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Remote Working Challenges: What are Best Practices for Customers to Electronically Execute an Agreement?

April 09, 2020

We have long debated the risks and benefits of remote working. COVID-19 has eliminated the debate and forced us all to try it. One of the most important legal challenges we will face going forward is how best to obtain consent (or an authorized “signature”) on various agreements to avoid potential pitfalls arising from the generally anonymous nature of executing agreements electronically.

State law principles govern the formation of contracts. Most courts recognize, however, that while new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract. Generally, a business entering into an agreement with its customer must satisfy the following requirements:

Issue

Requirement

Electronic Consent

The terms of the agreement must provide that the customer consents to enter into an agreement electronically.

Process

The process for collecting your customer’s signature must provide an actual expression (manifestation) of assent to enter into the agreement.

Identification

The process used must reasonably identify the individual electronically “signing” the agreement.

Authority

The individual “signing” the agreement must have the authority on behalf of the customer to execute and deliver the agreement for all purposes in the agreement

For businesses contracting with consumers (or individuals), determining who “signed” the agreement and that the individual had the authority to do so is not a complicated analysis (although, the issue is not always clear when the individual claims they did not “sign” or click the “I agree” button). When contracting with business customers, however, the issue is much more complicated. And, unfortunately, many businesses often unknowingly accept unreasonable risks because they fail to obtain the necessary information to confirm the identity of the person electronically executing the agreement and whether that person is appropriately authorized on behalf of their business customer. Some simple questions arise that are not always easy to answer:

  • If you are allowing business customers to consent by clicking an “I agree” button on a website, how do you actually know who clicked the button?
  • Do you know if that person is actually authorized to consent on behalf of the business customer?

A few courts have considered these issues, but as businesses adopt the electronic execution of agreements at a more rapid pace, this issue will be considered for years to come.

When obtaining an electronic signature from a business customer, we must ensure that any and all agreements are “signed” by an authorized representative of the business customer and that the “signature” contains a reasonable manifestation of the customer’s assent to enter into the agreement. Corporate resolutions are critical to ensuring such authority exists. Specifically, businesses should ensure that their customers acknowledge and agree to a process that, if followed, binds the customer to the terms of the agreement. Additionally, when entering into agreements electronically, businesses should either (a) include appropriate procedures in corporate resolutions to confirm the identity of the person executing the agreement (i.e., clicking “I agree”) or (b) utilize one of many third-party services for authenticating the identity of the individual.

Failing to properly obtain authority for an agreement may result in that agreement being unenforceable against a business customer. So while we are working remotely and working on our personal hygiene, we need to also consider the processes we use to enter into agreements.

Stay safe out there.

Our team will continue to share the latest developments and provide insights as we continue to monitor the ever-changing, ever-shifting legal landscape on this issue.