WHO'S YOUR AGENT?
Do you know who's acting as your agent? Do you know who has the authority to enter into contracts on behalf of the company that may have potentially catastrophic financial and legal pitfalls?
Legally, it may be MANY more people than you anticipate, realize or WANT.
It is fairly easy to argue that ANY employee has the authority to bind the company if they sign a contract on behalf of the company. Yes, even the janitor. It has happened before and the result was a 40K settlement for services that were never needed. Why? Because the company failed to have proper processes and procedures in place to effectively monitor employees and reduce unintended actions.
There are two kinds of authority:
1) Express or Actual Authority: authority granted as a condition of the employee's position, for example, a purchasing agent has the authority to purchase goods and services on behalf of the company. Implied Authority supplements express authority.
2) Apparent Authority: granted unintentionally by actions or conduct towards a third party. The problems with apparent authority are as follows:
- Company is legally bound
- Terms of agreements are not propertly negotiated
- accounting / delivery/process problems
- may violate existing contracts
Pro-active steps towards SUCCESS:
1) Review and update employee job descriptions to include appropriate limits to authority.
2) Develop a contract approval policy that requires legal review of all contracts (yes, even the small ones).
3) Require dual signatures on any contract.
4) Develop a financial authority matrix that includes monetary caps by employee level and department.
5) Require CFO approval for any contract binding the company to a certain dollar amount and above that is appropriate for the size of your company (50K; 250K; 1M)
WHO IS YOUR AGENT?
Take these pro-active steps today and you won't wonder any longer.
