AI clauses in an employment contract

An employee who pastes the customer list into a free chatbot, generates a report with an invented statistic or keeps the company's prompts on a personal account when they leave is in breach of nothing unless the contract and the handbook say so. The clauses incorporate the AI use policy, extend the confidentiality clause to tools, settle the intellectual property in generated work, disclose the monitoring of tool use, make generated errors a performance and disciplinary matter, and deal with accounts and prompts at exit. For £595, fixed, with delivery in five working days, I draft or review the agreement's AI provisions.

Who this is for

Employers in England and Wales whose staff use AI tools at work, with or without permission, and whose contracts and handbook were written before the tools existed.

What matters in AI clauses for an employment contract

The policy incorporated and the contract that makes it enforceable

The contract incorporates the employer's AI use policy as it is updated from time to time, states that breach is a disciplinary matter, and locates the detail in the handbook (so that the policy can change without a contract variation), while the handbook's AI section sets the approved tools, the tiers of use, the prohibitions and the checking required; the clause also requires the employee to complete the training the employer provides and to report tools they use, because a policy the employee has not been told about is not the basis for a fair dismissal under the Employment Rights Act 1996.

Confidentiality and the clause that names the tools

nothing confidential (trade secrets, clients' data, unreleased plans) goes into a tool whose terms let the provider train on or keep the input, because the Trade Secrets (Enforcement, etc.) Regulations 2018 and the business's confidentiality obligations turn on the steps taken to keep it secret; the employee's confidentiality clause is extended to say that disclosing confidential information to an AI tool other than an approved tool on an employer account is a disclosure to a third party and a breach, that personal accounts are not to be used for the employer's information, and that the duty continues after employment, with the definition of confidential information updated to include the employer's prompts, configurations and outputs where they embody its know-how.

Intellectual property in what an employee generates

Section 11 of the Copyright, Designs and Patents Act 1988 gives the employer copyright in works an employee makes in the course of employment, but the author of a computer-generated work is, under section 9(3) of the Copyright, Designs and Patents Act 1988, the person who made the arrangements, a rule untested on modern tools, and the Act protects only what is original, so the contract's intellectual property clause is updated to assign to the employer whatever rights the employee has in generated and AI-assisted work made in the course of employment, to confirm that prompts, configurations and outputs made for the employer belong to it, and to require the employee's cooperation in establishing the employer's rights; the Patents Act 1977 position on employee inventions is left as it stands, with AI-assisted inventions treated as the employee's for the purposes of sections 39 to 41.

Monitoring, accounts and the tools the employer sees

Where the employer provides tool accounts it can see the prompts and outputs, and where it monitors the use of unapproved tools on its systems it is monitoring workers, so the contract and the handbook disclose the monitoring (what is monitored, why, on what basis, who sees it) consistently with the Information Commissioner's guidance and the employee privacy notice; personal data entered into an AI tool is processing under the UK GDPR that needs a lawful basis, a notice to the individuals, a data processing agreement under Article 28 with the provider and, where the tool is used on people in ways that affect them, an impact assessment under Article 35, and the employee privacy notice must describe the tools the employer uses on its own staff (recruitment screening, performance analytics, transcription), with any solely automated decision about an employee subject to the safeguards Article 22 requires.

Performance, discipline and the generated work that was wrong

The clause and the handbook make the employee responsible for the work they submit regardless of the tools used (the invented citation, the wrong figure, the code that failed review are the employee's errors), make the failure to check generated work a performance matter and the submission of unchecked generated work as checked a conduct matter, make the use of prohibited tools on confidential information gross misconduct where the policy says so, and keep the disciplinary procedure's ordinary standards (investigation, hearing, right of appeal) so that a dismissal for an AI breach is fair under section 98 of the Employment Rights Act 1996; a clause that treats every generated error as gross misconduct will not survive a tribunal and will not be applied.

Leavers, prompts and the accounts that outlive the employment

On termination the clause requires the employee to return and delete the employer's information from any tool or account they used, to hand over the prompts, configurations and outputs made for the employer, to have their access to the employer's tool accounts removed, and to confirm compliance in writing, with the confidentiality and intellectual property clauses continuing; the restrictive covenants are checked for the position where a leaver takes the prompts that embody the employer's methods to a competitor, and the garden leave and notice provisions are left as they stand; the employer's AI use policy, drafted separately, is the document the clauses incorporate, and the two are drafted to match.

What it costs

AI provisions in a contract, £595. Review or draft AI-specific terms in a supply or customer agreement. Five working days.

AI use policy, £995. Internal policy plus the accompanying contract provisions. Five working days.

Email me at geoffrey@caesar.co.uk with what you need and any documents, and I will confirm the scope and the fee in writing, usually the same working day.

What you get

• An internal AI use policy your staff will follow, rather than a document that bans everything and is quietly ignored
• Contract provisions covering output ownership, training data, confidentiality and liability
• A defensible position to give customers who ask what your AI governance looks like
• Review of your AI suppliers' terms, including what they reserve the right to change
• Practical guidance on what to permit, what to restrict and what to prohibit outright
• One round of amendments

What is not included

• Technical AI assurance, model testing or bias auditing
• Sector-specific regulatory approval
• Advice on non-UK regulatory regimes beyond flagging where they apply
• Ongoing regulatory monitoring

Questions I am often asked

Can we discipline an employee for using a free AI tool on client data?

If the contract incorporates the policy, the policy prohibits it and the employee was told, yes, with the ordinary disciplinary procedure applied. Without the clause and the policy there is nothing to enforce.

Who owns work an employee generates with AI?

The employer, for works made in the course of employment, but the law on computer-generated works is untested, so the clause assigns to the employer whatever rights the employee has in generated and AI-assisted work, prompts and configurations.

Do we have to tell staff we can see their prompts?

Where the employer provides the accounts and monitors use, yes: in the contract, the handbook and the employee privacy notice, with the purpose and basis stated. Undisclosed monitoring is the grievance and the claim.

Related guidance and services

• AI contracts and AI use policies, £595, the service this page describes
• SaaS and technology contracts, £995
• Data protection agreements and privacy terms, £795
• AI use policy for a small business
• Employee privacy notice

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.