Don't let your employees sign contracts.

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.

Follow Up!

A consistent problem that I have seen in my career is the classic "failure to communicate". Two parties will negotiate by phone or in person the deal points of a transaction, but never follow up that conversation with a written communication as to what was discussed.

I most often see this in litigation after two parties think that they have agreed to something and, later, discover that their understanding of what was agreed to was completely different. A salesperson and a customer will discuss pricing and timing of a sale and later discover that they are incomplete disagreement over the terms. This is a prime cause of lawsuits.

To avoid these problems, always follow up any business conversation with a written message that completely states the deal terms discussed. In this way, a permanent record is made of the things discussed and the parties avoid disagreements. Business owners and their employees and sales representatives that routinely send written follow up communications have a huge advantage in negotiations and dispute resolution.

Here are a few hints.

1. Write the message as soon as possible after the conversation. The sooner you write about a discussion, the more accurate you will be.

2. Use plain English. Write simply and clearly. Do not use slang, trade terms (unless necessary), acronyms and other terms that everyone might not understand.

3. Be complete. Write out all the terms that you discussed. Avoid using "etc." or referencing the conversation that you had without writing out the things you discussed. This may seem like a pain, but it is important to be complete.

4. Use email or a letter. The more permanent the method of communication, the better. Email is good, but make sure that it can be found. Save the emails in a place that can be recovered easily later. The good thing about emails is that the several replies between two parties can create a good record. The best method is a letter sent by fax. A fax machine can give an immediate confirmation of receipt. Plus a written letter has a greater impact. Avoid text messaging. Text messages are easy to delete and are more difficult to download into a format reviewed. There is also a greater tendency towards using shortened terms and to be incomplete in text messages.

5. Leave open the possibility for disagreement. End the communication with a phrase that states something like "If you disagree with what I have written here, please inform me." If the other side does not reply, then you can assume that they agree. They will be more likely to reply if they disagree and it is important that they communicate any disagreements.

I have seen many instances when one party to a lawsuit had consistently followed up in writing as the parties negotiated the transaction in dispute. The side that followed up consistently, clearly and completely was in a much stronger position. More importantly, companies that consistently send written follow up communications do not have disputes with their customers and vendors. They stay out of court which is the best position to be in.