Judge: Electronic agreement won’t hold up in court
March 16, 2009 by Sam NarisiPosted in: Document retention, In this week's e-newsletter, Latest News & Views, Security and law
In one recent case, an employee signed an agreement to arbitrate a discrimination claim — then a judge let her sue her employer anyway. Here’s why:
The agreement was electronic, and the company failed to get sufficient proof that the employee actually signed it.
Here’s how the process worked:
The arbitration agreement was posted on the company’s intranet. All employees could access the intranet with a unique user ID and password.
Employees were told to read the agreement and “sign” it by entering their social security number and password, indicating they’ve read and understood the agreement. Afterward, employees received an e-mail asking them to respond if they denied that they signed the document.
So when the employee brought her discrimination claim forward, the company told her she’d already agreed to arbitrate out of court. The company had a record of her signature, and an examination of her e-mail showed she’d gotten the follow-up message and never responded.
However, she claimed she never signed it — and alleged that her manager did it for her without her permission. At one point, she said, she forgot her password and asked her manager to reset it for her. That meant the supervisor had access to her log-in information for a period of time.
The company admitted that could’ve happened and, therefore, couldn’t prove the employee had actually signed the agreement.
That was enough for the judge. Without proof, the court couldn’t force the employee to arbitrate, and the case was allowed to move forward.
The lesson: In most cases, it’s easier and safer to have legal documents signed on physical paper.
Does your company use electronic agreements? Why or why not? Let us know in the comments section below.
Cite: Kerr v. Dillard Store Services, Inc.
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March 16th, 2009 at 9:10 am
Wrong ‘lesson’.. Here is a different take on the problem.
We will see more and more of these sorts of cases where companies put either home-grown or low-end ESIGN systems in place, and they fail to produce a legally binding contract for one reason or another. As the court pointed out – all it takes is the possibility of failure in process to render the system useless. In this case, a home-grown so-called ESIGN system was used, and one of its weaknesses was user access. If at ANY TIME someone else can gain unathorized access and use my signature, then the whole system is compromised.
I disagree that using paper solves this problem. A signature on paper can easily be refuted, and they often are. No, the problem is that the company here did not use an ESIGN system designed to create legally enforceable contracts. The fact her manager could reset her password is a clear system design failure. But any internally run and managed system designed to produce legally binding documents that may in fact be used in a suit against the company using it is suspect – it is sort of like the “fox guarding the henhouse”. That is why companies increasingly are turning to systems like DocuSign, where users are authenticated, contracts are secured and tamper proof, and the chain of evidence is overwhelming. Better, it is not internal system. DocuSign is a trusted 3rd party that manages the contracts as a service.(www.docusign.com)
If this company had used DocuSign, her manager never would have been able to access her account and act on her behalf. Further, if the company used any of the authentication tools provided such as knowlege based authentication, even if her manager DID somehow steal that password, he still would not be able to assume her identity and sign.
The lesson to take away from this is that if you care about your contracts, put a commercial-grade ESIGN system in place that has the authentication tools you need, and runs outside your firewall as a trusted 3rd party. Turning back to a paper process is less effective, costs more, and can actually be harder to prove.
March 16th, 2009 at 12:22 pm
Yikes, we use those A LOT. And we don’t send out confirmation emails after they have “agreed” that they read something.
However, it sounds like someone may have “signed” this agreement for her. Looks like they picked a bad example to forge.
March 16th, 2009 at 12:54 pm
Very interesting, but I’m not sure if the lesson to learn here is to keep using paper. The costs associated with paper contracts (paper, ink, printers, storage of the docs, time spent/wasted printing, etc) are a bit burdensome, especially in today’s economy. Going paperless is probably one of the easiest ways for companies to reduce overhead today. Especially when there are specific technologies that address these demands/issues. It may even be easier to forge a wet signature than an electronic one, especially when the company holds a number of documents that already have the employee’s signature. It would be a simple matter of tracing.
This entire dispute described could have been avoided by using RPost’s Registered Email service (www.rpost.com) which gives legal proof of delivery, content, and the time an email was sent and received. If they would have used this service and sent it to a personal email address that could be mandated to be kept current by the employer, it would have been near impossible for the employee to claim internal forgery. The service has the simplest e-Contracting tool on the market, and it is much more cost effective than relying on outdated methods (paper).
March 16th, 2009 at 4:38 pm
Great example of what can go wrong when trying to create enforceable agreements electronically.
But I have to disagree with “The Lesson”… that it is “easier and safer to have legal documents signed on physical paper”. Done correctly, electronic agreements and signatures are not only safer and easier than those done on paper but they also cost less.
This case is not an example of why you should use paper, but rather an example of what can go wrong when you rely on email or a system built without electronic signature expertise.
Great story!