TOP TIP: Employers, Be Aware of the Risk With Electronic Signatures
For those of us who defend employers, some of the best weapons we have are an employee’s actual signature on a critically-important agreement, policy acknowledgement, or form. There is something powerful about a physical signature, which is very hard for an employee to deny. In our increasingly digital world, however, the physical signature is giving way to electronic ones – but employers need to be aware of potential issues that can arise, as highlighted by a recent case from the U.S. Court of Appeals for the Sixth Circuit.
There are federal and state laws that provide for the validity of electronic signatures, such as the federal Uniform Electronic Transactions Act (“UETA”) and the state laws that adopt the UETA, as well as the federal Electronic Signatures in Global and National Commerce Act (“E-Sign”). Under these laws, an electronic signature is deemed to be the act of the person from whom the transmission is received, so long as this can be verified in some manner. And where effective computer security procedures can verify that the record is attributable to that person, this showing is presumptively made. But what happens when the employee challenges those procedures?
In Bazemore v. Papa John’s U.S.A., Inc., an employee sued his employer under the Fair Labor Standards Act. The employer tried to compel arbitration, pointing to an arbitration agreement that it requires all new employees to sign. The agreement was electronically signed through a computer program that requires the employee to sign in using a user ID and password, after which the employee must scroll through the entire document and check a box at the end as their signature. In this case, however, the employee swore under penalty of perjury that he had never seen or heard about the document, that his login credentials were made up of demographic information available from his application that others could have accessed, and that his manager had logged in for him and other employees to complete training materials for them.
The Sixth Circuit noted that whether an enforceable agreement exists is a matter of state law – and Kentucky law requires each party to assent to an agreement by “an intentional manifestation of such assent.” (This is substantially the standard in many, although not all, other states). While an electronic signature can show assent, an issue – as raised here – is whether the person in fact executed the electronic signature. And the burden of showing that an agreement actually exists lies with the party seeking to enforce the agreement. Here, despite the employer’s sign-in security measures, the employee offered testimony that created a question of fact around whether he actually executed the electronic signature.
Realistically, so much of the human resources process has moved to an electronic platform. Many employers are utilizing electronic signatures on personnel documents – and it can certainly be easier and much more efficient to obtain and retain electronic signatures than to chase down and obtain handwritten ones on a physical document. But it is critically important for employers to ensure that the electronic signature process is, in fact, truly secure such that only the employee can execute the signature. If there are ways to bypass the signature process – such as a manager’s ability to create the employee’s login and sign in for the employee – there is a risk that a court could find no enforceable agreement to exist.