Artificial Intelligence and the Practice of Law: California SB 574 and New Protections for Clients

Artificial intelligence (“AI”) has rapidly become part of everyday life. Millions of people now use AI systems such as ChatGPT, Gemini, Claude, and similar programs to draft emails, summarize documents, answer questions, conduct research, and create written content. Businesses are using AI to improve efficiency, reduce costs, and automate tasks that previously required significant human involvement.

AI is now being used in the legal profession to assist with legal research, document review, contract drafting, discovery, case summaries, deposition preparation, marketing materials, and even the preparation of court filings. Used properly, AI can save substantial time and reduce costs for clients. Used improperly, however, it can create serious risks.

Those risks have become increasingly apparent over the past two years. Courts across the country have sanctioned attorneys who filed legal briefs containing fictitious court cases generated by AI systems. Lawyers have also faced criticism for inputting confidential client information into public AI platforms without understanding how that information might be stored or used. In addition, concerns have emerged about bias, discrimination, and inaccurate information generated by AI tools.

California lawmakers concluded that existing ethical rules governing attorneys needed to be clarified and strengthened to address these new technologies. In response, the California Legislature introduced Senate Bill 574 (“SB 574”), which specifically regulates the use of generative AI by attorneys and arbitrators.

The principal reason for the legislation is simple: AI systems can make serious mistakes.

Unlike traditional legal research databases, generative AI systems do not actually “understand” the law. Instead, they predict and generate language based upon patterns in the data on which they were trained. As a result, AI systems can sometimes produce completely fabricated information while presenting it in a highly convincing manner. This phenomenon is commonly referred to as an AI “hallucination.”

Several widely publicized cases have involved attorneys submitting court filings containing nonexistent court decisions and fake legal citations created by AI programs. In some instances, judges imposed monetary sanctions on the attorneys involved and questioned their professional competence. Legislators and bar regulators became increasingly concerned that lawyers might rely too heavily on AI-generated material without independently verifying its accuracy.

Another Major Concern Involves Confidentiality

Many publicly available AI systems collect and retain information entered by users. Some systems may use that information to further train their models. If an attorney inputs confidential client information into a public AI platform, privileged or sensitive information could potentially be exposed or misused.

The legal profession imposes strict duties of confidentiality upon attorneys. California law already requires lawyers to preserve client confidences “at every peril.” SB 574 was designed to make clear that these duties continue to apply when lawyers use AI technologies.

Lawmakers were also concerned about the possibility that AI systems could generate biased or discriminatory content. AI models are trained using massive amounts of data gathered from the internet and other sources. Because those data sources may contain historical biases or inaccurate assumptions, AI systems can sometimes produce outputs that unfairly disadvantage certain groups or individuals.

In short, California concluded that while AI can be a valuable tool, lawyers must remain fully responsible for the accuracy, fairness, and confidentiality of the work they produce.

SB 574 does not prohibit lawyers from using AI. Instead, the bill establishes rules and safeguards governing how attorneys may use generative AI in the practice of law. The legislation essentially codifies ethical obligations that already exist and applies them specifically to AI-related conduct.

Among its most important provisions are the following:

1. Protection of Confidential Information

The bill would prohibit attorneys from entering confidential, personally identifying, or other nonpublic information into public generative AI systems.

This provision directly addresses concerns about lawyers uploading client documents, medical records, financial information, discovery materials, or litigation strategies into publicly accessible AI platforms. The law recognizes that clients are entitled to expect that their confidential information will remain protected, regardless of whether lawyers use advanced technology tools in their practice.

SB 574 requires attorneys to take reasonable steps to verify the accuracy of AI-generated material and to correct any erroneous or hallucinated content. This means lawyers cannot simply rely on AI-generated research, summaries, or citations without independently checking them.

3. Prevention of Bias and Discrimination

The bill also requires attorneys to ensure that their use of AI does not unlawfully discriminate against protected individuals or groups. This provision reflects broader concerns regarding algorithmic bias and fairness in AI systems. Lawyers cannot use AI tools in ways that produce discriminatory outcomes or perpetuate unlawful bias.

SB 574 further requires attorneys to consider whether disclosure is appropriate when AI is used to create content intended for the public. Although disclosure is not mandated in every circumstance, the bill signals growing concern regarding transparency when AI-generated content is used in professional settings.

One lesser-known aspect of SB 574 is that it also regulates arbitrators.

The bill would prohibit arbitrators from delegating any part of their decision-making responsibilities to generative AI systems. Arbitrators also would be prohibited from relying upon AI-generated information outside the evidentiary record without appropriate disclosure to the parties. This reflects concern that AI should not replace human judgment in dispute resolution proceedings.

The bill primarily affects attorneys practicing in California, law firms, in-house legal departments, arbitrators conducting California proceedings, and clients whose lawyers use AI technologies.

Although SB 574 is a California law, its impact will likely extend far beyond California. Many law firms operate nationally, and legal ethics rules in one large state often influence developments elsewhere.

For clients, SB 574 provides several important protections.

First, it reinforces that lawyers remain fully accountable for the quality and accuracy of their work. Clients should not bear the consequences of an attorney blindly relying on flawed AI-generated information.

Second, the bill strengthens protections for confidential client information. In an era when data privacy concerns continue to grow, this is a significant issue for businesses and individuals alike.

Third, the legislation recognizes that AI can create risks of bias, misinformation, and unfair treatment. By imposing duties upon attorneys to monitor and verify AI-generated material, the bill seeks to reduce those risks.

Finally, the law sends a broader message that AI is a tool and not a substitute for professional judgment.

AI technology will continue evolving rapidly. Its use within the legal profession is almost certain to expand.

Properly used, AI can improve efficiency, reduce costs, speed document review, and assist lawyers in managing increasingly complex information. Many attorneys already use AI tools responsibly and effectively. At the same time, the risks associated with AI are real. Courts, regulators, and legislators are making clear that attorneys cannot avoid responsibility by blaming technology for errors or misconduct.

SB 574 reflects an effort to strike a balance. The legislation does not reject AI or attempt to stop technological innovation. Instead, it establishes guardrails intended to ensure that lawyers continue meeting their professional obligations while using these powerful new tools.

AI may change how legal work is performed, but it does not eliminate the attorney’s duty to protect confidential information, verify accuracy, avoid bias, and exercise independent professional judgment. California’s proposed legislation is designed to ensure that those responsibilities remain firmly in place as AI becomes more integrated into the practice of law.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.
Attorney Erwin J. Shustak can be reached in the firm’s San Diego office at (619) 696-9500.