Companies and in-house law departments are increasingly adopting new technology-driven processes to create efficiencies in their day-to-day operations. One such process is the use of electronic signatures, or “e-signatures.” E-signatures provide many benefits to companies if implemented correctly, but there are some important caveats to keep in mind. Understanding what they are and how to use (and not use) them is critical.
What is an electronic signature? The federal Electronic Signatures in Global and National Commerce (E-SIGN) Act defines an electronic signature as “an electronic sound, symbol or process which is attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” In other words, an electronic signature is an electronic identifier of a person who places it on a document or record and intentionally consents to, accepts, or approves that document or record in a way that the identifier can be attributed to that person. An easy way to remember this is as an electronic identifier that’s affixed, accepted and attributable. The good news is that E-SIGN’s definition is technology-agnostic, meaning it will apply to new developments in e-signature technology.
Examples of e-signatures include a person’s signature captured on a tablet on a contract followed by pressing a “Purchase” button; pressing a button (e.g., “1”) on your phone on a recorded line to accept a new 2-year cable subscription; checking a box to indicate that you have read and accept a software EULA; or a Google Wallet or Apple Pay transaction automatically done by computers (“electronic agents”) which you initiated and a merchant accepted electronically.
Is it the same as a digital signature? No, although many people use the terms interchangeably. A digital signature is a more secure form of electronic signature that uses encryption or a biometric identifier to ensure the signature is authentic and can be linked back to the signer. It can’t be tampered with thanks to the encryption or biometric identifier. (Examples include using a private encryption key to sign a document, or using a thumbprint to embed a digital code in a document.) Digital signatures are commonly found in financial transactions and where being able to detect a forged signature is critical.
Are electronic signatures legal? Yes. In 2000, Congress enacted the E-SIGN Act, which states that electronic signatures on contracts and records related to commercial transactions are just as effective as a physical (or “wet” signature). However, if a law or regulation requires a written contract or record, an electronic signature isn’t sufficient if the contract or record can’t be retained and accurately reproduced by all parties. 48 states have enacted their own e-signature law based on the Uniform Electronic Transactions Act (UETA). (MD and VA have enacted a different model law called the Uniform Computer Information Transactions Act (UCITA) that covers computer information.) There are specialized digital signature laws applicable to some industries, such as the federal e-signature regulation specifically related to the FDA. Electronic signatures are generally valid in other countries.
It’s important to note that there are some types of contracts and records that cannot be electronically signed, such as wills, trusts, and marriage certificates/divorce decrees.
Can e-signed documents be notarized? Yes, but it’s still fairly uncommon. E-SIGN permits electronic notarization. However, most e-signature providers are still adding functionality to support electronic notarization of an e-signature. You’ll need to find a notary authorized to do e-notarizations (in Minnesota, for example, becoming an e-notary requires an additional authorization on top of your standard notary license). You still have to electronically sign an agreement in the presence of an e-notary (except in Virginia which permits remote notarization, e.g., via video conference), which basically defeats the purpose. As e-signatures continue to gain traction, e-notarization will likely start to catch up.
If I want to use electronic signatures with my contracts, is there anything I should add to them? Consider adding a disclaimer such as this to your contract templates: “The Parties agree that electronic signatures are intended to bind each Party with the same force and effect as an original handwritten signature, and a copy containing an electronic signature is considered an original.” UETA requires that the parties have agreed to conduct business electronically. Although it can be inferred from the conduct of the parties, including an affirmative statement can be helpful (and demonstrates to your clients and vendors that you are embracing 21st century contracting methods).
Are there e-signature risks I should watch out for? The biggest risk is that an e-signature you were relying on turns out to be unenforceable. Just because E-SIGN says that an e-signature has the same legal effect as a physical signature doesn’t mean that it’s automatically enforceable. Parties seeking to avoid liability under a contract may look to attack the validity of the contract in the first place by claiming it was never validly signed. The identifier on a contract (e.g., “/s/ Scott Signer”) isn’t enough to establish that it’s a valid electronic signature — you have to be able to attribute that identifier to me to provide that I was the one that wrote it. This gets even more complicated when trying to use e-signatures on a small device, such as a smartphone.
Think of e-signatures as falling into one of two buckets based on whether the contract or record being electronically signed is considered “low priority” (the enforceability is not likely to be challenged, such as on a low-value, one-time transaction), or “high priority” (enforceability of the agreement is very important given the strategic or monetary value of the transaction). For low priority contracts and records unlikely to be challenged, being able to conclusively attribute an e-signature to a person may be less critical, so an identifier on a contract or record (“/s/ Scott Signer”) without a strong authentication mechanism may be “good enough.” For high priority contracts and records, being able to conclusively establish affixation, acceptance and attribution is critical, so using a strong e-signature process (such as an e-signature provider) that validates the identity of each signatory, and keeps copies of the signed agreement available to each signatory, can help ensure enforceability.
The reverse is also true — be careful that you don’t unintentionally create an electronic signature (e.g., with an email signature). You don’t want someone trying to argue that your email saying “yes, that sounds good” to a business offer, where your email had your signature as General Counsel or Chief Operating Officer, constituted a binding agreement. (I use a disclaimer in my long-form work email signature that emails cannot be used as an electronic signature.)
I would strongly encourage all companies interested in using electronic signatures on contracts to consider an electronic signature provider such as EchoSign or DocuSign. E-signature providers have well-developed systems that make it easy for companies to execute contracts, forms, and other records electronically through a legally defensible process, can support “batch sending” of documents for signature via a mail merge-like process, and can be configured to automatically send fully executed copies to all parties (as well as to your Legal department or contract manager).
