More and more, transactions between small businesses and their customers, vendors, and service providers occur online rather than on paper. Yet some feel uneasy about the enforceability of these electronically-signed documents. Is an electronic signature as valid as a conventional handwritten signature?
Under state and federal law, e-signatures are recognized as valid and enforceable: Most states have adopted the Uniform Electronic Transaction Act, and at the federal level, the E-Sign Act, which grants electronic signatures the same legal status as conventional handwritten signatures for most transactions. Although the statutes do not require a specific type of technology or process to be followed, there are several steps necessary to ensure that your e-signatures are enforceable in the event a dispute arises.
What Is an Electronic Signature?
An electronic signature is defined as an electronic sound (for example, the tone from pressing a number on a telephone), symbol (such as an alphanumeric code), or process (like typing the sender's name at the end of an email message or using a mouse to click an “I agree” button) that is attached to or logically associated with an electronic contract or record.
Steps to Ensure Enforceability
Several practices should be implemented to ensure that your business's electronically-signed agreements are binding.
- Demonstrate the validity of the e-signature by showing the signing party's clear intention to sign electronically. This intention can be shown by the inclusion of language in the document requiring the signer to expressly consent to or decline signing the document electronically.
- Obtain the signing party's consent to do business electronically. Intent to be bound by an electronic signature can be shown by the signing party's express consent, prior to their signing, to do business electronically. In addition, a clause in the electronic document giving the signer the opportunity to opt out of signing the contract electronically and instead sign a paper document, if expressly declined, will be strong evidence of the signer's consent.
- Implement a reliable method of verifying the identity of the signing party. Electronic transactions are complicated by the fact that the parties to the agreement may never have met face to face, which increases the risk of forgery. Verification of the signing party's identity can occur by having them establish a password-protected login, a PIN number, or by using a third-party service provider that has a verification process of its own.
- Maintain all records required by statute. The electronic document and signature should be kept in a secure archive that preserves its integrity by preventing unauthorized changes and maintaining the completeness of the agreement. In addition, a record of all the events and transactions related to the agreement should be kept.
- Ensure the electronic agreement is furnished to the other parties in a form that is retainable and easily accessible: The signing party should be provided a copy of the final completed agreement or at least permitted to download a copy of it.
Caution: Certain documents, including testamentary documents, documents conveying real property, court documents, notices of cancellation of insurance, and eviction notices, are typically not permitted to be signed electronically.
If you are interested in learning more or are concerned about whether your business's online transactions are legally binding, please give us a call. As business law attorneys, we can help ensure that your digital processes comply with the electronic signature statutes, and help you avoid litigation by ensuring that all your contracts, paper or electronic, are well drafted and enforceable.