Job titles – may create unexpected legal risks

As a business grows there is an obvious need to reflect this with a clear organisational structure, important both in dealing with external customers and suppliers and so that the business functions properly internally. This may result in the need to create different departments for different functions, such as sales, marketing, finance and administration. Some

Home » commercial law » Job titles – may create unexpected legal risks

As a business grows there is an obvious need to reflect this with a clear organisational structure, important both in dealing with external customers and suppliers and so that the business functions properly internally.

This may result in the need to create different departments for different functions, such as sales, marketing, finance and administration.

Some businesses take the view that having different departments  is good for branding purposes. There are attractions in giving an impression that you are growing fast and a player in your industry. Giving every member of staff or a significant number of them, job titles often ties in with this approach. An example which springs to mind and which faintly amuses me is the title of “Senior Vice President” – I’m never clear about what that means other than it tends to indicate to me someone is in the lower echelons of senior management.

However, creating job titles which are not strictly necessary or which don’t reflect a clearly understandable role may also create legal risks.

So what are the possible legal risks ?

The primary legal issue with giving job titles tends to relate to contract law, which of course is a crucial issue for all businesses. A secondary issue and risk may arise via employment law.

Contract law

Let’s take an example – your business sells widgets. You have standard terms and conditions in writing and a customer is interested in buying 1 million widgets from you, an order which is much larger than your usual order size.  Your terms and conditions state not only the price but also that you will deliver the widgets within 30 days. Your customer has an urgent need for the widgets and insists that the order must be delivered within 10 days. the customer is dealing with one of your staff who has the title of Sales Executive. Your staff member is obviously very keen to clinch this sale and so agrees, verbally or perhaps by email, to deliver the widgets within 10 days. Your business is unable to meet the deadline and you argue that the Sales Executive did not have authority to alter the standard terms of trading. The buyer argues that he was entitled to rely on dealing with a  senior salesperson and to assume that the individual did have the requisite authority, actual or ostensible. Herein lies the problem and risk of creating titles for staff, especially where the title indicates the person is fairly senior.

Turning the above scenario round, if you are the buyer in this type of situation, you should be careful to check authority – generally, it’s matter of common sense. If the contract is important for you, is high value, complexity or importance, you ought to check that whoever you are dealing with has the necessary authority to commit on behalf of the seller/supplier. If you don’t and there is a breach of what you believe was agreed, either expressly or impliedly, you have the problem in the first instance i.e in the example given above, your businesses needs the 1 million widgets and it doesn’t get them. You would then potentially be in breach with buyers from you or will have suffered a loss which you will then need to try and recover based on the authority argument.

Any dispute over situations like the above will be risky for both parties as the case will largely turn on facts and interpretations, with the court likely to approach the issue by :-

a. deciding on the evidence whether there was actual or ostensible authority to enter into contracts on the company’s behalf? What does the contract of employment say ? b. had the employee committed the business to any other contracts  and if so, on what terms? c. Had the employee been held out – i.e. represented – to the other party, the supplier, in any way as having authority to enter into contracts. This is the difficult area with job titles d. has the contract been ratified by subsequent actions? Actual or ostensible authority – what’s that ?

Actual authority may be clear on the face of it. Ostensible or implied authority refers to where a 3rd party dealing with a party or business is entitled to make an assumption based on the person’s position or the course of dealings with the business generally. There is significant case law, for example, as regards a 3rd party generally being able to rely on implying authority when dealing with someone with the title of Managing Director. One such case arose this year, involving a high profile football case where Henning Berg, the former Manager of Blackburn Rivers, sued the club for his contractual notice pay. The club tried to argue that the Managing director did not have authority to bind the club. The club lost. Ostensible authority disputes can also arise in situations where a business has an agent – the position as to whether the agent can bind the principal.

Employment law

Another potential problem with creating job titles for all is in employment law. It could create potential claims for discrimination, if for example, it tuned out that there were an uneccessarily large number of staff with the title of Manager and that a very high proportion turn to out to only males. Job titles may also cause confusion or disputes over redundancy in identifying which role is redundant or type of role if there are  a number of people doing a very similar job but with different job titles.

dserota-sbFor additional advice on any issue raised above, please do get in touch with me.

 

commercial law • Debbie Serota

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