By Gary Smith

“But your AI said you could do it. . . .”

“Your purchasing AI agreed with my selling AI that. . . .”

Those conversations may sound futuristic, but they are closer than most business owners think.

Businesses are already using AI to answer customer questions, review contracts, schedule services, and handle customer support. Some companies are actively exploring whether AI can replace certain employees altogether.

The question is no longer whether businesses will use AI.  The question is how much authority businesses should give it.

When your AI communicates with customers, vendors, or business partners, are you allowing them to rely on what it says?

What Happens When AI Speaks for Your Company?

Think of AI as a creative and independent-thinking “employee.”

AI wants to help you. It knows you want sales, efficiency, customer satisfaction, and faster decisions. But unlike traditional software, AI does not simply follow a fixed checklist. It interprets instructions, prioritizes goals, and fills in gaps based on what it believes you want.

That can create problems.

When you train a human salesperson, there are usually understood boundaries. Most people know a salesperson cannot rewrite a contract, waive major obligations, or make unlimited promises on behalf of the company.

AI does not naturally understand those boundaries unless they are extremely well-defined — and even then, it may reinterpret them.  If a customer asks your AI chatbot whether it can approve a refund, offer a discount, guarantee delivery timing, or modify a contract term, the AI may say yes because it believes closing the deal or solving the problem is the priority.

That is not a system error. That is how AI systems work.

If two instructions appear to conflict, the AI may decide one objective is more important than another. For example, “keep the customer happy” may override “do not approve exceptions.”

Can an AI Agent Create a Binding Agreement?

That question has not fully worked its way through the courts.  However, businesses should not assume the answer is “no.”

Courts have long recognized electronic contracts, automated transactions, and digital communications as enforceable under the right circumstances. Businesses can already be bound by what their systems communicate to customers.

AI complicates the issue because it can generate responses that were never specifically approved by a human being.  A customer may not care whether a promise came from an employee or a machine if the customer believed the company authorized the communication.  The AI may even tell the customer it’s authorized to make the decision.

That creates potential legal exposure involving:

• Contract disputes
• Pricing errors
• Unauthorized commitments
• Misrepresentations
• Consumer protection claims
• Compliance violations
• Confidentiality issues

Disclaimers may help. Terms of service may help. Internal policies may help.

But none of those automatically eliminates liability.

If your business deploys AI in customer-facing or vendor-facing roles, courts may eventually ask whether you allowed customers to reasonably rely on the AI’s statements.  Does it matter if the AI didn’t follow its training? Businesses adopting AI today may become the test cases that help define those rules.

Should You Replace Every Employee with AI?

Eventually, technology will be capable of replacing nearly every role in a business.  That does not necessarily mean it should.  (What will eight billion people do?)

Some functions are relatively low-risk for AI automation, including:

• Scheduling
• Administrative support
• Data entry
• Standardized customer intake
• Internal workflow management
• Drafting routine communications

Other functions involve much greater legal and operational risk, including:

• Contract negotiation
• Pricing authority
• Human resources decisions
• Legal or compliance judgments
• Financial approvals
• Customer dispute resolution
• Vendor negotiations

The more discretion the AI has, the greater the uncertainty becomes.

A human employee may make one bad decision.  An AI system may make the same bad decision 1,000 times before anyone notices.  That scale is both the benefit and the danger of automation.

Questions Business Owners Should Ask Before Deploying AI Agents

Before replacing employees or giving AI significant authority, business owners should ask themselves several practical questions:

• What authority does the AI appear to have (or actually says it has)?
• Will customers believe the AI can make binding commitments?
• Who supervises or audits the AI’s actions?
• Are conversations logged and preserved?
• What happens if the AI gives inconsistent answers?
• What happens if someone follows the AI’s instructions and is hurt?
• Can the AI approve discounts, refunds, or contract changes?
• Does the AI have access to confidential or sensitive information?
• Is there a clear escalation path to a human employee?
• How quickly can the AI system be restricted or shut down if problems arise?
• Does your insurance cover AI-related claims?
• What liability protections exist in your contracts with AI vendors?
• Who or what is your AI learning from?

Those are not just technology questions.  They are legal, operational, and business-risk questions.

Who Is Responsible When AI Gets It Wrong?

Most AI vendors will (should) attempt to limit their own liability through licensing agreements and terms of service.  If something goes wrong, you may have already agreed it’s not their problem.  You may ultimately be the only one responsible for what the AI does.

Employees can be retrained, disciplined, or terminated. Their authority can be narrowed over time based on performance and judgment.

Unlike human employees, AI systems do not truly understand context, judgment, ethics, or business relationships as people do.  They also don’t necessarily use the same definitions for words that humans would.  They don’t know what you mean, and it’s not their fault.

The Courts Have Not Fully Answered These Questions Yet

Businesses are operating ahead of the legal system.  Existing agency, contract, and consumer protection laws may still apply to AI-related disputes, but courts have not yet fully addressed many of these situations.  Businesses implementing AI today must face evolving legal standards and uncertain boundaries.  You could be the first case that sets the rules.

AI Is Here. Governance Matters.

AI will become part of nearly every business.  It’s being added to applications that are already widely used.  AI can help improve efficiency, reduce costs, and create valuable opportunities.

Are you allowing AI to negotiate, approve, promise, recommend, or commit on behalf of your company?  How will you know if it is?  Business owners must carefully decide and communicate where the AI’s authority ends and human judgment begins.

The issue is not what or how AI thinks.  The issue is whether others are allowed to rely on what it says.

Venn Law Group helps businesses evaluate legal and operational risks related to emerging technologies, contracts, governance, and commercial relationships before those issues escalate into litigation. Contact us today to speak to a real human about your contract and employment needs.

Gary W. Smith is an attorney at Venn Law Group with more than 20 years’ experience providing legal counsel and innovative solutions to business owners and management teams. His areas of focus include mergers and acquisitions, succession and exit planning, securities and capital structures, business structures, and tax. He excels at navigating the legal complexities of diverse industries ranging from professional services and IT infrastructure to manufacturing and real estate.