NYU Researchers Develop AI Tool to Identify Problematic Contract Clauses

TL;DR: Computer scientists at New York University have developed ContractNerd, an AI system using large language models to analyse employment contracts and leases. The tool categorises clauses as missing, unenforceable, legally sound, or risky, outperforming comparable systems in detecting problematic terms.

Researchers at NYU have created an AI-powered contract analysis tool designed to help non-lawyers identify problematic clauses in employment agreements and residential leases before signing.

Core Functionality

ContractNerd analyses contracts to flag four categories of concern:

  1. Missing clauses - Essential terms absent from agreements
  2. Unenforceable provisions - Legally invalid terms (e.g., broad non-compete agreements prohibited in many jurisdictions)
  3. Legally sound clauses - Valid provisions meeting legal requirements
  4. Risky terms - Provisions categorised by risk level (high/medium/low)

The system addresses common contractual issues including ambiguous language such as “reasonable time” without clear definition, and provisions that may be legally questionable in specific jurisdictions.

Technical Approach

ContractNerd leverages large language models combined with comprehensive legal databases to perform its analysis. The system draws from:

  • Thomson Reuters Westlaw legal database
  • State-specific regulations and legislation
  • Case law precedents

Dennis Shasha, a senior researcher on the project, explained the system’s purpose: “ContractNerd is an AI system that analyzes contracts for clauses that are missing, are extremely biased, are often illegal, or are ambiguous.”

Performance Evaluation

The research team conducted comparative evaluations demonstrating ContractNerd’s effectiveness:

Layperson Review:

  • Outperformed comparable contract analysis systems
  • Reviewers rated it superior for relevance and accuracy
  • Results suggest effectiveness for target audience of non-lawyers

Expert Assessment:

  • Contract law expert found the tool more thorough than alternatives
  • Noted potential accessibility challenges for general users
  • Trade-off between comprehensiveness and ease of use identified

Addressing Real-World Contract Issues

The tool specifically targets problematic contract provisions that frequently disadvantage individuals:

Non-Compete Clauses: Many employment contracts contain broad non-compete agreements that exceed legal limits in numerous jurisdictions. ContractNerd flags these provisions based on state-specific enforceability standards.

Ambiguous Terminology: Contracts often include undefined terms like “reasonable time,” “satisfactory performance,” or “good faith” without objective criteria. The system identifies such ambiguities that could lead to disputes.

Missing Protections: The tool highlights absent clauses that typically protect contract parties, such as termination procedures, dispute resolution mechanisms, or notice requirements.

Current Limitations and Future Development

ContractNerd currently focuses on two specific geographic regions: New York City and Chicago. The research team plans geographic expansion to cover additional jurisdictions with varying legal frameworks.

This geographical limitation reflects the complexity of contract law, which varies significantly by jurisdiction. Different states and municipalities maintain distinct regulations regarding enforceability of specific contract provisions, particularly in employment law.

Looking Forward

The development represents a practical application of AI for consumer protection, aiming to level the information asymmetry between contract drafters and individuals signing standardised agreements.

The tool’s focus on employment contracts and residential leases targets agreements where power imbalances are most pronounced, and where individuals frequently sign contracts without legal representation.

Key Considerations for Adoption:

  1. Accessibility vs. Thoroughness: The expert review noting potential accessibility challenges suggests ongoing refinement may be needed to balance comprehensive analysis with user-friendly output.

  2. Geographic Expansion: Extending coverage beyond NYC and Chicago requires integrating diverse state and local regulations, representing substantial development effort.

  3. Complementing Legal Advice: The tool appears designed to supplement rather than replace professional legal counsel, helping users identify issues warranting attorney consultation.

The research demonstrates AI’s potential for democratising legal knowledge whilst highlighting the challenges of translating complex legal analysis into accessible tools for non-specialists.

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