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What’s the answer? Obligations incurred by staff

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Ross Williams gets legal guidance this week on how to deal with expenses and contracts authorised by staff without the authority to do so.


The question:
”I’m currently in dispute with a recruitment agency who – unknown to management – agreed with a junior member of staff that they could recommend one of their clients for a post we were advertising. The client was appointed to the post and the agency now want a fee. I think we’re on fairly safe ground in resisting this since they don’t seem to have given us written terms and conditions nor got any agreement in writing from the member of staff.

“However this started me wondering what our position would be if the junior member of staff had signed something or emailed her agreement to the process. The sum involved is way beyond what she’s authorised to spend usually so there clearly would be a disciplinary issue there; but would we be liable for what she had agreed (with the agency in this case). If say it was a major capital item one would expect the supplier to satisfy themselves that the member of staff had the appropriate authority – e.g. one wouldn’t expect an ICT supplier to install a whole new system on the written order of a junior administrator and one could presumably refuse to pay costs involved – but is there a clear legal position on this?”

Ross Williams

The answers:
Stephanie Wootton, employment law expert, Browne Jacobson
Filing
Your dispute with the recruitment agency is a contractual dispute that would be dealt with in the civil courts rather than in an employment tribunal. The key factor in this dispute is that the company’s consent has not been signified in writing, thus making it difficult for the agency to provide the evidence of the terms agreed.

Oral contracts, however, can be legally binding. You also need to be aware of the principles of actual and ostensible authority. For instance, a company can be bound by the actions of any officer who either has the authority or is held out as having the authority by someone capable of binding the company. Your organisation can be bound by the contract if it was reasonable for the other party to assume that an individual had this authority, even if this has not been expressed by the company. For example, if a company deals with the Managing Director of your organisation (even if for some reason s/he did not have actual authority to bind the company in those circumstances) it would be reasonable for the contracting party to assume s/he could.

There may be other job titles where it is obvious that the individual does not have the authority to bid the company. The test for determining ostensible authority is an objective one. Factors such as the seniority of the individual (e.g. do they have Manager or Director in their job title) will be relevant, as will the context in which the agreement was made.

You can limit these problems by having arrangements with suppliers that they can only accept instructions from specific people, or a specific level of employee role (e.g. any senior manager).

From an employment law perspective, you should take this opportunity to make sure that all staff are aware of the limitations of their own authority to bind the company, and that they are also set clear limits to their authorised spend. In circumstances where employees deliberately or recklessly exceed that authority / budgetary limit then appropriate disciplinary proceedings should follow (in accordance with the statutory minimum procedures).

Stephanie can be contacted at: [email protected]

Nicholas Snowden, senior solicitor at Clarkslegal LLP
Contract being signed
Your question raises complex issues, so I cannot advise fully without more information. However, I can point out some of the main issues to consider:

Factors to consider in relation to the alleged authority of the junior member of staff to bind the company:

  • Was the agency aware of the junior status of the employee with whom they were dealing?

  • What was said exactly between the employee and the agency?

  • Did the employee hold herself out as having the authority to enter the transaction?

  • Did the employee see the terms of business even if they were not sent to the company?

  • Has the company had previous dealings with the agency?

Some further questions which arise out of these main issues are:

Why did the junior employee act in this way in the first place? Presumably, she did not act without some kind of instruction, even if she acted beyond his remit. Such a breakdown in managerial control might be a factor for a court in deciding whether the individual had actual or ostensible (apparent) authority to bind the company.

Terms of business – You mention that the company did not receive the agency’s terms of business. Was the CV of the candidate sent on agency-headed paper? Was there any other correspondence between your company and the agency?

Another relevant consideration could be The Conduct of Employment Agencies and Employment Businesses Regulations 2003, which strictly regulate the activities of agencies.

Amongst the obligations for agencies is regulation 17, which requires agencies to agree terms to the hirer, in this case your company, and send written confirmation of these as soon as is reasonably practicable.

You raise the wider issue of how to minimise the risk of employees binding the company when they do not have actual authority to do so. This can happen where they have ostensible authority and the best way to minimise the risk is to clear rules which are clearly communicated to staff about what they can and cannot do on behalf of the company.

It would then be advisable to remind staff regularly of these rules, so that they do not forget and new starters are aware. You can then use the disciplinary procedure to deal with breaches of these rules.

If the matter rumbles on and litigation looks likely, you may want to consider mediation as an alternative.

Nicholas Snowden can be contacted at [email protected]

HRZone highly recommends that any answers are taken as a starting point for guidance only.

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