What is the Express and Implied Authority for Agents?

In Short

• Express authority is clearly defined and documented authority given to agents, leaving little room for misinterpretation.
• In contrast, implied authority is broader, inferred authority based on an agent’s role or industry customs, often needing contextual evidence.
• To protect your business, you should regularly review, document and communicate agents’ authority to prevent unauthorised commitments.

Tips for Businesses
Clearly define express authority in contracts and policies and regularly update them. Educate staff about their limits to avoid unintentional agreements. Implement checks and balances to prevent unauthorised actions, and consult legal experts to manage agency risks effectively.

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Table of Contents

• Express Authority
• Implied Authority 
• Example  
• Strategies to Protect Your Company
• Key Takeaways 
• Frequently Asked Questions

The concept of agency plays a pivotal role in how businesses operate and interact with external parties. A legal agent is a person who has the legal authority to represent and act for another person, the principal. An agent, typically an employee, possesses the power to enter into contractual agreements with third parties on behalf of your company. However, this power is not boundless, and their authority is subject to limits. As a result, your business will be bound by agreements made by agents within their express or implied authority but not outside of this. This article outlines express and implied authority so you can protect your business from unintentional contractual agreements. 

Express Authority

When you give an agent express authority, you provide them with explicit instructions, either verbally or in writing. This is the strongest form of authority and leaves little room for misinterpretation. Express authority is clearly evidenced through:

• company constitutions; 
• employment contracts; or 
• board decisions.  

For example, when you issue a signature card to your corporate agents to write company checks, you grant express authority for a specific action. Express authority is always clear and unambiguous, with well-defined limits. As such, it is easy to prove in legal disputes. 

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Implied Authority 

Implied authority, on the other hand, arises from the:

• nature of the agent’s position; 
• industry customs; or 
• specific circumstances. 

It covers actions reasonably necessary for the agent to carry out their express duties, inferred from the circumstances. Therefore, implied authority is broader and less defined than express authority and may require more contextual evidence to establish. 

For example, if an agent is tasked with purchasing shares for the company, they are presumed to have the authority to undertake all usual business activities necessary to complete this transaction within their agency relationship.

Example  

Consider your mid-sized tech company, TechInnovate Inc., with various roles: 

• Your Managing Director, Sarah: She has broad implied authority for day-to-day management, including approving significant expenditures and negotiating major contracts. However, her authority does not extend to fundamental changes like selling core assets. 
• Your Non-Executive Director, Tom: Despite being on the board, Tom lacks individual authority for day-to-day decisions. His power lies in collective board decisions. 
• Your Company Secretary, Emma: Emma’s implied authority is limited to administrative matters like signing routine documents and managing corporate records. 
• Your HR Manager, Alex: Alex’s authority is specific to staffing matters, such as hiring decisions and implementing HR policies. 

Strategies to Protect Your Company

You should take practical steps to manage the express and implied authority of your agents, including:

• clearly documenting express authority in employment contracts, board decisions, or specific authorisations; 
• regularly reviewing and updating the scope of authority for different roles; 
• educating your employees about the limits of their authority; 
• implementing checks and balances to prevent unauthorised actions; 
• periodically reviewing and updating your policies on agency authority. 

Remember, employment alone does not automatically confer agency status. An employee’s authority stems from their specific role and responsibilities within your organisation. 

Key Takeaways 

Understanding the nuances of express and implied authority is crucial for protecting your company’s interests. By clearly defining and communicating the limits of your agents’ authority, both internally and to external parties, you can significantly reduce the risk of disputes and unauthorised commitments. 

If you are entering an agency relationship, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions