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Paul Zimmerman
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California Court of Appeals Approves Electronic Signatures on Arbitration Agreements 

It has become increasingly common for companies to have new employees sign important documents – including contracts and arbitration agreements – using electronic signatures. In light of this fact, some employers have recently faced challenges from employees in court regarding the authenticity of such signatures and the general validity of online employee orientation platforms. A new California Appellate Court ruling provides some clarity in this area.

In Espejo v. Southern California Permanente Medical Group (Cal.App. 4/22/16), a physician sued Southern California Permanente Medical Group (SCPMG) and others for wrongful termination and whistleblower retaliation. The trial court denied defendants' motion to compel arbitration, finding that SCPMG failed to authenticate plaintiff’s electronic signature on the arbitration agreement.  The Court of Appeal reversed, finding that SCPMG met its burden of authenticating plaintiff’s electronic signature on the arbitration agreement.

Both federal and California law provide that agreements may not be denied legal effect solely because they are in electronic form or have electronic signatures.  However, California courts, in at least one notable instance, have applied a heightened standard for enforcement of electronic signatures on written agreements. The Court of Appeal reviewed the employer’s evidence in support of the electronic signature, and found it critical that the employee’s name could have only been placed on the relevant signature pages by someone using the employee’s unique username and password at the date, time, and IP address listed on the documents. 

The case did not provide further guidance on the steps employers should take to enhance their ability to enforce arbitration agreements. The overall message, however, is that employers need to be ready with credible evidence showing that the electronic signature at issue was authorized by the employee. Employers should work with their electronic signature vendors, IT team, and legal counsel to develop protocols regarding electronic signatures, which could include the following:  

An employee or agent of the employer should be intimately familiar with the electronic signature process and be able to explain it in a declaration, laying the proper foundation for authentication;

  • Employers should make certain that employees affirmatively agree to complete the employment documents using an electronic signature, and have a record of how this is communicated to employees;
  • The electronic signature process must have sufficient security safeguards to allow a court to find that it is more likely than not the signature of the employee in question, and that it cannot be overridden by a supervisor, or some other person or entity, without the employee’s knowledge and express written permission;
  • Electronic confirmation of the electronic signature should be sent to the signing employee with a return receipt, along with a clearly communicated option to contest any issue the employee may have with the process;
  • Each employee should have a unique username and password to access the online system, which should require all users to create a private password (known only to the employee) before signing electronic documents;
  • Employers should inform their employees of the need to review every document, and invite them to ask questions about the process should they arise; and
  • The online HR system should provide an accurate date and time stamp for each electronic signature as well as the specific IP address of the computer used by the employee to sign the document.    

Employers will also need to tailor any steps to their specific IT environment, and develop written policies, and training, to meet their unique needs. By taking these steps in advance, employers can enhance their ability to enforce electronic signatures.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.