Artificial Intelligence (AI) is changing how we do business – from streamlining operations to powering smarter decisions. But as AI use increases, so do the legal, ethical, and reputational risks.
Without clear internal rules, even well-meaning employees could misuse AI tools, expose confidential data, or infringe intellectual property rights.
That’s why every organisation (big or small) needs a Company AI Policy that actually works.
In this article, our business lawyers explain why a Company AI Policy matters, what it should include, and how your business can implement one that truly protects and empowers your team.
Key Takeaways
- A Company AI Policy defines safe, ethical, and compliant AI use in your business.
- It protects your organisation from data breaches, IP misuse, and bias.
- A good policy includes training, approved tools, and accountability.
- Real-world cases show how poor AI governance can lead to costly mistakes.
- Prosper Law can help tailor a Company AI Policy to your organisation’s needs.
Why Your Business Needs a Company AI Policy
AI tools are being integrated into nearly every business process – from HR to marketing and customer service. But while AI increases efficiency, it also raises new legal questions.
Without clear guidelines, your business could face:
Data privacy breaches under the Privacy Act or GDPR.
Intellectual property disputes from AI-generated content.
Bias and discrimination in hiring or decision-making systems.
Reputational damage from inaccurate or unethical AI use.
A Company AI Policy creates structure and accountability, setting boundaries around how AI tools can and should be used.
What to Include in a Strong Company AI Policy
Below is a practical structure and what each element should include to ensure your policy is both effective and enforceable.
1. Purpose & Scope
Start by clearly stating why the policy exists and who it applies to. This section should set the tone for responsible AI use and make clear that compliance is mandatory across all levels of the business.
For example, outline that the policy applies to all employees, contractors, and third-party providers who use or interact with AI systems within your organisation. Clarify that it covers both internally developed AI tools and third-party applications such as ChatGPT, Microsoft Copilot, or AI-based analytics software.
Legal Tip: Link the purpose to your organisation’s core values (such as integrity, privacy, and innovation) to reinforce a culture of ethical AI use.
2. Approved AI Tools
List the specific AI tools or platforms approved for use in your workplace, along with examples of acceptable use cases. For instance:
Generative AI (e.g. ChatGPT, Jasper etc) that may be used for brainstorming or content drafts, but not for confidential client documents.
Predictive AI tools which may be used for business analysis, provided data inputs are anonymised.
Make it clear that unauthorised AI tools are prohibited unless approved by management or the IT/security department. This prevents “shadow AI” use, where employees turn to unvetted tools that could compromise data security.
3. Data Security & Privacy
AI systems often process sensitive or identifiable information – which makes privacy and data protection central to your policy.
Outline strict rules for:
Handling confidential information: Employees must not input client data, trade secrets, or private information into public AI tools.
Data storage and retention: Define how AI-generated or AI-processed data is stored, encrypted, and deleted.
Compliance obligations: Reference relevant legislation such as the Privacy Act 1988 (Cth), Australian Privacy Principles (APPs), or international laws like the GDPR if applicable.
Best Practice: Require approval from your Privacy Officer or Legal team before sharing any personal or confidential data with AI tools.
4. Intellectual Property (IP)
AI raises complex questions about ownership of generated content and inventions. Your policy should specify:
Who owns AI-created outputs (the company, employee, or third parties).
How AI-generated materials can be used, modified, or published.
Whether AI-generated content must be reviewed by humans before external use.
For example, make it clear that all AI-created content used for business purposes becomes company property and should include a human review before publication or client delivery.
Legal Insight: This clause protects your organisation from IP disputes and ensures alignment with copyright laws and client contracts.
5. Transparency & Accountability
Accountability is key to maintaining trust and compliance. Assign responsibility for overseeing AI use, typically to a compliance officer, department head, or internal AI governance committee.
Be sure to include:
Regular auditing of AI use and data handling.
Approval workflows for introducing new AI tools.
Documentation requirements for significant AI-assisted decisions (especially in HR, finance, or legal functions).
6. Ethical Use
This section reinforces your organisation’s commitment to fairness, human oversight, and accountability.
Include principles such as:
Avoiding discrimination and bias in AI-driven decisions.
Maintaining human review and accountability for final outputs.
Ensuring AI use aligns with company values and legal obligations.
Disclosing when AI is used in customer interactions or decision-making processes.
Example: An HR department using AI for recruitment must ensure the tool is audited for bias and final hiring decisions remain human-led.
7. Employee Training
A policy is only as effective as the people following it. Incorporate mandatory training and awareness programs to help staff understand:
What AI tools are approved and how to use them responsibly.
How to identify potential misuse or bias.
The legal and ethical implications of AI.
You might also include refresher sessions or short e-learning modules as AI technologies evolve.
Pro Tip: Consider integrating AI literacy training into your onboarding program to promote compliance from day one.
8. Breach Reporting & Incident Response
Finally, define how employees can report suspected misuse of AI tools, data leaks, or ethical concerns. This section should include:
A clear reporting process (e.g. via a compliance officer or anonymous reporting tool).
Response procedures for investigating and remediating breaches.
Possible disciplinary actions for non-compliance.
Prompt reporting ensures your business can act quickly to limit damage and maintain transparency with regulators or clients if required.
Real-World Examples
Samsung (2023): Employees leaked sensitive data into ChatGPT, prompting an internal ban and a new AI use policy.
Amazon HR Tool: An internal AI recruitment system displayed gender bias, forcing Amazon to withdraw it and review its AI ethics framework.
Banking Sector: Financial institutions are now required by regulators to demonstrate AI governance and ethical compliance.
These examples show that even global leaders can face serious consequences without a clear AI policy.
Contact Prosper Law today to create a Company AI Policy that truly works for your business. Our experienced commercial lawyers can help you draft, review, and implement a compliant policy that protects your interests and supports responsible innovation.
Company AI Policy Checklist
Before launching your AI policy, make sure it includes:
- Defined purpose and scope
- Approved AI platforms
- Data protection and privacy rules
- Intellectual property ownership terms
- Ethical use principles
- Staff training requirements
- Breach and complaint reporting process
- Regular policy review schedule
As part of managing AI responsibly, businesses should also be aware of the dangers of using ChatGPT in contract drafting and similar legal pitfalls.
Frequently Asked Questions
What is a Company AI Policy?
It’s an internal document that outlines how AI can be used safely, legally, and ethically across your organisation.
Why is an AI policy important?
It protects your business from privacy breaches, compliance issues, and reputational damage – while enabling responsible innovation.
Does my business need a Company AI Policy if we only use basic AI tools?
Yes. Even everyday tools like ChatGPT or Canva AI can create legal risks without clear usage guidelines.
Can I use an AI policy template?
Templates are a good start, but your policy should reflect your specific tools, workflows, and legal obligations. Prosper Law can customise one for you.
How often should I update it?
At least once a year – or whenever new laws, technologies, or AI tools are introduced.
Work with Prosper Law’s experienced commercial and contract lawyers to develop a tailored Company AI Policy that ensures compliance, safeguards your data, and supports responsible AI use.
Speak with our legal team today to get started.
