By Max H. Steinberg, Esq.
Artificial intelligence is rapidly transforming how small businesses operate, offering powerful tools to enhance productivity, streamline workflows, and reduce administrative burdens. From content generation to data analysis, AI platforms like ChatGPT can assist with the early stages of complex tasks, allowing business owners to focus on higher-value activities. Yet, as with any technology that interacts with client information, the use of AI raises significant legal and privacy concerns, particularly in industries where businesses routinely handle sensitive data.
While AI tools offer convenience, their underlying terms of use often include provisions allowing submitted data to be used to improve the AI service itself. This creates a critical tension: businesses may unintentionally share sensitive client or customer information with third-party AI platforms, thereby possibly triggering potential liability under state and federal privacy laws.
In New Jersey, the Identity Theft Prevention Act (N.J. Stat. § 56:11-44 et seq.) imposes strict obligations on businesses that collect, store, or transmit personal information. “Personal information” is defined broadly and includes data elements such as names in combination with Social Security numbers, driver’s license numbers, or financial account information. Importantly, businesses must implement and maintain security procedures to protect this data and they are required to notify affected individuals and state authorities in the event of a data breach.
Even the inadvertent disclosure of client data through an AI interface may be construed as a breach, particularly if the AI provider retains access to the inputted information and the business failed to implement appropriate safeguards. In such cases, businesses could face reputational harm and potential civil liability.
Avoid sharing any sensitive or personally identifiable information when using AI platforms. Whether you’re drafting emails, generating content, or interacting with clients, ensure that the data you provide is generalized and excludes any specific personal details. By keeping the information in your prompts anonymous, you reduce the risk of exposing private data to third parties who may have authorization to access it.
It’s important to create clear internal guidelines for how employees should use AI within a business. Set clear boundaries on what types of data can be input into AI systems, and ensure that employees understand the risks of sharing confidential information. For instance, avoid using AI tools to process sensitive customer data like payments, health information, or personal conversations.
As AI continues to evolve, business owners should make an effort to stay updated on new tools and tasks that AI can handle, while also remaining mindful of the potential risks to data security.
In conclusion, it seems apparent that AI is not only here to stay but will continue to play an increasingly significant role in our daily lives, while AI tools offer significant advantages to small businesses, they also pose potential risks to client data security. By understanding how AI platforms use data, limiting the data shared, reviewing platform terms of service, implementing strong security measures, and creating an internal privacy policy, small business owners can safeguard client information.
