Many small and mid-size businesses rely on contract templates found online or generated by AI tools that produce generic legal language. And we get it; sometimes you’re juggling clients, vendors, payroll, and a million other things, and hiring a lawyer feels expensive and potentially slow. AI drafting, forms you find, and purchased templates look like a fast, cheap solution: they’re easy to obtain, they look formal, and they feel like something you can just plug in and go. Honestly, who hasn’t thought, “How bad could this really be?”
Honestly? Pretty bad. While we understand why businesses turn to templates or AI-generated drafting tools, we do not recommend relying on them for any contractual relationship. They are not tailored to your business, your industry, or applicable law. Generic contracts are drafted for the broadest possible audience, without regard to your business’s industry, bargaining power, operational needs, or state-specific laws. And because they aren’t tailored to the relationship they’re supposed to govern, they frequently contain terms that are risky, outdated, unenforceable, or simply inappropriate. We routinely see these clauses in contracts, and yes, we spend a lot of time cleaning up the resulting messes.
We’re not here to shame anyone. We understand that “good enough for now” is sometimes all a busy business owner can do. But the reality is that a poorly drafted contract can create problems that are way more expensive (and time-consuming) than the lawyer you skipped in the first place.
Below are seven clauses no small business should rely on “as-is,” no matter where the language came from.
The Indemnification Clause.
Indemnification clauses allocate responsibility when something goes wrong. In a carefully drafted agreement, they are specific, balanced, and aligned with the parties’ actual risks. AI and template clauses, however, are often overbroad, one-sided, or both. A typical generic indemnity might state:
“Party A shall indemnify, defend, and hold harmless Party B from any and all claims arising out of this Agreement.”
“All claims” could include claims caused by: (i) the other party’s own negligence; (ii) events neither party anticipated; (iii) activities unrelated to the services; or (iv) third-party actions outside your control.
Unlimited or vague language in clauses like indemnification often sparks expensive disputes over what the clause actually covers, because courts generally require clear, specific terms to enforce them. And if the clause is not mutual, you might be indemnifying the other party without any reciprocal indemnity.
Non-Compete Clauses That Are Overbroad or Unenforceable.
Generic or AI-generated non‑compete agreements frequently include overly broad restrictions (or reflect standards from inapplicable jurisdictions); for example, preventing an employee from working in any similar business anywhere in the world for several years. In Virginia (and many other jurisdictions), courts require that non‑competes be reasonable: the restrictions must be tied to a legitimate business interest, and they must be limited in geographic reach, duration, and the kinds of work restricted. Overly broad or sweeping clauses often fail this test and may be entirely unenforceable, providing no protection for your company at all.
One of the biggest pitfalls of using templates or relying on AI-generated language? Statutory change. Take Virginia as a concrete example; starting in July of 2020, Virginia began prohibiting employers from entering into or enforcing non‑compete agreements with “low‑wage” employees; that is, those workers earning less than the state’s average weekly wage. As of July 1, 2025, the non‑compete restriction now also applies to all non‑exempt (i.e., overtime-eligible) employees, regardless of wage. This year it expanded again. An AI-generated document or generic internet template may easily miss either (or both) of these Virginia-specific changes. Missing these things matters – not only might your non-compete be unenforceable, but Virginia law imposes up to $10,000 per violation for employers who enter into or enforce a prohibited non‑compete agreement.
Confidentiality Clauses Without a Real Definition of “Confidential Information”.
We can’t count the number of times we’ve seen an AI confidentiality clause that says something along the lines of ‘all information provided by Party A to Party B is confidential.’ It sounds protective, but in reality, it’s far too broad. Almost anything could fall under that definition: from trade secrets to something as trivial as a phone number or other publicly available information. Being overly broad can make the provision harder to enforce; courts often throw out (or “blue pencil”) restrictions that are too long in duration or are otherwise overly expansive. A well-drafted clause focuses on what truly matters (for example, trade secrets, financial data, client lists, etc.) and clearly spells out how the information may be used, who can access it, and how long the obligation lasts. Templates and AI-generated clauses rarely make these distinctions, leaving businesses exposed to disputes or, worse, unenforceable and useless confidentiality clauses.
One-Sided or Nonexistent Termination Rights.
Many AI agreements and templates either give only one party the right to terminate or provide no termination rights at all unless someone breaches the contract. Both approaches can create serious problems. If your business is locked into a contract with no exit, you could be paying for services you no longer need or tolerating a relationship that isn’t working. Conversely, if the other party can terminate at will while you cannot, you’re financially exposed.
Automatic termination for bankruptcy, dissolution, or other critical events is another area where templates often fall short. Without it, your business could be forced to continue performing even if the counterparty can no longer meet its obligations: a recipe for wasted time, money, and headaches.
Some templates or AI-generated agreements will also include provisions regarding termination for convenience (i.e., without cause), but that is not automatically a win for you. Depending on the language, it may favor the opposing party or leave your business exposed to sudden termination without recourse.
Termination for cause is essential, but make sure your contract considers all real-world scenarios. Commonly overlooked “causes” include things that aren’t technically breaches, like prolonged “ghosting” or non-responsiveness. If the other party doesn’t respond for five months, that may be as damaging as a breach and should ideally allow you to terminate.
Choice-of-Law Clauses.
Many contract templates leave the governing law section blank, leaving clients to guess which state’s rules make the most sense. Generally, the most logical choice is the state where the contract will be performed, since the laws are familiar and the courts accessible. But “logical” doesn’t always mean “best”: some states have rules that make their law less favorable, so parties may choose a different state’s law, such as their state of incorporation or organization (even if different from the location of performance). Bear in mind, not all states will respect that choice; California, for example, may refuse to apply another state’s law in certain cases, no matter what the contract says. The key is that the choice of governing law may feel like “boilerplate”, but it can have real consequences for how disputes are resolved and deserves careful consideration.
Intellectual Property Clauses.
Generically drafted intellectual property clauses often say something like “all work performed under this agreement is a work made for hire,” even when that’s legally inaccurate. Under U.S. copyright law, a work qualifies as made for hire only if the creator is an employee acting within the scope of employment, or if it is a specially commissioned work in one of nine enumerated categories with a signed agreement. Work created outside an employee’s scope, or by a contractor outside the enumerated categories, does not automatically belong to the hiring party, no matter what the contract says; courts can and do reject boilerplate claims.
The potential consequences are stark: you could pay for work and still not legally own the IP you expected, leaving critical code, branding, or creative content outside your ownership or control. We should note that the stakes cut both ways. If you are the creator, you might inadvertently give away more rights than intended; for example, failing to retain rights to background footage, B-roll, or other reusable assets used in a creative video. Poorly drafted clauses can leave you without control over material you assumed you still owned.
Boilerplate Auto-Renew Clauses
Automatic renewal clauses are not inherently problematic, but template or AI-generated versions are often a source of unexpected issues. Common pitfalls include:
- Excessively long renewal periods, which can lock a business into unwanted commitments.
- Minimal notice requirements, leaving little time to opt out before a renewal takes effect.
- Unilateral price increases, allowing the other party to raise fees without your consent.
- One-sided obligations, where only one party retains the right to terminate or adjust terms.
Conclusion
Templates and AI-generated contracts do not understand your business, your industry, or your state’s laws. They cannot assess risk, anticipate disputes, or balance terms fairly. And when a contract governs a real business relationship, with money, customers, employees, data, or intellectual property at stake, generic language simply isn’t enough.
A customized, state-specific, carefully drafted agreement doesn’t just reduce risk; it protects your business’s value and preserves relationships. In the long run, it is the more cost-effective choice, and the team at Way Law is always here to help!