Implied authority is created in a situation where the authority to act on behalf of someone else is implied by a person's actions. Implied authority is different from actual authority and both are part of the principle of agency.
Learn more about implied authority and how it works.
What Is Implied Authority?
Implied authority is a type of authority that is implied or assumed when someone is acting on behalf of someone else. This situation can occur when someone (usually an employee) is wearing a company uniform or interacting with the public on behalf of a company or organization. The uniform or public interactions imply that person has the authority to act on behalf of the business.
Let's say a car salesperson is negotiating with a buyer and says, "I'll give you a free rustproofing treatment." The implication to the buyer is that the salesperson has the authority to make this offer. But what if they don't? The manager has a difficult situation in this case of deciding whether to allow the offer or take it back.
How Implied Authority Works
Implied authority relates to the principle of agency. Agency is when one party acts on behalf of another. One party is the agent and the other party is the principal. The agent acts on behalf of the principal.
Implied authority is one type of authority under the principle of agency. Another example of implied authority is the wearing of a name tag by an employee. This gives the employee implied authority to act as an agent of the employer.
Another type of authority is express authority (sometimes called actual authority), which is given in an oral or written contract. In the case of a real estate agent, for example, there is usually a written contract between the agent and the client. The client gives written authority for the agent to act on their behalf. Express authority is often limited by the terms of the contract.
How someone can be assumed or implied to have authority depends on the specific situation.
Liability and Implied Authority
When an employee acts with implied authority, it creates liability for the employer. In the case of the car dealer, the liability might just be a lower profit on the car, but in other cases, the liability might be more serious. For example, if an employee of a ski resort lets a young child ride a ski lift unattended (in violation of company policy), and the child has an injury, the employee has created a liability that can significantly cost the employer.
While it might look like the company suffers the liability, the company might claim that the employee acted outside their scope of responsibility, leaving the employee with the liability. For example, in the case above with a company policy against allowing young children to ride ski lifts unattended, the employee acted outside the bounds of their employment agreement and can be held personally liable.
This example is a good reason for having a comprehensive company policy manual that spells out what employees can and can't do. Make sure that every employee signs a statement saying they have read and understood the terms of the policy manual.
Dealing With Implied Authority Abuses
Let's say you have an employee at a hardware store who tends to "give away the store." He makes special deals for his friends, discounts items, takes back refunds without following the refund policy, and adds extra items (like nails and screws) to bags. What do you do in these situations?
- You can attempt to prevent misuse of implied authority by making clear to employees that they can't deviate from prices or policies without your express consent.
- You can discipline employees who continue to abuse implied authority.
- You can put the employee in a different position where they can't misuse their implied authority.
Implied Authority in Partnerships
A business partnership is a legal relationship between two or more business partners. When it comes to implied authority, partnerships are a special situation because all the partners of one type (general partners, for example) have the same amount of authority in making deals on behalf of the partnership. This authority is implied by the nature of the partnership.
Partners in a partnership have implied authority to carry out day to day activities on behalf of the partnership, including:
- Buying and selling products and services
- Billing customers and accepting payments
- Contracting for advertising and other services
- In some cases, a lease may be signed by a partner
On the other hand, some actions by partners on behalf of the partnership must only be taken by express authority (written contract and approval by the partnership), including:
- Buying property (buildings and land) on behalf of the partnership
- Initiating a lawsuit or submitting a dispute to arbitration
- Entering the partnership into a new joint venture, partnership, or connection to another legal entity
- Giving up a claim made by the partnership or admitting fault in legal action
- Implied authority is created in a situation where the authority to act on behalf of someone else is implied by the actions of a person. For example, there may be implied authority when an employee wears a uniform or nametag. It's implied that they can act on behalf of their employer.
- Implied authority is related to agency, which is when one party acts on behalf of another.
- Implied authority can create liability for the employer.
- Partnerships have unique rules around implied liability.