3 April 2017
David Weiler, Associate
The way individuals, corporations and governments are signing documents is rapidly changing. In the current commercial context, communications are almost entirely undertaken in an electronic form. The challenge for businesses is to ensure that documents are executed in a way that is legally binding, despite the fact that there may not be a hard copy of the document created or returned to them.
A natural extension of these commercial practices is for employers to allow employees to sign their employment contracts using electronic signatures. The question from a compliance point of view is whether this impacts on the binding nature of the employment contracts and the enforcement of obligations contained in these contracts, such as restraints and extended notice periods.
When considering the appropriateness of e-signatures, it is useful to remind ourselves that even the President of the United States can satisfy the Constitutional requirement that he or she must “sign” a bill of Congress to turn the document into law by directing a subordinate to affix the President’s signature using an auto-pen, when he or she unable to be in the same location as the document1
Types of e-signatures
e-signatures fall into two principal categories:2
Electronic Signatures – this is simply an electronic symbol or process used to signify the execution, or acceptance of the terms, of an agreement. This type of e-signature might be a scanned signature or other form of electronic sign-off, or an email confirming acceptance of a document.
Digital Signatures – this term describes a method that uses an encrypted digital certificate to authenticate the identity of the signatory. In contrast to an electronic signature, a digital signature is linked to certain identifying information and provides for greater certainty and security around the circumstances of the e-signature.
The legislative regime
In Australia, the legislative framework makes it clear what requirements are relevant when considering the use of e-signatures. Commonwealth and State/Territory governments have in place legislation designed to provide certainty around electronic transactions in the form of uniform laws, referred to as the Electronic Transactions Act 1999 (“Act”).
The uniform laws provide that where a law (either at the Federal or State/Territory level) requires a handwritten signature, this requirement can be satisfied electronically, (unless the regulations specifically exclude the Act from operating in respect of certain circumstances). For the purpose of the Act, an electronic signature will have the same weight as a handwritten signature, and therefore a digital signature is not necessary. However, there may be circumstances where a business will choose to use a digital signature instead of an electronic signature for greater certainty surrounding the authenticity of a particular transaction.
The requirements for a valid e-signature under these laws are threefold, with each one serving its own purpose. The important take away from these requirements is the idea of capturing a person’s intention to be bound by a particular transaction or to undertake certain obligations.
Identification and intent
The overarching and leading determination of the validity of an e-signature under the Act is that it must use a method for identifying the person as well as indicating that person’s intention with in respect to the information communicated.
For example, a person’s email signature that sets out their contact information can be helpful as part of the method of identifying the person, but it is not helpful in indicating that person’s intention in relation to a particular transaction (such as accepting an employment contract). Instead, there would need to be an acknowledgement from the sender that they are accepting the terms of the agreement, for example, in the body of the email. Another way of confirming a person’s intention is requiring that person to take steps to tick a box electronically in order to accept the terms or indicate their agreement.
The method used to communicate the signature must be appropriately reliable for the purpose for which the electronic communication was generated or communicated. This is viewed in light of all the relevant circumstances, including any indication by the parties themselves as to what is acceptable. For example, if an employment contract provides that an e-signature can be used, this would indicate the parties have deemed it to be reliable in the circumstances.
The final requirement under the Act is that the party receiving it (unless they are a government entity or official) must have consented to the method used to convey the e-signature. If a party requires a signature in a specific way (e.g. a signed original) then the provisions in the Act would be insufficient to establish the validity of the purported e-signature. This final point is crucial with respect to the broader use of e-signatures in relation to employment contracts.
Given that e-signatures are permitted by law, the question then is whether there are any relevant constraints on using them in the context of employment contracts.
The employment relationship is one that lends itself to using e-signatures for a number of reasons, including:
- the preference to store documents electronically rather than using hard copies for contracts and policies;
- for the purpose of training and policy implementation, e-signatures give employers the ability to time-stamp and record when
an employee has read and accepted a policy document; and
- drawing employees’ attention to specific and important obligations in the employment relationship, such as a behaviour policy.
Some businesses are now shifting away from hard-copy “wet signatures”, however in doing so there are some aspects to which employers should pay particular attention. For example, where a term of a contract (such as a non-solicit/non-compete restraint) is particularly onerous, it may be helpful for an employer seeking to enforce such a clause that it had drawn the employee’s attention to the particular provision, possibly with a specific acknowledgment of the term. If the terms of an employment contract are contained separately from where an employee accepts the terms electronically, this may also increase the likelihood of the terms of the agreement being challenged. Having an integrated process where the terms of the contract and any relevant polices are accessed prior to any electronic acceptance of the terms will minimise this risk.