Shadow AI in the Workplace

Unauthorized, unmonitored use of AI tools at the workplace is a growing concern and has been called "shadow AI" by industry experts. The practice could potentially be exposing sensitive personal data and consumer information under the radar.

If your private information was exposed because an employee or company used an unvetted AI tool without authorization, you may have legal options. The Lyon Firm investigates data privacy violations and represents individuals nationwide in class action and privacy litigation. Contact us today for a free and confidential consultation.

What Is Shadow AI?

Shadow AI refers to the use of artificial intelligence applications within a business or organization without the knowledge or oversight of the company's IT or security teams, and the consequences can be quite serious.

Employees across industries are pasting confidential documents into chatbots and running financial analyses through unvetted platforms. It is usually done as a shortcut for a particular employee and they probably don't consider that sensitive consumer data could be leaked.

According to research cited by cybersecurity firm Netskope, nearly half of people using generative AI platforms at work are doing so through personal accounts that their employers have no knowledge of. That means company data is flowing into third-party systems with no security review and no clear understanding of where that information ends up.

Why Shadow AI Creates Serious Privacy Risks

The privacy risks tied to shadow AI stem directly from the way these tools work and how data is handled when no governance framework is in place.

Many AI tools store the prompts and files users submit, so when an employee uploads a customer list to an unauthorized tool, that information may be retained by the platform or used to train future models.

Laws like HIPAA, CCPA, GDPR, and various state-level privacy statutes impose strict requirements on how personal data is stored and share and shadow AI tools may bypass these protections entirely.

If data is processed through an unsanctioned tool, there is often no record of what information was submitted or whether it was ever deleted.

The Legal Landscape Around Shadow AI

Litigation tied to unauthorized AI use is growing rapidly. Researchers tracking AI-related lawsuits counted more than 200 cases in the United States by late 2024, with dozens directly tied to generative AI tools. Courts and regulators are increasingly focused on questions of consent, data handling obligations, and corporate accountability for the AI tools employees use.

‍Courts in California have recognized that individuals retain cognizable privacy interests in their personal information even after it has been collected. Violations of state wiretapping and recording laws could apply with the use of AI transcription tools without proper consent.

HIPAA and healthcare data claims can be filed when shadow AI tools are used by healthcare employees to process patient records.

IBM's 2025 Cost of a Data Breach report found that organizations with shadow AI usage paid substantially more per breach than those with controlled AI environments.

Who Can Be Held Accountable?

The company whose employee used the unauthorized tool can face liability if it failed to implement reasonable AI governance policies or if the employee's actions fell within the scope of their employment.

The AI vendor itself may face claims if it failed to disclose that it retains user data or uses it for model training. In some cases, class action claims may be appropriate where a single company's shadow AI practices affected large numbers of customers or employees.

Why Hire The Lyon Firm

The Lyon Firm has spent nearly two decades taking on some of the largest corporations in the country on behalf of individuals whose privacy and legal rights were violated. Attorney Joe Lyon has represented clients in all fifty states and has served as lead class counsel in state and federal consumer class actions.

The firm handles privacy litigation on a contingency fee basis, meaning clients pay nothing unless and until there is a recovery. The Lyon Firm advances all costs of litigation.

If you believe your data was exposed through unauthorized AI use, The Lyon Firm wants to hear from you.

Contact The Lyon Firm today for a free and confidential case evaluation. We represent clients nationwide and never charge a fee unless we recover for you.