Employers Should Be Mindful of Using Electronic Signatures on Employment Agreements and Related Onboarding Documents
Knowledge

Employers Should Be Mindful of Using Electronic Signatures on Employment Agreements and Related Onboarding Documents

Key Takeaways:

  • A recent decision by the U.S. Court of Appeals for the Second Circuit suggests that employers take extra care when requiring employees to sign employment agreements electronically

  • Employers should have a uniform policy on how their employees sign agreements and related onboarding documents wherever practicable

  • If allowing electronic signatures, employers should consider taking additional steps to ensure that such an electronic signature is authentic, such as implementing a two-factor verification system

Even before the COVID-19 pandemic, employers had been accepting electronic signatures—instead of “wet” signatures—on employment agreements and related onboarding documents for several years. Last month, a Second Circuit decision made it more difficult for employers to do so.

The Recent Case

In Barrows v. Brinker Restaurant Corp., the plaintiff was a restaurant worker at a Chili’s chain restaurant from March 2015 to January 2019. After her employment ended, she sued her employer alleging that she, and a putative class of similarly situated employees, had suffered a variety of employment law violations. Her lawsuit was joined by one other named plaintiff, Mr. Mendez, who began work at the same Chili’s restaurant in 2017.

The restaurant-employer moved to dismiss the lawsuit and to compel arbitration in accordance with a signed arbitration agreement. In support of the motion, the restaurant-employer presented an arbitration agreement bearing what they described as plaintiff Barrows’ electronic signature. The restaurant-employer explained that the arbitration agreement and similar employment documents are accessed by creating an account using Taleo—a widely used human resources information technology system for onboarding, among other things—which requires some standard employee information (work location state; birth month; birth year; and the last four digits of the worker’s social security number). In further support of their motion, managers who worked with Barrows provided testimony that all employees were required to electronically sign the arbitration agreements.

In opposition to the motion, Barrows submitted a sworn declaration in which she denied using or knowing about the Taleo system and denied ever seeing or signing the arbitration agreement. Further, documentary evidence was submitted showing that the other named plaintiff, Mendez, had signed the arbitration agreement with a “wet” signature and not with an electronic signature.

The district court concluded that Barrows failed to raise any triable issue of fact as to the validity of her purported arbitration agreement with her restaurant-employer. The district court granted the restaurant-employer’s motion, dismissed Barrows’ lawsuit, and compelled arbitration. Barrows appealed to the Second Circuit.

In considering an order compelling arbitration, the Second Circuit reviewed whether the parties had in fact contractually bound themselves to arbitrate. The court found that Barrows had created a triable issue of fact as to the validity of the signature on the electronic arbitration agreement.

The appellate court’s decision was based on the following factors: 1) Barrows’ detailed, sworn statement; 2) the fact that the restaurant-employer had all of the information needed to create a Taleo account and thus, could have signed the agreement on her behalf; 3) the agreement had an IP address indicating that it was executed from a computer at the subject restaurant; and 4) another employee, Mendez, signed the same agreement using a “wet” signature. Ultimately, based on these factors, the Second Circuit vacated the lower court’s decision and remanded for the district court to consider the merits of the plaintiff’s claim further.

A Warning to Employers

The court’s decision acts as a warning to employers on two main points. First, employers should consider creating uniform policies on handling and signing employment-related documents and onboarding paperwork. Admittedly, it is not always feasible based on employees’ locations or position within the company. However, it is best to have a uniform policy that applies to everyone equally. At the very least, employers should treat similarly situated employees in a uniform manner. The court highlighted the point that Mendez had used a “wet” signature on the same document in making the decision to vacate and remand.

Second, employers should consider implementing two-factor verification when allowing electronic signatures. Two-factor verification involves the company requiring confirmation from two separate sources to provide indisputable evidence that the signature is authentic. More specifically, for example, an employer could require employees who electronically sign a document to confirm their electronic signature through a separate verification email sent from their personal email account. Some type of two-factor verification could present employers with helpful documentary evidence to combat any claim that the employee’s signature is not authentic and thus, not binding, on any agreements or other onboarding documents.

Should you have any questions on this issue or how this may impact your business, please contact the following individuals: