Stop using Chat GPT for this

AI tools like ChatGPT are everywhere in small business right now, and they can be brilliant for note taking, summaries, admin and creative idea generation. But there is a line business owners should not cross: using AI for strategic legal advice, especially when the stakes involve contracts, disputes and business risk.

More and more business owners are asking AI what they should do legally, then acting on it like it is professional advice. The problem is AI can sound confident even when it is wrong and in law, wrong advice is rarely a small problem.

I share real world examples of what can happen when you rely on AI for legal decisions, including a polished client agreement that missed key intellectual property and dispute resolution clauses and led to a $60,000 conflict. I also take a look at the risks of getting contractor vs employee decisions wrong and how AI-driven assumptions can trigger costly superannuation claims.

The takeaway is simple. Use AI for efficiency and brainstorming, but for legal advice, contracts, intellectual property, employment issues and disputes, speak to a qualified lawyer who understands your context and carries the responsibility.

LINKS:

Episode Website:

https://www.tmlegalatelier.com.au/rise-up-in-business-podcast/stop-using-chatgpt-for-this 

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Transcript

0:52

Conversations about AI and ChatGPT in business are not new, and those conversations are not gonna stop anytime soon. There's no doubt AI is here to stay, and as business owners, we ought to embrace it. I'm all for that. However, there are limitations to what you should be using AI for in your business and what you shouldn't. And in today's episode, I'm gonna share with you one thing that I really, really wish business owners would stop using ChatGPT for, and that is strategic legal advice I'll bet you thought I was going to say, "Don't use ChatGPT to draft your contracts." And yes, I say that a lot, but that's not what I want to focus today's episode on. I really think me saying that is obvious. and I think the time has passed where people are using ChatGPT to draft legal documents. I really do. There may be some people that still do it. I hope that they eventually learn that that's not a great use or a suitable use of AI or ChatGPT. I've seen so many business owners end up in a really tricky situation because they have documents that don't work. That goes to the cornerstone of what I do in this business. I draft contracts and agreements for clients to help set them up for success. My background is litigation and disputes, so I want to see business owners set up for success, and I want to see them avoid becoming somebody else's litigation client. So it's no secret that I don't support ChatGPT or any AI for drafting your legal documents, but it's so obvious. It's so obvious that I want to talk about something that's less obvious but so incredibly important, and that is when business owners use ChatGPT to take their legal advice. I don't know how you use ChatGPT in your business, but I don't use ChatGPT. I use Claude, and I use Claude for brainstorming, for summaries, and I have a note-taker. I find that it can be beneficial for efficiencies in the business, and it's nice to be able to brainstorm creative ideas when it comes to my content with a platform like a Claude who I've trained so it knows my business and my brand so that it helps just crystallize my thinking sometimes when I'm thinking about content and podcast topics and things like that. That I think is an excellent use of AI, and there's no business owner that I know that doesn't use some form of AI for something like that. That's where it ends though, in my view. Well, certainly that's where it ends in my business. That's where it ends for a lot of my clients. And I'm hoping after listening to this episode that your use of ChatGPT or AI doesn't extend to taking your legal advice. ChatGPT and AI, when I say ChatGPT, it does extend to the others, is not designed to be current or up-to-date or accurate on the law Many of the AI tools, as I'm sure all of my listeners are aware, are designed to hallucinate. That means if they don't know the answer to a question, they make it up. They're creative. They're not designed to give factual information or details when it comes to the law, current legislation, the application of that legislation, or even a list of current judgments that have been delivered by the courts. It's not designed for that. And further, the output we get is as good as the input that we give. We know this. So unless you know exactly what it is that you need to ask specific to a piece of legislation or a section or a principle of law, you can't rely on the output because the output is only as good as the input, and you weren't quite sure about the input, which is why you went there in the first place. I'm going to share with you a recent Supreme Court of New South Wales court case where business owners found themselves in hot water because they'd used ChatGPT for their legal advice. I kid you not, it ended up in court. Before I do, though, I just want to give you a couple of examples of real-life scenarios that I've seen business owners reach out to me to seek help because they've used AI for their legal advice and it got it wrong, and they were in a worse situation than what they were at the beginning. One is in relation to client agreements, creative business owner client agreement. They used ChatGPT to develop their client agreement. It looked excellent, professional, stellar, formatted well. It looked really great, but it was missing IP protection clauses and it missed a dispute resolution clause and the right to cease services if they weren't paid. The business owner, when they were asking ChatGPT to draft their agreement, they didn't know what they needed. So they didn't give a list of clauses, and they didn't know what to look for. Of course they didn't. They're not lawyers. They're creatives. So they ended up in a situation with a client, fairly chunky contract to the tune of $60,000. There was a dispute over the deliverables and who owned the intellectual property. There was a dispute over unpaid invoices, and because there was no dispute resolution clause, there was no framework to guide the discussion. So the client just refused to pay about$28,000 worth of those invoices, and they were using the intellectual property in a way that the creative wasn't happy with The creative stopped work but had no right to under the agreement because it didn't say you've got the right to stop work. Not everybody wants that right. Some people do, some people don't. It's individual. But this creative didn't have the right, which meant the client had to terminate and then go and engage somebody else, and then sought to recover additional costs from the creative business owner because they said they were in breach of the contract because they didn't have the right to terminate in the first place. You can see how messy that was and how it was so much worse by the time it got to me because of the inadequacies of the agreement. If that agreement had have been drafted properly to suit the creative business right from the very beginning, all of that could have been avoided. That's what I'm about in my business. Prevention is better than cure. There is so much that I saw in the litigation era of my career that could have been avoided with the right advice and the right documents. I see these examples all the time, and that's one. The other live example I want to share with you from business owners that I've spoken to is in relation to contractors. So a business owner had taken advice from ChatGPT and had satisfied themselves that the contractor they were engaging was a genuine contractor, and that they weren't at risk of the law deeming that contractor later to be an employee. They didn't know to ask though, specifically about deeming provisions in relation to superannuation. So what it meant was they got it wrong and there was a significant claim for a back pay of superannuation by the contractor after they'd left. Things did sour, but after they left and they became aware that they were actually entitled to superannuation under that arrangement. Because that business owner had used ChatGPT, the advice that they relied on was wrong and the documentation was inadequate, which meant the business was liable to pay a significant back pay for superannuation to that contractor. They are two live examples. There are so many more that I could share with you, but I won't for the sake of this brief episode. You get the point. ChatGPT is great for some things, not others, and taking legal advice is not something that you should be using ChatGPT or any AI tool for. Now, don't just take my word for it. Recently, this year, New South Wales Supreme Court handed down a decision ordering an administrator to be appointed to a company because two directors pushed out a third director. The two directors used ChatGPT for their strategic advice, and they input questions and details around treating the director like an employee and the steps they needed to take to remove him. However, that was the wrong law because the director wasn't an employee, he's a director, and the correct law related to oppression Not employee. So the legislation that ChatGPT developed the framework for the strategy was wrong. The two directors relied on it. That was wrong. They acted in breach of the law because they were acting in a way that was oppressive, and you're not allowed to do that under certain law. I won't go into too much detail to illustrate my point, but what ended up happening was an administrator has now been appointed to the company by order of the court, and the two directors that did the wrong thing are suffering significant harm, loss, and damage. That case, in case you want to look it up, it is called In the Matter of Lanmar Pty Ltd (No. 2). So that's brackets number two, and Lanmar is L-A-N-M-A-R. It's a 2026 case in the New South Wales Supreme Court. That is a classic example of where we are headed when it comes to business owners or any individual or company using AI for legal advice and getting it wrong, because it's not designed to get it right. And in this particular case, the cost to the two directors is so significant because they made the judgment call to use ChatGPT to save on lawyers' fees, and now it's going to cost them significantly more than what the legal advice, competent, proper legal advice at the beginning would have cost. Similarly, with the client scenarios that I shared with you It was about saving money. I'm gonna save money and time and just use AI to develop these so I don't need to engage a lawyer. But then the consequence was so significant that it cost them way more in the end than what it would've ever cost by getting these things done properly by a lawyer in the first place. There's documentation, but there's strategic advice. You need to know that the advice you're getting is correct. You can rely on it, therefore you have peace of mind. You don't get that from ChatGPT. You don't get that from any AI tool when it comes to the legal landscape, and you were never supposed to. It's not designed for that. So I wanted to demystify that today so that when you're thinking about the way you use AI and ChatGPT in your business, that you're really clear that my view is that yes, it has a place, but we need to be really discerning as business owners because that's our responsibility, and we need to apply it where appropriate. And the key, as you can see from the Supreme Court case that I've shared with you, is don't apply it and don't use it where it's not appropriate because you can end up in hot water. The judge was very critical of the directors and the fact that they used ChatGPT, and she made a point to say ChatGPT is not legal advice. So there we go. I suspect we're going to see many, many, many more cases along a similar vein where businesses or individuals or entities end up in a situation which is untenable because they've done the wrong thing, because they relied on the advice they got from AI. Don't let that be you. I hope you have enjoyed this very short and sharp episode. It's really topical, and I suspect I'll be talking a lo- about this a lot more on socials and here on the podcast. If you know a business owner that you think would benefit from this insight as well, please, I would be so grateful if you would share the episode because that's how we get the podcast into the ears of even more business owners. As always, thank you so much for joining me. I'll catch you next time.