Employee Misuse of AI Can Expose Your Business to Civil Liability: Here's How to Help Prevent That

Companies can face substantial financial damages if employees expose sensitive data to AI tools, rely on biased AI outputs and more, making robust policies, mandatory training and human oversight essential. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Delivered dailyKiplinger TodayProfit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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In the rapidly evolving landscape of artificial intelligence (AI), businesses are increasingly integrating these tools into daily operations to boost efficiency and innovation.From automating hiring processes to generating content and analyzing data, AI promises significant advantages.However, when employees improperly use AI — such as by inputting sensitive data without safeguards, relying on biased outputs or failing to oversee automated decisions — companies can face substantial civil liability.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.Under such principles as vicarious liability, businesses are often held accountable for employee actions within the scope of employment.In this article, we explore key areas of exposure, drawing on recent legal developments (as of February) and offer insights for mitigation.One of the most prominent risks arises from AI-driven discrimination, with tools perpetuating biases in hiring, promotions or evaluations.About Adviser IntelThe author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.Employees might deploy AI screening software without auditing for fairness, leading to disparate impact claims under laws such as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act or the Americans with Disabilities Act.For instance, in the landmark Mobley v. Workday case (2024-2025), a plaintiff alleged that Workday's AI hiring platform discriminated against applicants based on age, race and disability, resulting in a certified collective action for applicants age 40 and older.Similarly, the 2025 Harper v. Sirius XM Radio lawsuit claimed AI tools used proxies such as ZIP codes to exclude Black applicants, highlighting disparate treatment and impact.Recent settlements, such as EEOC v. iTutorGroup (resolved in 2023 but influencing 2025 cases) underscore how automated rejections of older candidates can lead to hefty penalties, including $365,000 payouts. Businesses face damages, back pay and injunctions if employees neglect bias audits.Improper AI use can breach privacy laws when employees feed personal data into unsecured tools.This exposes companies to claims under the California Consumer Privacy Act, General Data Protection Regulation or the Fair Credit Reporting Act. A groundbreaking 2026 lawsuit against Eightfold AI alleges the company's platform compiles applicant data from sources such as LinkedIn without consent, treating it as unregulated credit reports.Employees inputting employee or customer information into public AI chatbots risk class-action suits for invasion of privacy or data misuse, with penalties reaching millions.Emerging regulations, such as California's 2025 Civil Rights Council rules, expand liability by defining AI vendors as agents of employers, emphasizing the need for consent and security.Employees generating content via AI might infringe copyrights if outputs derive from protected materials, leading to secondary liability under the Copyright Act.Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.Additionally, AI-produced reports or communications containing falsehoods can spark defamation claims.For example, if an employee publishes misleading AI-generated social media posts, businesses could face compensatory damages.Negligence arises when faulty AI deployment causes harm, such as erroneous financial advice or operational errors, invoking product liability for defective tools.Breach of contract occurs if AI fails to meet client standards, while deceptive practices under the FTC Act penalize misrepresenting AI capabilities — fines and refunds ensue.To shield against these liabilities, businesses must implement robust AI policies:As AI litigation surges — evidenced by cases such as Eightfold and Mobley — proactive measures are essential. By fostering responsible use, companies can harness AI's potential while minimizing legal pitfalls.In the next article, we will explore strategies companies can employ to insulate selected company assets from civil liability from unforeseen, unexpected lawsuit creditors and predators.This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Jeffrey M. Verdon, Esq. is the lead asset protection and tax partner at the national full-service law firm of Falcon Rappaport & Berkman. With more than 30 years of experience in designing and implementing integrated estate planning and asset protection structures, Mr. Verdon serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives. Over the past four years, he has contributed 25 articles to the Kiplinger Building Wealth online platform.