Am I responsible for the contracts my employees make?

We recently explored whether you can be held liable for your employees’ actions. A similar question that often comes up in the field of employment law is whether your employees can bind your business to contracts with third parties, such as the contracts your sales people use to sell your product to customers.

The answer to this question will largely depend on what either the employee or the third party reasonably thinks the employee is allowed to do. If your words and conduct lead the employee to reasonably believe he can make contracts with third parties on your behalf, you will probably be bound to those contracts. Similarly, you will likely be bound to a contract if your words and conduct reasonably lead the third party to believe that the employee can contract on your behalf.

The ability to have employees contract on your behalf can be a very valuable thing. For example, if you have a sales force interacting directly with clients, it may be to your advantage to enable your sales people to “seal the deal” on the spot without having to wait for permission. On the other hand, you don’t want employees to be able to go around entering binding agreements that you simply cannot fulfill.

Key to maximizing your employees’ value while protecting yourself from unknown obligations is knowing how to grant and limit their authority to contract. An effective employment attorney will tell you how to define your employees’ authority through agreements and other interactions with your employees and third parties. We can tell you exactly what to say so that you know exactly what to expect.

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