In an age of social media and artificial intelligence (AI), it can be difficult for businesses to know if they have covered their bases when it comes to potential employee actions. A legal blog post titled “Actual vs. Apparent Authority: Limiting Business Liability from Unauthorized Employee Actions” sought to explain why all employees must understand their scope of employment and their level of authority.
The blog stressed that actual authority involves a business explicitly authorizing an agent to undertake certain actions on behalf of the business. This authorization can be in the form of a written directive. Conversely, apparent authority involves a reasonable appearance to third parties that an agent has the authority to do certain things on behalf of the business. Apparent authority is usually established through business contact.
Reasonable appearance is how an individual or an entity should behave when interacting with a third party on behalf of a business. The blog said that the appearance of authority to act on behalf of the principal can bind the principal even if the individual did not have the authority to do so.
- Actual authority – express or implied authority to undertake an action on behalf of the business.
- Apparent authority – appearance to third parties that an agent has the authority to undertake certain actions on behalf of the business.
Act Quickly
Employers must clearly say to employees what they can and cannot do. This includes a clear statement of what will happen if an employee acts outside of these agreements. If an employee acts without authorization or without reasonable appearance with a third party, a business must respond at once. This includes clarifying what was authorized by the business and any third party, stating that the business did not authorize the action and does not intend to be bound.
Depending on the employer, titles can be used to convey who is or isn’t authorized to take particular actions. Limited access to certain information can also help to reduce the ability of employees to have and/or share such information. This could include limiting access to a company credit card and wiring instructions. It is also important to let all parties know what employees are authorized to do. If the employee acts outside of this agreement, actions will not be binding.
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