Ever have an employee make an agreement with or offer a deal to a customer that they did not actually have the authority to execute? It is frustrating and can cause some tension, but the good news is that such scenarios are preventable. In this article, you’ll learn more about the two types of authority, actual and apparent authority, how the difference between them can impact your business, and what you can do to ensure your employees understand their own authority within your dealership.
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What Is Authority?
Something that can get a little confusing for dealers and really any business owner, is understanding authority. In business, there are two types of authority: apparent authority and actual authority. When discussing apparent vs. actual authority in business, we are talking about the authority an employee or a dealer employee has to do something on behalf of the dealer.
Actual authority refers to an action that an employee has actual authority to execute upon. Whereas, apparent authority refers to when a customer believes that the employee has the authority to do something that they did, whether or not the employee actually did have said authority.
Why Understanding This Is Important
In some cases, a customer might come back to a dealer and complain about something related to something an employee did or said, that they may or may not have had actual authority to do or say. For example, a dealer might say later on, “Our employee was acting out of the scope of his employment. He didn’t have the authority to do that. He couldn’t enter into that agreement. He couldn’t make that price change. He couldn’t say those things to the customer.” But to the customer, this person had every piece of authority they needed to do that. That’s called apparent authority where the customer believes that the employee had the authority to do what they did.
In many circumstances, the dealer is on the hook for something that the customer believed the employee had the authority to do, even if the employee didn’t have actual authority to do it. Rather, based on the customer’s interpretation of the employee, he/she had what we would call apparent authority. As such, this type of scenario can put a dealer in a tough position when it comes to rescinding or reversing an action an employee made without actual authority.
What You Can Do To Protect Your Business
It’s really important that a dealer’s employee roles are defined, what they’re allowed to do is defined, and that the dealer is making sure every employee is crystal clear in what they have to authority to and not to do. This type of assurance should be outlined in a handbook that employees review during onboarding and ongoing professional development meetings/training.
If you are a Georgia-based dealership looking for more support when it comes to actual vs. apparent authority, you can find more information at www.georgiacarlaw.com. You can also book a strategy session with us here. We’ll personalize your counsel and guide you through everything to ensure your business is protected.
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