As an ever-increasing amount of contract negotiation and execution is done online, new legal issues have arisen from such transactions. Consider the following scenario:
You are a general/prime contractor. You have a subcontractor’s electronic signature on an arbitration agreement. When a dispute arises with the subcontractor, you raise the arbitration agreement and attempt to submit the dispute to arbitration. However, the subcontractor says that it never signed, reviewed, or has even seen the arbitration agreement and refuses to submit the dispute to arbitration.
Thankfully, the Texas Supreme Court’s recent opinion in Aerotek, Inc. v. Boyd, et al. provides helpful insight to those seeking to enforce electronic contracts in Texas and bind signatories that otherwise deny signing the contract.
Aerotek utilized an online-only hiring application process. At the outset of the process, applicants were required to access an invite email from Aerotek that sent the applicant to a registration page. At the registration page, the applicant created a unique user ID, password, and selected security questions. Each time the applicant logged into the application system, the applicant was required to enter his or her unique user ID, password, and security question combination. As part of the online hiring application process, the applicant signed various contracts electronically, including an Electronic Disclosure Agreement (where the party agreed to be bound by the electronic contracts as though signed in writing) and a Mutual Arbitration Agreement.
The online hiring application was designed such that the online application process could not be completed until the applicant signed all the contracts electronically. Aerotek’s system was designed so that each time the applicant electronically signed a document, the hiring application registered that action with an electronic record showing the applicant’s unique identifier, the type of document, and a timestamp showing the date and time the document was signed. The Aerotek system was designed so that the foregoing information could not be altered by Aerotek.
Four candidates completed Aerotek’s online application system, including electronically signing the Mutual Arbitration Agreement, and began working for an Aerotek client as contractors. Shortly after starting work, however, the four contractors were terminated and sued Aerotek (amongst other parties). When Aerotek moved to compel that the contractors’ claims be submitted to arbitration, the four contractors opposed that motion based upon sworn denials that they had “ever seen, signed, or been presented” with the Mutual Arbitration Agreement.
The Key Question: Were the Electronic Signatures Attributable to the Four Contractors?
In answering the question of whether the signatures were attributable to the four contractors, the court analyzed the Texas Uniform Electronic Transactions Act, which provides that an electronic signature is attributable to a person by showing the effectiveness of security procedures that determine the person to whom the electronic signature is connected. The other issue the court considered is whether the alleged signatory’s denial that he signed the contract is alone sufficient to prevent attribution of the electronic signature to him.
As part of its analysis, the court acknowledged that there are several different security procedures that a company can use to “determine the person to which the electronic record or electronic signature was attributable,” including:
- Requiring personal identifying information – such as a Social Security number or an address – to register for an account;
- Assigning a unique identifier to a user and then tying that identifier to the user’s actions;
- Maintaining a single, secure system for tracking user activities that prevents unauthorized access to electronic records;
- Requiring users to complete all steps in a program before moving on or completing it; and
- Using timestamps to show when users completed certain actions.
The court noted that each of these security procedures provides the link between the electronic record stored in a computer or database and the person to whom the record is attributed. On the basis of testimony from Aerotek’s program manager, the court determined that Aerotek demonstrated that its security procedures, which included all of the items in the bulleted list above, were sufficient to demonstrate that the electronic signatures on the Mutual Arbitration Agreements could be attributed to the four contractors, despite the contractors’ sworn denials that they had not “ever seen, signed, or been presented” with the Mutual Arbitration Agreement.
- Those in Texas seeking to use electronic contracts should ensure that those contracts include an explicit agreement that the transaction can be conducted by electronic means.
- To address any potential concerns regarding attribution of electronic signatures, one should develop security procedures such as those identified in the Aerotek case that would demonstrate how an electronic signature can be attributed to a particular signatory.
- Be prepared to explain those security procedures if a party denies that it signed an electronic contract.