E-signatures are becoming commonplace, but are they binding?
Electronic signatures – or just e-signatures – are becoming the new normal. Prominent research firms extol their virtues as “foundational technology.” And one California bank permits customers to open an account with only an e-signature. Even Congress recognized June 30 as National ESIGN Day (really Congress, National ESIGN Day!?).
Moving away from ink signatures also has makes good business sense, including operational cost savings, increased work efficiently, and ease of document retention.
But are they enforceable to the same degree as their ink equivalents? In most cases, yes.
Binding, but be careful
In 2000, Congress passed the Electronic Signatures in Global and National Commerce (which creates the clever acronym “E-Sign”). The goal of E-Sign was to facilitate e-commerce by permitting e-signatures to carry the same legal force as ink and paper equivalents. And nearly every state (and D.C.) have adopted similar e-signature legislation called the Uniform Electronic Transactions Act (Illinois and New York enacted their own similar legislation, while Washington state is the lone holdout).
Under E-Sign, an e-signature may be an electronic sound, symbol, or process, so long as it signifies that the signing party consents to be bound.
One major concern when using e-signatures is the risk of forgery. This issue was front and center in a 2008 federal court case, which hinged on whether a department store employee had electronically signed an arbitration agreement. The court concluded that the department store could not prove that the employee had personally signed the agreement because a supervisor had access to the employee's account and could have signed it without the employee’s consent. This case illustrates the possible pitfalls of e-signatures if strong identity validation practices are not in place.
In light of such cases, examples of strong identity validation procedures include the use of a sign-on password, or a document password sent to each party at their verified email address. And for employers especially, it’s imperative to ensure that access is restricted to those individuals who own the electronic accounts in which e-signatures are used. There are several companies that provide secure e-signature services (here is one).
In some contexts, an ink signature is still required, so you should check with an attorney before implementing widespread e-signature practices. For example, documents dealing with family law matters, wills, and testamentary trusts still require ink in most states.
Consent to Do Business Electronically Necessary.
Consent to do business electronically.
E-Sign and state laws require affirmative consent to do business electronically. One way to obtain consent – and to document it – is to include an affirmative clause in agreements. For example:
This agreement may be electronically signed. Electronic signatures on this agreement are the same as handwritten signatures for the purposes of validity, enforceability, and admissibility. Each party hereby consents to do business electronically.
If the agreement provides an ongoing need for additional notices or signatures, e.g., terms and conditions updates. It’s important to offer an opt-out provision, such as:
By written notice, either party may withdraw their consent to receive electric documents, notices, or disclosures.
Record Retention and Party Access.
Electronic records should be retained and safeguarded from unauthorized access to protect the integrity and trustworthiness of the agreement to the same degree as ink equivalents. And all parties should receive a fully executed copy of any agreement.
Keep in mind that these examples are only sample provisions and should be modified for a particular purpose after consultation with an attorney.
In sum, e-signatures can be a useful business tool, but implementation should be carefully considered in light of identity validation and forgery concerns, and the context of their use.
This blog is for informational purposes only. It is not a substitute for legal advice from an attorney, and it should not be relied upon, as it's not legal advice. It also does not create an attorney-client relationship. If you have any questions, please email Connor Jackson (Partner) at firstname.lastname@example.org.
© 2016 Jackson LLP