As everyone knows, contracts are increasingly signed electronically, with an online click for every kind of transaction imaginable—from simple, everyday retail purchases to extraordinarily complex matters. In Texas, the question of whether an electronically signed contract is enforceable is decided under the Texas Uniform Electronic Transactions Act (the “Act”), which was recently the subject of a decision from the Supreme Court of Texas, in Aerotek, Inc. v. Lerone Boyd, et. al., a copy of which may be read here.
Aerotek (the “Employer”) hires employees globally by the hundreds of thousands to work as contractors for client companies. To keep hiring efficient, the Employer worked with a software developer to build an online-only hiring application, which it exclusively to guide employee candidates through the hiring process—a process often referred to as “onboarding”.
During the hiring process, the Employer’s hiring application automatically sends a welcome email to the email address the candidate has provided during the recruitment and initial interview process. The welcome email includes a unique hyperlink for the candidate to use to navigate to the hiring application’s online account-registration page. Once there, the candidate creates a unique user ID and password and selects security questions. To later log in to the hiring application, the candidate must enter this user ID, password, and security-question combination correctly. This login process takes place each time the candidate leaves and returns to the hiring application.
After logging into the system, the first document requiring an electronic signature is an Electronic Disclosure Agreement (“EDA”). By signing the EDA, the candidate consents to “be bound” by the Employer’s electronic hiring documents “as though . . . signed . . . in writing.” After the candidate signs the EDA, the system presents other documents to the candidate for completion and signature.
While completing the application, the application requires candidates to complete and electronically sign the documents in a particular order. In addition, the application asks for personal information, such as addresses and emergency contacts. After the candidate completes the initial documents, the application unlocks four additional documents, including a Mutual Arbitration Agreement (“MAA”).
In this case, the Employer hired four candidates to work as contractors on a construction project for one of the Employer’s clients. All four employees were hired, and then terminated not long after starting work. As a result, the four employees (the “Employees”) and sued the Employer, its client, and others, for racial discrimination and retaliation.
The Employer moved to compel the lawsuit to arbitration in accordance with the MAA. In doing so, it attached to its motion each Employee’s timestamped EDA and MAA, along with database records showing the timestamp for every other action taken by each Employee in completing the hiring application. The Employees opposed the motion. Represented by the same lawyer, each submitted a sworn declaration acknowledging that he had completed the online hiring application but denying that he had ever seen, signed, or been presented with the MAA.
Following an evidentiary hearing, the trial court denied the Employer’s motion to compel arbitration. The court of appeals affirmed the trial court’s decision, and the Supreme Court of Texas accepted the Employer’s petition for review.
To compel arbitration, a party must prove that a valid arbitration agreement exists. For the MAAs to be valid, the Employees must have consented to them. However, the Employees argued that they did not consent to the MAAs because the electronic signatures on the agreements were not theirs. They admit that they completed the Employer’s online hiring application but denied that they were presented with the MAAs during that process.
The Texas Uniform Electronic Transactions Act states that once parties to a transaction have “agreed to conduct [it] by electronic means”, the Act attributes a standard for validating and attributing electronic signatures. Section 322.009(a) provides that an “electronic signature is attributable to a person if it was the act of the person”, which “may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.” (emphasis added).
After reviewing the Act’s definition of a “security procedure”, the Supreme Court of Texas provided the following non-exclusive list of items that may constitute “security procedures”:
- requiring personal identifying information—such as a social security number—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;
- business rules that require users to complete all steps in a program before moving on or completing it; and
- timestamps showing when users completed certain actions.
Interestingly, here, the Employees did not disagree – they simply averred that they sever signed the MAAs. However, the Court saw through that argument because the Employees offered nothing besides their own personal affidavits to support their claim, meaning that the Employer’s evidence showing the security procedures its hiring application used to verify that each candidate electronically signed his MAA was uncontroverted.
Further, in reaching its decision, the Court looked heavily to the Employer’s internal security systems and procedures. Specifically, the Employer was able to show that each applicant signed an MAA because the Employer had the following items in place: (i) strict internal system controls, (ii) a system that required applicants to submit personal information, (iii) technologies that recorded and timestamped every phase of the applicant’s document execution, (iv) business rules that made it so that the application could not be submitted until all steps were completed and all required signatures provided, including on the MAA, and (v) a restriction that prohibited the Employer from modifying any documents once an applicant submitted his application.
In sum, the Supreme Court of Texas found that the Employer was able to present evidence of its internal security procedures for its hiring application and its operation. And by reviewing that evidence, reasonable people could not differ in concluding that the Employees could not have completed their hiring applications without signing the MAAs. The Employees’ simple denials were not evidence otherwise.
So how should companies and employers handle this information? Ideally, after reading this article you will think through any agreements that you currently have electronically executed. If you have those contracts are a standard part of your operations, now is a great time to review what “security procedures” you have in place, and, if need be, to revise and improve them to hopefully avoid a situation like the one discussed above.