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AI Presents Challenges and Opportunities for Midsize, Small Employers and Law Firms

Back in the 1980s and 1990s a generation of older managers and lawyers hoped that if they ignored computers and email, the latest technologies might just fade away and not affect them. That generation kept their IBM Selectric typewriters humming, their mimeograph machines rolling and their paper files bulging.

Meanwhile, nerds like Bill Gates and Steve Jobs took over the world.

That same phenomenon is happening today as many small and midsize employers (and law firms) are hoping they can avoid the revolution in artificial intelligence (AI) taking place around the globe, especially with the latest generative AI programs.

As in the past, ignoring this new technology is delusional—and threatens to harm you and your business if you don’t keep up.

The first AI “generative pre-trained transformers,” known as GPT, became publicly available in late 2022, most notably ChatGPT. Through electronic network models these systems have advanced AI to the point that they can instantly analyze more than a billion documents on the internet and instantly generate amazingly fluid and (usually) accurate new work-product in response to complex inquiries and tasks. More on that below.

In less than six months, employees have embraced the new technology. A ChatGPT survey of 1,000 employees found that 70% already have used ChatGPT at work, despite most having no training from their employers in the technology. A University of Pennsylvania study predicts that up to 80% of the U.S. labor force could see at least 10% of their work tasks impacted by AI, while 19% could have a majority of their tasks impacted. And an employee who works as a financial-technology marketer, has reported that he can now get 80% of his work duties done by ChatGPT, freeing him up to take a second job.

The legal world has not been immune to these rapid developments. Westlaw, Lexis, Casetext, and other providers recently brought to market their own AI tools. A demonstration of the Lexis+ AI tool is available at — revealing what appears to be instantaneous, associate-level legal writing in response to queries as to a statute of limitations issue in New York, and the pros and cons of removing a case to federal court. Other available uses of generative AI in the legal industry include predictive analytics for case outcomes, contract analysis and management, e-discovery, compliance monitoring, and even drafting of client emails.

On the other hand, as with any technology, AI is not immune from legal and ethical concerns and flaws. The New York Times published an article about an attorney who submitted a brief citing more than a half dozen completely made-up cases generated from ChatGPT. This phenomenon, where ChatGPT produces what appear to be plausible answers but that turn out to be based on fabricated sources, which the AI world has coined to be “hallucinations.” Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York called it “an unprecedented circumstance,” and ordered a hearing to discuss potential sanctions against the attorney.

In addition, the Biden administration and several states are adopting guidelines and legal limitations on the use of AI, including New York City Local Law 144 and the U.S. Equal Employment Opportunity Commission (EEOC) and FTC’s joint statement on enforcement efforts against discrimination and bias in automated systems.

The government’s major concern from an employment law standpoint appears to be that the technology can be used in a way that disparately impacts minorities and women in the recruiting and hiring process, among other decisions. Left unsaid is whether these AI-generated filtering and selection systems discriminate more or less than our existing human systems. For now, New York, the EEOC and other government agencies are requiring or strongly suggesting that employers conduct testing and monitoring of AI systems before using them in any human resources function.

Other concerns beyond employment law include private and public entities using AI systems to make critical decisions that impact fair and equal access to housing, credit opportunities, and other goods and services.

In response, some larger companies have initiated bans and restrictions on the use of AI, including Samsung’s prohibition on the use of ChatGPT by employees after discovering misuse of the technology, and JPMorgan adopting strict controls on employees’ ability to use technology.

So, what should a small or midsize employer or law firm do to keep up with AI. Here are some of the top tips from legal and technology advisers:

  • Identify an AI Czar to better understand how AI can be used at your company or firm to improve work processes, solutions and productivity. If no one inside the company is capable of taking on the task, consider hiring a consultant to help lead the way.
  • Once beneficial uses of AI are identified, review applicable laws and literature to identify issues and concerns that need to be addressed, including those related to company and client privacy and confidentiality, copyright, ethics, and intellectual property.
  • Establish specific policies and guidelines for employee usage of AI tools, and consider to what extent, if any, customers and co-workers are to be informed when generative AI results have been used.
  • Train employees in approved AI usage, employer guidelines and prohibitions.
  • Create a committee to work with the AI Czar to monitor and update company compliance and training as the technology and usage evolve. Involve all stakeholders, not just IT, legal and HR, but also the employees who will be using AI and potentially clients and customers impacted.
  • Frequently monitor and assess the company's AI usage, risks and outcomes as to known threats areas of concern—including disparate impacts on employees, use of false or "hallucinated" AI results, privacy and copyright violations, employees not using their time productively, moonlighting by employees, etc.

Michael Homans has practiced labor and employment law, including noncompete litigation, for more than 25 years in the Philadelphia region. He is a founding partner of HomansPeck. Contact him at

Gabrielle Talvacchia is an associate at the firm, and focuses her practice on a wide range of employment matters. Contact her at

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