I recently settled a lawsuit in which my client was sued because an employee of my client, a small business, signed a contract. The contract was a services contract that my client thought could be terminated at will.
After my client terminated the service, the service company produced a contract that had been signed by an employee of my client. The employee was an administrative assistant who was little more than a glorified receptionist. The employee signed the contract in the name of the President of the company - which was a corporation. The employee had no authority to sign the contract. The contract was for five years and my client's President would never have agreed to that term.
After brief litigation. we settled the case for the price of continuing to litigate the case to trial. We had an excellent defense to the lawsuit but it was better to settle than continue to spend time and money on the matter.
This was a very unhappy experience for my client to say the least. We are not sure why the employee signed the agreement since the employee left the state over a year ago. We think that the customer service representative for the other party lied as about the meaning of the document.
A few lessons from the case:
1. Instruct all employees that they are not authorized to promise anything on behalf of the company. Even if they are directed to negotiate a deal, they should be clear that they final approval for anything binding the company must come from its officers/owners.
2. Instruct your employees that they are not to sign anything on behalf of the company. Tell them that they should not sign any document other than receipts for deliveries. Tell them to be careful of sales persons or customer representatives who want them to sign something. Ofter those persons will say that the document is just to finish up the paperwork. Employees must be firmly instructed to not any such document.
3. Employees should inform representatives of vendors and customers that the only authority to make a decision for the company is with the officers/owners of the company. They should be trained to make that clear up front in any negotiations with outside parties.
A little training and instruction of your employees can save your company a lot of grief.