChatGPT just made stuff up. The parties in the case only discovered this when they tried to read the cases ChatGPT made up, and couldn’t find them anywhere.
Although advancements in AI have been impressive, at this stage, hiring a lawyer is still the best course of action for drafting and reviewing agreements.
Why It’s Important to Hire a True Lawyer to Draft Agreements
It may be tempting to use AI to draft contracts, but the risk isn’t worth any potential convenience or time savings it may offer.
At this point in time, AI:
- Can’t keep up with the rapidly changing legal world
- Is often wrong, may use improper terminology or fabricate things when creating legal documents
- Cannot reliably create contracts that are tailored to a business’s unique needs and goals
Sure, AI can review previous contracts and reformulate them into new ones, but it can easily miss specific and important nuances.
When it comes to important matters such as business, hiring a lawyer is crucial.
Here’s why:
- A lawyer will take the time to get to know you and your business. They can draft agreements based on your specific needs.
- A lawyer will ensure that your contract or agreement is legally binding.
- A lawyer can answer your questions or address any concerns you may have about the agreement
At Kinetic Law, we understand that AI can be implemented responsibly to automate some tasks in law firms, but for DIY-ing, it’s a disaster waiting to happen. You wouldn’t – or shouldn’t – trust a non-legal professional to help you draft crucial business-related agreements and contracts.
AI contracts are too risky for you to rely on to grow and run your business.
It will take only one, non-legally binding contract or agreement to derail your business’s progress.
We’re here to help.
Contact us to have us help with business formation, contract drafting and more.
