Imagine a company’s Vice President offered you a great new job. Better yet, he or she offered you a guaranteed written one year employment contract that provides a generous salary and benefits. You signed the contract and started the job, only to be told by someone in the human resources department that the Vice President who hired you did not have the authority to offer you an employment contract, the company has hired someone else for your job, and you are fired. Do you have a legal claim for the company breaching your employment contract?
The answer is not so simple. Generally, the law only holds a company responsible for contracts which are made by someone who actually has the authority to enter into that type of contract on the company’s behalf. For example, if an employee has the authority to hire employees, then the company ordinarily must honor the employment contacts he or she enters into on the company’s behalf. However, if an employee tries to enter into an agreement on behalf of the company without having the authority to do, then the company is generally not bound by that agreement.
But what about when an employee who does not actually have the authority to hire, but reasonably appears to have that authority? The law in many states, including New York and New Jersey, recognizes that companies sometimes should be bound when they allow people to reasonably believe that a corporation’s employee has more authority than he or she actually has. Under the doctrine of “apparent authority,” a company potentially can be held legally responsible when it allows others to reasonably believe that someone else had the authority to act on the company’s behalf. The law recognizes that often when a company’s representative has the apparent authority to act on the company’s behalf, the company should be legally bound by the representative’s actions. Accordingly, since you reasonably believed the Vice President had the authority to hire you, at least in some states you would at least have a good argument to enforce your employment contract based on the Vice President’s apparent authority to hire you.