If a state employee gets a credit card through a state-arranged travel program, is the state liable for the employee's charges?

Plain-English summary

The Department of Budget and Fiscal Planning was setting up a centralized state travel management program, under which frequent state travelers could get a fee-free credit card from a card issuer under contract with the State, to use for business travel expenses. The card would be issued in the employee's own name, billed to the employee's home address, and paid directly by the employee, who would then seek reimbursement from the State. The Secretary asked whether this arrangement could expose the State to liability for an employee's card charges. The Attorney General concluded it could not, because the employee, not the State, would be the one contracting with the card issuer, and nothing about the arrangement would create an agency relationship (real or apparent) between the State and the cardholder.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Does an employer become responsible for an employee's credit card debt just because the employer arranged the credit card program?
Not under the reasoning in this opinion. The Attorney General concluded that arranging access to a card program does not by itself create an agency relationship; what matters is whether the employee is contracting on the employer's behalf or on the employee's own behalf, and here the card was issued in, billed to, and paid by the employee individually.

Could the State become liable anyway if it doesn't want to be?
The opinion suggested that a clause in the State's contract with the card provider disclaiming State liability, plus written notice to employees, would remove any remaining doubt on this point.

Background and statutory framework

A July 1986 report by the Department's Division of Management Analysis and Audits, "Analysis of State Travel Management," recommended that Maryland follow the lead of Colorado, New Jersey, West Virginia, North Carolina, and Indiana in centralizing state travel management, including through a contract with a credit card issuer. Under the planned program, employees who traveled on state business three or more times a year could apply individually for a fee-free travel card; the card, billing, and payment obligation would all run to the employee, who would separately seek reimbursement from the State after each trip.

The opinion analyzed whether this arrangement could create an agency relationship exposing the State to liability, either through an actual agreement or through the doctrine of apparent authority, under which a principal can be bound if it manifests a representation of an agent's authority that a third party reasonably and detrimentally relies on. Applying Maryland case law on agency and apparent authority, the opinion concluded that an employer-employee relationship does not by itself create an agency relationship, and that the planned card program's features (individual application, billing, and payment by the employee) affirmatively pointed away from an agency finding. The opinion recommended an express disclaimer of State liability in the contract with the card provider as an added safeguard.

Citations

Cases:

• Schear v. Motel Management Corp. of America, 61 Md. App. 670 (1985)
• Parker v. Junior Press Printing Serv., Inc., 266 Md. 721 (1972)
• Klein v. Weiss, 284 Md. 36 (1978)
• B.P. Oil Corp. v. Mabe, 279 Md. 632 (1977)
• Medical Mut. Liability Ins. Soc. of Maryland v. Mutual Fire, Marine & Inland Ins. Co., 37 Md. App. 706 (1977)
• East Coast Freight Lines v. Mayor and City Council, 190 Md. 256 (1948)
• Oxweld Acetylene v. Hughes, 126 Md. 437 (1915)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1987/Volume72_1987.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Budgetary Administration—Travel Expenses—Agency—State Will Have No Liability For Employee's Credit Card Charges.

June 23, 1987

Dr. H. Louis Stettler, III, Secretary
Department of Budget and Fiscal Planning

You have requested our opinion concerning potential State financial liability arising out of a contract between the State and a credit card provider, under which the provider would issue credit cards to State employees to be used for charging travel expenses.

For the reasons given below, we conclude that the State will have no liability for charges incurred by employees through the use of credit cards issued under a contract of this kind.

I
Background

In July, 1986, the Division of Management Analysis and Audits of the Department of Budget and Fiscal Planning completed a report entitled "Analysis of State Travel Management." According to this report, the trend in travel management in larger companies since federal deregulation of airline travel has been centralization of travel services. Employers accomplish centralization primarily by two means, by contracting with travel agencies for travel services, and by contracting with credit card issuers for payment arrangements. The result, reportedly, has been better travel services at lower costs. The State is planning to establish a similar centralized travel management program, which will be within the Executive Branch and will be administered by the Department of Budget and Fiscal Planning.1

Pursuant to this program, the State intends to contract with a credit card provider that will offer fee-free credit cards to employees who travel frequently on State business (three or more times a year). The employee will apply for the credit directly. If the application is approved, the credit card will be issued in the employee's name, bills will be sent to the employee's home address, and the employee will be responsible for paying the credit grantor directly. After a trip, the employee will submit receipts to the State for reimbursement.

The advantage to the State of this arrangement is that it will decrease the need for travel advances, giving the State the benefit of a cash float. In addition, the credit card provider will send regular reports to the State on card usage. These reports will reflect travel patterns, indicating, for example, areas visited and hotels frequented. Data of this nature will assist the State in monitoring business travel and will allow for increased efficiency in travel management. At the same time, State employees will enjoy the convenience of payment by credit without an annual fee obligation. Moreover, the monthly statements will provide the employee with a record of expenses for the employee's own accounting purposes.

Your concern is whether the State risks assuming any liability for the use of cards issued under such an arrangement, as a consequence of either the State's agreement with the provider or the cardholder's status as a State employee. At this time, no specific contract has been framed. Hence, our response must be somewhat general. However, we think it clear that the State will not incur any liability.

II
Agency

A State employee who applies for credit under the proposed plan, like any other credit card applicant, will enter into a contractual agreement with the issuer establishing the cardholder's liability. If in so contracting the employee were acting on behalf of the State as its agent, the State, by implication, also might become liable as a consequence of the agency relationship.

Agency is a fiduciary relation that results when one person, the agent, agrees to act on behalf of another, the principal, with the latter's consent. Ordinarily, an agency relation is created as result of an oral or written agreement. See Schear v. Motel Management Corp. of America, 61 Md. App. 670 (1985). However, even in the absence of any express agreement creating an agency relation, the doctrine of apparent authority might result in liability: "Succinctly stated, apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him." Parker v. Junior Press Printing Serv., Inc., 266 Md. 721, 727-28 (1972). See also, e.g., Klein v. Weiss, 284 Md. 36 (1978); B.P. Oil Corp. v. Mabe, 279 Md. 632 (1977). A principal can be held liable under the theory of apparent authority only if (1) the principal manifested a representation of the agent's authority or knowingly allowed the agent to assume such authority; (2) the third person in good faith relied upon that representation; and (3) the third person, relying upon that representation, changed position to his or her detriment. See Medical Mut. Liability Ins. Soc. of Maryland v. Mutual Fire, Marine & Inland Ins. Co., 37 Md. App. 706 (1977).

III
Application of Agency Criteria to the Relation between the State and the Cardholder

In our view, an agreement between the State and a credit card company to issue cards to State employees with which they may charge travel expenses does not support a reasonable inference of agency. As planned, the agreement will provide that the employee alone will apply for credit and will contract with the provider, that the cards will be issued in the name of the employee, and that the statements will be mailed to the employee's home address. These conditions would make manifest that the employee cardholder would not be acting in the stead of the State, but rather on the employee's own behalf.

Moreover, to avoid any possible doubt on this score, a clause in the agreement specifically disclaiming State liability, and comparable written notice to the employee, would make the question of implied liability a nullity. Under these circumstances, clearly, the State will not have given anyone a basis to conclude that the employee has authority to incur an obligation on behalf of the State.2

To be sure, an employee in some instances may act as an agent of the State, but the employer-employee relation does not inevitably result in the creation of an agency relation. "[T]he doctrine of apparent authority is applicable only where the relation of employer and employee is that of principal and agent." East Coast Freight Lines v. Mayor and City Council, 190 Md. 256, 284 (1948) (emphasis added). The difference between the two relationships is that "[a] conventional agent is employed to represent a principal in relation to some contractual obligation with a third party, whereas the [employee] is employed to render service to rather than for the [employer], even though it may happen that the service will involve relations with third persons." Id. The State employees who use credit cards under the program will not represent the State in its contractual relation with the credit card issuer; on the contrary, they will act solely pursuant to their separate contractual relation with the issuer. Thus, the status of the cardholder as a State employee and the restriction that the card be used only for State travel expenses will not establish an agency relation.3

IV
Conclusion

In summary, it is our opinion that the State's contract with a credit card provider for the issuance of cards to State employees will not establish an agency relationship and, therefore, will not give rise to State liability.

J. Joseph Curran, Jr., Attorney General
Gail Cohn, Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

1 State central travel management programs are already in effect in Colorado, New Jersey, West Virginia, North Carolina, and Indiana.

2 We think it immaterial whether the employee is permitted to use the card for personal charges in addition to business expenses.

3 See also Oxweld Acetylene v. Hughes, 126 Md. 437 (1915) (inference of authority on the part of the agent to pledge the principal's credit for travelling expenses cannot be drawn from the fact that the expenses were incidental to the work for which agent was employed).