Restrictions on authority clause

Our clause ensures that an employee is aware of the restrictions on their authority, particularly when it comes to entering into contracts with third parties and hiring and firing staff. It’s useful to have in contracts with line managers and also any employees who deal with suppliers, contractors, etc.

Binding contract

Where an employee is of a senior level (for example, team leaders, supervisors and line managers) or deals with third parties, such as suppliers, potential employees, agencies, contractors etc, it’s worth having a restrictions on authority clause in their contract of employment. This is because where an employee is held to be acting in the ordinary course of their employment and they make a contract with a third party which is within the apparent scope of their authority, this will create contractual obligations which are enforceable against you, even if you didn’t authorise the employee to enter into that contract on your behalf. A restrictions on authority clause will therefore put the employee on notice as to the limits of their authority, with a view to avoiding an awkward and potentially expensive situation whereby the employee creates contractual obligations with third parties on your behalf beyond those limits. However, it’s important to note that this kind of clause will not normally actually allow you to escape your liability to third parties where the authority is exceeded, but what it does mean is that your employee will be in breach of contract in exceeding those limits, which can result in disciplinary action up to and including summary dismissal for gross misconduct. You would also be eligible to sue the employee for compensation to cover your financial loss.

Restrictions

Our Restrictions on Authority Clause provides that the employee can’t do any of the following without the prior consent of a company director:

•         incur any capital expenditure, debt or obligation in excess of a stipulated amount

•         enter into any contractual arrangements not in the normal course of your business or which are outside the scope of the employee’s normal job duties or which are of an unusual, onerous or long-term nature, or hold themselves out as authorised to enter into any such arrangements

•         employ or engage any employees, workers, consultants or contractors

•         dismiss or terminate the engagement of any employees, workers, consultants or contractors

•         provide a written or verbal reference to a third party for any employee, worker, consultant, contractor, client, customer, supplier or other business contact.