The Legal Pitfalls of Job Title Inflation (Part I): Apparent Authority and Employee Misclassification
Aug 21, 2013 QuickCounsel Download PDF
By Darrel John L. Pae, ACC
What is Job Title Inflation?
This Quick Counsel, Part I of the series, discusses the legal risks of job title inflation, including the risk of employer liability for employees" conduct through the doctrine of apparent authority and the risk of FLSA employee misclassification at least in less sophisticated organizations that do not have the benefit of corporate counsel. Job title inflation is the phenomenon resulting from the increasing frequency with which firms and organizations confer upon their employees job titles that tend to convey superiority or seniority, like "Chief of ____" and "VP of _____." For example, instead of calling someone a company blogger, Coke and Marriott call theirs "Chief Blogging Officer," and paperboys are now dubbed "Media Distribution Officers."
Creating and bestowing these lucrative titles, some argue, can be faulted to the recent recession, which inspired organizations to be creative: if they cannot give bonuses or salary raises, at least they could boost their employees" morale by giving out posh titles instead. Others argue that the advent of less hierarchical organizational structures within many companies is the root cause. Since a flatter structure decreases the number of rungs comprising the corporate ladder, companies are unable to promote their employees, no matter how qualified or high–performing they may be, because there simply are no "higher-level" positions to which they can be promoted. To at least satiate the desire of employees to be recognized and to endow in them a feeling of growth within the organization, fancier job titles have been increasingly minted and gifted to employees even though the job descriptions by which they operate only marginally change. The consequence is the devaluation of job titles, especially those starting with "chief," "head," "vice president of," and others that traditionally signaled professional seniority, competence, and a certain amount of prestige within a particular organization. In fact, the title "VP" has inflated 426% since 2005, which means that the number of employees who are titled with VP have increased more than fourfold since 2005. Because so many people can be "VP" of something nowadays, "VP" has essentially been reduced to an empty title that has lost most of its professional weight.
Legal Ramifications of Job Title Inflation
Liability for Apparent Authority
Apparent authority arises when an employer holds out, intentionally or negligently, to a third person that a particular employee has authority to perform acts on behalf of the principal, when in fact the employee has no such authority.ii It is based on a theory of estoppel in that the employer will be disallowed to deny that the employee was authorized to act the way he or she did in the event that a third person, in reasonable reliance on the employer"s express or implied representations regarding the employee"s scope of authority, is injured and claims for relief.iii
The determination of whether apparent authority exists is a question of fact.iv The test hinges upon multiple factors and considerations that must be weighed against each other, including "statements, conduct, lack of ordinary care, or manifestations of the principal"s consent, such that a third party might be justified in concluding that the agent acted with apparent authority."v The vantage point of the inquiry is on "the words or conduct of the alleged principal, not the alleged agent."vi Establishing the existence of apparent authority depends upon the totality of circumstances. And job title, even if not dispositive in finding apparent authority, is a factor that might weigh in favor of or against the employer"s contention that no authority exists.vii Especially where the belief and reliance by the injured person can be partly traced to the position and job title of the agent, courts are generally more inclined to find apparent authority.viii For example, where an employer titles an employee "sales manager" whose responsibility is to man the warehouse and to show patrons around, and the employee finalizes a sale of a good to a third person, an act that is beyond the employee"s authority, the possibility that a court will bind the employer to the employee"s sales-related conduct is greatly enhanced since it is reasonable for the third person to believe that the "sales manager" had the authority to conclude sales transactions. ix This shows that when an employer cloaks an employee with a title that is incongruent with the employee"s actual responsibilities, the company runs the risk of being bound to the employee"s unsanctioned acts, at least if the acts are consistent with the generally recognized duties that the title carries.x
Employers, therefore, must take great care when conferring job titles that have a reasonable tendency to mislead a third party into believing that the employee is authorized to act on behalf of his employer in a manner that actually is beyond that employee"s powers. An employer"s explicit and intentional conferral of misleading and over-inflated job titles might be construed in a legal proceeding as the organization"s way of "holding out" its employee to third parties, which can bind the employer to its employee"s conduct, authorized or otherwise, through apparent authority.
FLSA Employee Misclassification and Consequent Government Scrutiny
Some legal practitioners are also cautioning against the rampant conferral of bloated job titles, and one reason they cite is the tendency of this practice to misdirect employers into believing that the change of job titles to something that sounds more superior equates to a status change of employees from exempt to non-exempt, a mistake that have dangerous legal ramifications. In-house practitioners should be very familiar with the various differences between non-exempt and exempt employees. Non-exempt employees are those who are literally not exempt from FLSA regulations (e.g., overtime pay). In contrast, exempt employees are not within the ambits of FLSA regulations. Usually non-exempt employees are lower-level employees with very limited or no managerial responsibilities and authority. Meanwhile, exempt employees are mostly professionals who are entrusted with managerial responsibilities or at least hold a position that are in the mid-level of the organizational hierarchy. The fear that some legal practitioners have with respect to inflated job titles is that some employers (who may not have the privilege of having an in-house counsel) might view such titles as equivalent to a status change from non-exempt to exempt, when in fact more than just a title change is needed to legally change an employee"s status. This can be a very slippery slope that may drag the organization into government investigation and potential lawsuits.
Recommendations and Conclusion
In tough economic times, conferral of arguably inflated job titles may be beneficial from a business point of view. An article from Wharton School of Business once highlighted that the value of inflated titles is in employee retention. Inflated titles, even if devoid of meaningful insights as to what an employee actually does, "are a very cheap way, almost costless to the firm, to recognize and elicit high commitment from key employees."
Even so, not only does this practice devalue the prestige and meaning of titles, it is also fraught with legal risks for the organization. To avoid the legal risks attendant to job title inflation, it is wise to ensure that the job titles given to employees are consistent with the extent and scope of the employees" actual responsibilities. The positive business results from inflated job titles should be balanced against the risk of opening the organization to potential legal liability. In many instances, the legal risks are just too high that foregoing some of the business benefits might well be worth it.
Inflating titles is not inherently evil so long as exercised in moderation. And moderation just means that if an organization inflates someone"s job title, it should make sure that the employee at least deserves a bump up to begin with. An organization should not confer the titles beginning with "Chief" or "Director" or "Leader" or "Head" or "VP" to just about any average employee or contractor as a pat on the back. After all, "not everyone can be above average."
i J.D. (expected 2014), The George Washington University Law School.
ii 12 RICHARD A. LORD, WILLISTON ON CONTRACTS § 35:12 (4th ed.) (quoting Harrison v. Life Ins. Co. of Virginia, 121 S.W.2d 451 (Tex. Civ. App. 1938)); State v. Billingsley, 978 N.E.2d 135 (Ohio 2012); R & R Marine, Inc. v. Max Access, Inc., 377 S.W.3d 780 (Tex. App. 2012).
iii Burless v. W. Va. Univ. Hosps., Inc., 601 S.E.2d 85 (W. Va. 2004).
iv Forgeron v. Corey Hill Garage, Inc., 144 N.E. 383 (Mass. 1924).
v Powell v. MVE Holdings, Inc., 626 N.W.2d 451, 457 (Minn. Ct. App. 2001).
vi Opp v. Wheaton Van Lines, Inc., 231 F.3d 1060, 1064 (7th Cir. 2000); 12 RICHARD A. LORD, WILLISTON ON CONTRACTS § 35:12 (4th ed.). vii Powell, 626 N.W.2d at 459.
viii See, e.g., Frank Sullivan Co. v. Midwest Sheet Metal Works, 335 F.2d 33, 40-41 (8th Cir.1964) (finding that superintendent had apparent authority to bind contractor because superintendent was the highest-ranking person sent to manage the construction job and to communicate with local subcontractors).
ix See Wynn v. McMahon Ford Co., 414 S.W.2d 330, 337 (Mo. Ct. App. 1967). See also Taylor v. Ramsay-Gerding Const. Co. 196 P.3d 532, 537 (Or. 2008).
x Restatement (Second) of Agency § 27 (1958).
Additional ACC Resources
ACC Resource Library - Primer
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ACC Resource Library - Article
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