Thought Leadership

E-Signatures: The New Normal?

While e-signatures were fairly widely used prior to spring 2020, there is no question that their usage has greatly increased as a result of the coronavirus pandemic. The pandemic forced most companies to encourage or mandate that employees work from home for period of time and in some cases up to the current time. As the number of individuals working from home increased (or has increased), many businesses and organizations had to consider how and whether documents and contracts traditionally signed in “wet ink” (i.e., an original physical signature in ink on a sheet of paper) could be signed electronically with an e-signature due to an inability to transmit a “wet ink” signature.

Despite the fact that most transactions today can be negotiated and completed electronically, signatures are an area that has been slow to adapt to changing times. The widespread use of smartphones and personal computers also now gives nearly everyone in the business world the ability to transmit signed documents remotely using digital technology, like a fax in the “good old days,” by printing and manually signing the document, photographing the executed signature page with a smartphone, and sending an email of the photo to another party with an acknowledgment that it is the person’s executed signature page to the agreement. Many people and companies still use “wet ink” original, physically signed signature pages and documents. This may be because of uncertainty regarding the legality of e-signatures, a lack of understanding of e-signature legal requirements and how to utilize them, security concerns, or industry custom.

For example, our law firm has gone to primarily electronic signatures for retainer agreements for new clients; a “bold” move for such an “old school” industry like the legal profession. But, it is one that makes sense in these current times for convenience reasons as well as avoiding needless paperwork, decreasing the time in opening client matters, etc.

Further, the State of Minnesota court system also began an electronic signature process for court filings a number of years ago. Virtually all attorneys are required to sign up for and exclusively use that system for court filings, serving papers, etc. The exception is “pro se” parties (i.e., unrepresented parties) who are not required to use the system. This system is a wholesale usage of “e-signatures” – attorneys are routinely advising other attorneys that they can “e-sign” their name to various documents submitted to a Court. Even documents submitted by individuals involved in a case, like Affidavits or Declarations, are e-signed without a true pen/wet ink signature.

E-signatures can take many forms, such as typing an “/s/” in front of a person’s name to represent a “conformed” signature in a form or document, as is the case in the Minnesota state court system, clicking “accept” in an online agreement to represent a “signature”, emailing a scanned signature, faxing a signature, or sending an email that says “I agree.”

Electronic signatures are the likely most common and mean any electronic process that indicates acceptance of an agreement or document. This may include a scanned image or photograph of a person’s ink signature, a mouse-created signature on a screen, a signature at the bottom of an email, or a typed name. Digital signatures use a certificate-based digital ID, which is unique to each signer and is used to demonstrate proof of signing. When a person digitally signs a document, he or she uses this private key to “sign,” which creates an encrypted digital signature. The digital signature is also timestamped and, if modified after signing, will become invalid. DocuSign, commonly used in real estate transactions here, is an example of a digital signature platform.

Businesspeople and consumers should know that legal validity, court admissibility, and enforceability are not the same thing. Each concept has a distinct definition, set of requirements, and, most importantly, contribution to the outcome of a legal dispute. The use of an e-signature is legally binding (with certain exceptions) under U.S. federal law under the Electronic Signatures in Global and National Commerce Act (ESIGN Act). The ESIGN Act confirmed that electronic signatures have the same legal standing as “wet ink” signatures under U.S. federal law. Although state law, rather than U.S. federal law, applies to the vast majority of contracts in the United States, the ESIGN Act has broad application to contracts because it applies to contracts for interstate commerce. A digital e-signature may minimize the risk of a challenge to the validity of a signature and, by extension, the consequences of a successful challenge. Keep in mind though, electronic contracts and signatures and digital signatures can still be legally challenged on the same grounds as paper contracts with wet ink signatures, including for forgery, mistake and duress.

Minnesota has adopted the Uniform Electronic Transactions Act (UETA) (Minn. Stat. Chapter 325L- enacted originally in 2020), which works in conjunction with the ESIGN Act to ensure the validity of digital contracts and electronic signatures under both federal and state law. The UETA provides that (1) a record or signature may not be denied legal effect or enforceability solely because it is in electronic form (2) a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation; (3) if a law requires a record to be in writing, an electronic record satisfies the law; and (4) if a law requires a signature, an electronic signature satisfies that law.

In order for an electronic signature to be valid under the UETA it must satisfy two key requirements. First, the electronic record or electronic signature must result from a person’s action in order to be attributed to that person. This ensures that a signature is not attributed to computer or other electronic device instead of the person intending to sign the document. This may be shown in any manner, including showing the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable. Second, the UETA only applies to transactions between parties that have agreed to conduct the transaction electronically, which is determined “from the context and surrounding circumstances at the time of its creation …including the parties’ agreement.” It is common for agreements to include specific terms and conditions with respect to the effectiveness of electronic communications and signatures to avoid ambiguity regarding the intent of the parties. For example, if parties intend to exchange electronic signatures, it is advisable to include an express provision stating that delivery of an executed counterpart of a signature page by email or fax shall be effective as delivery of a manually executed counterpart. Such provisions are fairly common in the “legal realm.”

Before using electronic signatures, parties should ensure that they avoid unintended consequences that e-signature laws can create, such as unintentionally creating a binding contract via email. Use of disclaimers in emails could avoid this unintended consequence, including adding automatic disclaimers in company-generated emails to make it clear that specific terms have not been agreed to, that the discussion or negotiations remain subject to further approvals (either by a board of directors, property manager or otherwise), or that terms of an agreement can still be revoked, rescinded or revised.

The ESIGN Act and state laws like Minnesota’s UETA allow businesses impacted by the coronavirus (in the past, in the present and potentially into the future given the ongoing variants) to use e-signatures to ensure the safety of their employees, continuity of their business operations, and the enforceability of contracts and agreements.

 

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Christopher R. Jones
Phone: 952-746-2156
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