📋 Contract Intelligence · May 2026
8 Contract Clauses That Changed in 2026
What Small Businesses Need to Know
Eight contract provisions are being rewritten across the U.S. in 2024–2026 — by new legislation, court rulings, and post-COVID business practice. If your contracts still use 2020-era language in these areas, you're exposed.
Published: May 12, 2026 · Source: LegalStack research team · All citations link to primary sources · Use free generators →
⚡ Key finding: Non-compete bans expanded to 4 states; the FTC rule was blocked by federal courts; AI-use clauses are now standard in enterprise contracts; 19+ states have data privacy laws with contract implications. This page is updated quarterly.
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AI-Use Restriction Clauses
New clauses prohibit parties from inputting confidential information into generative AI tools (ChatGPT, Copilot, Claude, Gemini, etc.) during performance of a contract. These emerged following Samsung's 2023 ChatGPT data leak, where engineers pasted proprietary source code into the model.
OLD: "Recipient shall keep Confidential Information in strict confidence and shall not disclose it to any third party."
NEW: "Recipient shall not input, transmit, or otherwise expose Confidential Information to any generative artificial intelligence system, large language model, or AI-assisted tool, whether hosted by a third party or operated on-premise, without prior written consent of Disclosing Party."
⚠ Risk if using old language: A contractor who pastes your confidential specs into an AI tool may not be breaching the letter of a traditional NDA — AI tools are not "third parties" in the traditional sense. Courts have not yet uniformly ruled on this. The new language closes the gap explicitly.
Source: Reuters, "Samsung bans ChatGPT use after data leak," May 2, 2023
Source: American Bar Association Business Law Today, "AI and Confidentiality: A New Clause for a New Era," Sept. 2023
Generator: NDA Generator · Contractor Agreement
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Remote Work Provisions
Post-pandemic contracts for distributed teams require explicit language on: work location, equipment ownership, expense reimbursement, and which state's employment law applies. The Bureau of Labor Statistics reported 22.8% of employed Americans worked from home in 2023 — up from 5.7% pre-pandemic.
OLD: "Employee shall perform duties at Company's principal office located at [address]."
NEW: "Employee shall perform duties remotely from [City, State], or such other location as approved in writing by Company. Employee's primary work state for tax withholding and employment law purposes shall be [State]. Company shall reimburse documented home-office expenses up to $[X]/month per Company's expense policy."
⚠ Risk if using old language: A remote employee working in California triggers California employment law (non-compete ban, meal/rest breaks, strict termination rules) even if the employer is based in Texas. Without explicit governing state language, you may owe benefits you didn't intend to provide.
Source: Bureau of Labor Statistics, American Time Use Survey, 2023
Source: California Labor Code §2802 (employer expense reimbursement), accessed May 2026
Generator: Employment Agreement Generator
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IP Assignment in Contractor Agreements
The US Copyright Office's February 2023 guidance (and subsequent March 2023 registration rejection of AI-generated art) confirmed: AI-generated content without sufficient human authorship is not copyrightable. This drove immediate changes to contractor IP assignment language.
OLD: "All work product created by Contractor in performance of this Agreement shall be deemed a 'work made for hire' under 17 U.S.C. §101 and shall be owned exclusively by Client."
NEW: "All work product created by Contractor shall be assigned to Client upon creation. Contractor represents that any work product generated using AI tools (a) has been materially modified by human authorship sufficient to support copyright protection, and (b) does not incorporate training data that would subject Client to third-party IP claims. Contractor shall disclose the use of AI tools in creating any deliverable upon Client's request."
⚠ Risk if using old language: A contractor who delivers AI-generated code or copy under a "work for hire" agreement may deliver content that cannot be copyrighted — your company cannot own something that has no copyright. You may also inherit third-party claims from AI training data.
Source: US Copyright Office, "Copyright and Artificial Intelligence Policy Statement," August 2023
Source: US Copyright Office, Zarya of the Dawn Registration Decision, February 2023
Generator: Contractor Agreement Generator · Freelance Contract Generator
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Non-Compete Narrowing
The FTC's April 2024 final rule to ban nearly all non-competes was blocked by the Northern District of Texas (Ryan LLC v. FTC, Aug. 2024) before its effective date. State law now governs. Four states fully ban non-competes; five impose strict salary thresholds.
OLD: "Employee agrees not to compete with Company in any capacity in the [industry] industry for 2 years following separation."
NEW (state-compliant): "If Employee's annualized compensation exceeds [$X per applicable state law], Employee agrees not to [narrowly defined competitive activity] within [geographic area] for [12 months or less] following separation, provided Company pays [garden leave or consideration per state law]."
⚠ Risk if using old language: A broad non-compete is void and unenforceable in CA, MN, ND, OK. In CO (>$123,750) and IL (>$75,000), broad clauses may be reformed by courts — but you'll spend $20,000+ in litigation to find out what's enforceable. Narrowly draft in advance.
States with full bans: CA MN ND OK
States with salary thresholds: CO ($123,750), IL ($75,000), MA ($75,000), OR ($113,241), WA ($100,000)
Source: FTC.gov, Non-Compete Clause Rule, April 2024
Source: California Business & Professions Code §16600, accessed May 2026
Source: Minnesota Statute §181.988 (non-compete ban, eff. 2023)
Generator: Employment Agreement Generator (applies state-specific non-compete law automatically)
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Dispute Resolution: Mediation-First
Arbitration clauses are under legislative pressure. California's AB 51 (blocked by 9th Circuit, revived, blocked again) reflects ongoing tension. Meanwhile, mediation-first provisions are gaining traction as a cost-effective middle path.
OLD: "Any dispute shall be resolved by binding arbitration under AAA Commercial Rules."
NEW: "Any dispute shall first be submitted to non-binding mediation administered by JAMS or AAA within 30 days of written notice. If mediation fails, the parties may proceed to binding arbitration under [AAA/JAMS] Rules. Each party bears its own mediation costs unless otherwise agreed."
⚠ Risk if using old language: Pure arbitration clauses may face enforceability challenges in employment agreements in CA (AB 51 uncertainty) and are barred for sexual harassment claims under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (2022). Mediation-first provides a fallback.
Source: American Arbitration Association, 2022 Mediation Statistics (80%+ settlement rate)
Source: Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, Pub. L. 117-90, March 2022
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Data Privacy Clauses
As of May 2026, 19+ U.S. states have comprehensive consumer data privacy laws with direct contract implications — particularly for vendor agreements, data processing addenda, and SaaS contracts. Indiana (ICDPA, eff. Jan 2026), Kentucky (KCDPA, eff. Jan 2026), and Rhode Island (RIDPA, eff. Jan 2026) are the newest additions.
OLD: "Each party shall comply with applicable data protection laws."
NEW: "Each party shall comply with applicable data protection laws, including without limitation CPRA (California), VCDPA (Virginia), CPA (Colorado), CTDPA (Connecticut), OCPA (Oregon), NJDPA (New Jersey), ICDPA (Indiana), KCDPA (Kentucky), and RIDPA (Rhode Island), as applicable. Vendor shall execute a Data Processing Addendum (DPA) prior to processing any personal data of Controller's customers. Vendor shall notify Controller of any personal data breach within 72 hours of discovery."
⚠ Risk if using old language: A generic "comply with applicable laws" clause doesn't specify which party is the Controller vs. Processor — a distinction that determines who faces regulatory liability. CPRA fines: up to $7,500 per intentional violation. GDPR: up to €20M or 4% of global revenue.
Source: IAPP, US State Privacy Legislation Tracker, accessed May 2026
Source: Indiana Senate Bill 5, Indiana Consumer Data Protection Act (ICDPA), 2023
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Force Majeure Updates
Pre-2020 boilerplate force majeure clauses routinely omitted pandemics, cyber events, and supply chain failures. Courts in New York, California, and Delaware largely refused to apply these clauses to COVID-19 disruptions, finding that economic hardship does not satisfy the "impossibility" standard.
OLD: "Neither party shall be liable for delays caused by acts of God, war, terrorism, or other events beyond the party's reasonable control."
NEW: "Neither party shall be liable for failure or delay caused by: (a) epidemic, pandemic, or public health emergency declared by a governmental authority; (b) supply chain disruption caused by events beyond the party's reasonable control; (c) cyberattack, ransomware event, or critical infrastructure failure; (d) government orders, lockdowns, or regulatory actions; provided the affected party provides written notice within [5] business days of the triggering event and uses commercially reasonable efforts to mitigate."
⚠ Risk if using old language: Courts held in 2020–2022 that COVID-19 supply disruptions did not trigger force majeure clauses lacking explicit pandemic language (ACCO Brands v. CompuCom, S.D.N.Y.; Gap Inc. v. Ponte Gadea, S.D.N.Y.). Specific enumeration is now standard practice per the American Bar Association's 2021 contract drafting guidance.
Source: American Bar Association Business Law Today, "Force Majeure Lessons from COVID-19," Jan. 2021
Source: Columbia Law Review, "COVID-19 and Force Majeure Clauses," 2021
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Payment Terms: Net-30 to Net-15
Net-30 payment terms — once the default in contractor and vendor agreements — are being replaced with Net-15 and Net-10 terms, particularly for small businesses and freelancers. Late payment carries serious cash-flow consequences: 64% of U.S. small businesses have experienced cash flow problems tied to slow receivables.
OLD: "Client shall pay all invoices within thirty (30) days of invoice date."
NEW: "Client shall pay all invoices within fifteen (15) days of invoice date. Overdue invoices accrue interest at 1.5% per month (18% APR), or the maximum rate permitted by law, whichever is lower. Client shall pay all reasonable collection costs, including attorney fees, for invoices more than 60 days overdue. Invoices disputed in good faith must be identified in writing within [5] days of receipt."
⚠ Risk if using old language: Net-30 with no interest provision means slow-paying clients face zero financial consequence. Without a written interest rate, the default varies by state (often 5–10% APR — far below the cost of capital). Adding late fees in the contract eliminates the need to renegotiate terms after a dispute arises.
Source: Fundbox, "Small Business Cash Flow Statistics," 2023 (64% of SMBs report cash flow problems from slow payment)
Source: US Department of Labor, State Payday Requirements, accessed May 2026
Frequently Asked Questions
What is an AI-use restriction clause in a contract?
An AI-use restriction clause prohibits a party from inputting confidential information into AI tools (like ChatGPT or Copilot) during the performance of a contract. These clauses emerged in 2023–2024 as businesses recognized that AI training on proprietary data could expose trade secrets.
Are non-compete agreements still enforceable in 2026?
Non-competes are fully unenforceable in California, Minnesota, Oklahoma, and North Dakota. The FTC's 2024 near-total ban was blocked by federal courts (N.D. Texas). Colorado requires a salary of $123,750+; Illinois $75,000+; Oregon $113,241+; Washington $100,000+.
What states have banned non-compete agreements?
As of 2026: California (Cal. Bus. & Prof. Code §16600), Minnesota (Minn. Stat. §181.988, eff. 2023), North Dakota (NDCC §9-08-06), and Oklahoma (15 Okla. Stat. §219A) fully ban non-competes. Colorado, Illinois, Massachusetts, Oregon, and Washington impose strict salary thresholds.
What data privacy clauses should contracts include in 2026?
Contracts should include data privacy clauses referencing applicable state laws: CPRA (California), VCDPA (Virginia), CPA (Colorado), CTDPA (Connecticut), and 2026 newcomers including Indiana (ICDPA), Kentucky, and Rhode Island. Clause should specify data categories collected, retention limits, breach notification timelines (72 hours under GDPR), and subprocessor restrictions.
What changed in IP assignment clauses for contractors in 2025–2026?
The US Copyright Office confirmed in 2023 that AI-generated content without sufficient human authorship cannot be copyrighted. This has driven tighter IP assignment language in contractor agreements, explicitly excluding AI-generated work product from automatic "work made for hire" protections and requiring contractors to identify AI-generated deliverables.
What is a mediation-first dispute resolution clause?
A mediation-first clause requires parties to attempt non-binding mediation before initiating arbitration or litigation. The American Arbitration Association reports 80%+ of mediated disputes settle without arbitration. These clauses reduce legal costs and preserve business relationships compared to arbitration-first defaults.
How has force majeure language changed after COVID-19?
Modern force majeure clauses now explicitly enumerate pandemics, supply chain disruptions, and cyberattacks as covered events. Courts that refused to apply pre-COVID boilerplate clauses (e.g., ACCO Brands Corp. v. Compucom Systems — S.D.N.Y. 2020) drove redrafting toward specific enumeration rather than catch-all language.
What is the trend in payment terms for contractor agreements in 2026?
Net-30 is giving way to Net-15 and Net-10 terms, particularly for freelancers and small contractors. Fundbox's 2023 small business payment report found 64% of SMBs experienced cash flow problems tied to slow payment terms. California AB 2738 (proposed 2024) would mandate Net-30 maximum for independent contractors — signaling state-level payment term regulation.
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