I am certain that many of you reading this article have either said or have heard someone else say something to the effect of: “We didn’t approve that, so it isn’t binding on us.” Many nonprofit executives and board members assume that if the board never authorized it, the organization cannot be held responsible. The doctrine of apparent authority has existed in agency law for generations. In 1982, however, the Supreme Court demonstrated just how consequential those principles can be for nonprofit organizations in American Society of Mechanical Engineers v. Hydrolevel.
Although Hydrolevel arose under the Sherman Antitrust Act, the Court grounded its decision in ordinary agency principles, reaffirming that those principles apply to nonprofit organizations, including when they face liability under the antitrust laws for acts committed by agents acting with apparent authority. The controlling question was what authority a reasonable third party would believe the agent had, based on the activities and manifestations of the organization, not what authority the agent actually had.
What Apparent Authority Means
Apparent authority arises when an organization’s own conduct leads outsiders to reasonably conclude that an individual is acting on its behalf. The third party’s belief must be reasonable and traceable to the organization’s representations, not merely to the individual claiming authority.
For instance, a volunteer who introduces themselves as Executive Director of the organization would likely not create apparent authority by that act alone. An organization that gives that same individual an organizational email address, a committee appointment, a formal title, or directs outside parties to work through them may. The appearance must originate from the organization’s own conduct, not the individual’s self-promotion.
Bylaws, committee charters, resolutions, and delegation policies determine actual authority within the organization. Apparent authority is different. It focuses on the reasonable perceptions of third parties based on the organization’s own representations. An individual may exceed internally granted authority while still exposing the organization to liability if the organization has clothed that individual with the appearance of authority.
What Hydrolevel Decided
A subcommittee member who also served as a vice president of a competing manufacturer used his subcommittee position to influence other subcommittee members to issue an unofficial interpretation of an ASME safety code that called a competitor’s product into question, causing alleged competitive harm. ASME did not authorize it. ASME did not know. ASME did not benefit. The committee member appeared to outside parties, however, to be speaking with ASME’s institutional authority.
Nonprofit boards and executives tend to focus on documented authorization: what the bylaws say, what a resolution authorized, what the executive committee approved, etc. That internal framework is important for governance purposes, but it is not determinative of legal exposure. The relevant audience is the third party on the other side of the table whether it relates to a transaction, a signed commitment, a representation, an offer, etc.
The Practical Problem: Access Creates Appearance
Nonprofit organizations routinely extend credentials and access to volunteers without considering what those tools signal externally. An individual who corresponds from an @organization.org address looks like an authorized representative. A committee member who hands out organizational business cards at a conference appears to speak for the association. Correspondence on organizational letterhead signals institutional authority whether or not any established governance backs it up.
Courts frequently consider indicators like these when evaluating apparent authority claims. There isn’t a bright line test for an automatic determination of apparent authority. Each indicator contributes to the overall picture of what a reasonable third party would have believed. Taken together, they may contribute to apparent authority regardless of what internal policies provide.
Governance Lessons from Hydrolevel
Although volunteer governance creates many of the most common apparent authority questions in nonprofit organizations, the doctrine applies more broadly to anyone acting as the organization’s agent. Hydrolevel illustrates why organizations should take reasonable steps to ensure that the scope of their agents’ authority is understood not only internally but by the third parties most likely to interact with them.
Prudent steps include defining authority in writing with specificity, establishing clear protocols for who may make commitments or represent the organization in dealings with outside parties, and treating access to organizational domains, letterhead, and titles as tools that may create the appearance of authority.
When a board reviews its delegation structure, it might ask: who has authority, and what can they do? The question Hydrolevel requires is different: who appears to have authority, and what could a reasonable third party conclude they are authorized to do?
Four Ways To Mitigate Apparent Authority Issues
Apparent authority is not a problem that resolves itself through general policies. It requires deliberate and layered legal approach. There are four concrete areas where boards and executives can focus their attention for maximum impact:
Governance design. Counsel can review how authority is allocated across officers, committees, and volunteers and identify where the gap between actual and apparent authority is largest. That means examining committee charters, delegation frameworks, and officer job descriptions not just for what they say internally but for how they would read to an outside party unfamiliar with the organization’s internal structure.
Volunteer onboarding. When bringing on new officers or committee members, counsel can help structure what the organization communicates to counterparties, regulators, and peer organizations about the scope of those individuals’ authority. Getting that right at the outset is far cheaper than managing a dispute over what someone appeared authorized to do.
Crisis response. When a volunteer or officer has already made representations or commitments that may exceed actual authority, counsel can assess the exposure, advise on whether and how to disclaim or correct those representations, and help the organization engage with the affected third party without compounding the problem.
Board education. Counsel can translate the legal framework into governance education. Most board members have never thought carefully about the distinction between actual and apparent authority. A focused briefing framed around real organizational scenarios tends to shift how boards think about volunteer credentialing, communications flow, and the signals their own conduct sends to the outside world.
Dan Liutikas is the founder and managing attorney of Org Law, PLLC. He has served as outside general counsel, in-house general counsel, and CEO of global trade associations. Org Law provides governance and legal counsel to nonprofit organizations, associations, and credentialing bodies. Contact Us to discuss your approach to AI governance. Learn more about our Governance & Board Counsel practice area.