The highest court in one state ruled that an arbitration provision is enforceable even when a party denies having electronically signed it. In Aerotek v. Boyd, the employer sought to reverse the trial court’s decision to deny its motion to compel arbitration. The Supreme Court of Texas ruled that the employees failed to meet their burden under the Uniform Electronic Transactions Act (UETA) to contest the electronic signature process. According to ABA Litigation Section leaders, this decision properly sets the burden litigants must meet when contesting electronic signatures.
June 01, 2022 Top Story
Electronic Signatures Bind Employees to Arbitration Clause
Court finds electronic signatures valid because an adequate system was in place
By William H. Newman
Lower Courts Accepted Plaintiffs’ Mere Denial
The plaintiffs in Aerotek each applied to work for the defendant through an online application. They later sued for racial discrimination and retaliation. The defendant asked the trial court to enforce an arbitration agreement it alleged the plaintiffs digitally signed as part of their application. The plaintiffs claimed their applications did not include the agreement.
One of the defendant’s employees testified that its online application system was secure because it required applicants to create a unique user ID and password, and to designate unique security questions. The employee further testified that the system would not allow an application to be submitted until all signatures are provided, including ones to the arbitration agreement. She knew of no way the company could have altered relevant records.
However, the employee also admitted she was not an IT expert, nor did she personally create the application software. The trial court sided with the plaintiffs and denied the motion. The defendant appealed.
The Court of Appeals for the Fifth District of Texas upheld the refusal to compel arbitration. It deferred to the trial court’s factual finding that the plaintiffs’ simple denial sufficiently rebutted the defendant’s claim that its records were accurate. It noted that the defendant’s employee was an interested witness, and her testimony was not based on direct knowledge of the system’s creation.
Texas Supreme Court Holds the Defendant Met Its Burden
The Supreme Court of Texas reversed, deciding the defendant sufficiently established that the plaintiffs agreed to arbitration. It held that once the plaintiffs admitted they participated in any electronic agreement with the defendants, the only relevant inquiry was whether the defendant’s electronic records could be inaccurate.
The supreme court noted that the UETA provides a standard for the validity of electronic signatures 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 of electronic signature was attributable.” The UETA further defines these security procedures.
Since the plaintiffs offered no evidence about the reliability of the defendant’s system and had not even requested forensic tests of the system, the supreme court held that the defendant’s uncontroverted evidence on the subject was sufficient to validate the agreement. In particular, the supreme court cited the security and other safeguards of the defendant’s system, including its requirements that applicants use private usernames and passwords and that they complete all portions of the application before submission.
One of the nine justices dissented, relying upon Ward v. Weaver. In that case, a notary affirmed that the defendant had executed a contract, but the defendant swore otherwise. The Supreme Court of Texas held that her denial was sufficient to present a question of fact in which appeals courts should defer to the trial court’s findings.
The majority distinguished Ward since it did not apply the UETA, but the dissent argued that the statute “makes evidence of the efficacy of security procedures sufficient to establish the validity of an electronic signature, but it does not make that evidence conclusive in the face of contrary evidence.”
Decision Protects E-Commerce and Sets Standard for Contesting Agreements
Several Litigation Section leaders agree that the Texas courts should have compelled arbitration, despite the Aerotek plaintiffs’ objections. “A mere denial was not enough to disclaim a contract when the employers’ controls were more than adequate,” states James D. Abrams, Columbus, OH, cochair of the Section’s Commercial & Business Litigation Committee. He contends this is particularly true in this case because the plaintiffs’ declarations were identical and thus “obviously prepared by Plaintiffs’ counsel.”
This decision does not completely bar plaintiffs from avoiding electronic contracts. “The Texas Supreme Court provided the road map for just such a factual determination,” notes Abrams. “A successful plaintiff,” he elaborates, “could have hired an IT expert to rebut the defendant’s testimony about the reliability of its system.” Other Section leaders agree. “A qualified computer forensics expert or software developer should have been able to examine the procedures and, if necessary, the application code to determine whether pathways existed for the system to make an error,” confirms Kenneth M. Klemm, New Orleans, LA, cochair of the Section’s Trial Evidence Committee.
Section leaders also believe that decisions like Aerotek protect electronic commerce. “Electronically signed contracts are becoming more and more prevalent,” observes Henry R. Chalmers, Atlanta, GA, cochair of the Section’s Alternative Dispute Resolution Committee. “And to prevent undue burden,” he adds, “there must be some way to show that the underlying procedures are sound as opposed to making each defendant prove that each particular plaintiff entered into its agreement.”
Hashtags: #arbitration, #esignatures, #onboarding, #UETA
Resources
- John Bickerman., “Increase in Workers Subject to Arbitration Coincides with Supreme Court Rulings,” Alternative Dispute Resolution (Jan. 16, 2020).
- Andrew J. Ennis and Catherina A. Green, “Electronic Signatures: Not So Fast,” Commercial & Bus. Litig. (Dec. 17, 2019).
- Matthew R. Slaughter, “Using Electronic Contracts and Signatures While Social Distancing,” Pretrial Prac. & Disc. (Sept. 29, 2020).
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