Employers should be mindful of the use of electronic signatures on employment contracts and related onboarding documents | Goldberg Segalla

Key points to remember:

  • A recent decision from the United States Court of Appeals for the Second Circuit suggests that employers should be extra careful when asking employees to sign employment contracts electronically

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

  • If they allow e-signatures, employers should consider taking additional steps to ensure that such an e-signature is genuine, 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 contracts and related onboarding documents for several years. Last month, a Second Circuit ruling made it harder for employers.

The recent case

In Barrows v. Brinker Restaurant Corp., the complainant was a restaurant employee at a chain of Chili’s restaurants 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 suffered various violations of labor law. His lawsuit was joined by another named plaintiff, Mr. Mendez, who started working at the same Chili’s restaurant in 2017.

The employer-restaurateur requested the dismissal of the lawsuit and requested arbitration pursuant to a signed arbitration agreement. In support of the claim, the restaurateur-employer submitted an arbitration agreement bearing what it described as the electronic signature of the plaintiff Barrows. The restaurant’s employer explained that the arbitration agreement and similar employment documents can be accessed by creating an account using Taleo – a human resources computer system widely used for onboarding, among other things – which requires certain standard employee information (workplace state; month of birth; year of birth; and the last four digits of the worker’s social security number). In support of their claim, managers who worked with Barrows testified that all employees were required to electronically sign arbitration agreements.

In opposition to the motion, Barrows submitted an affidavit in which she denied using or having knowledge of the Taleo system and denied ever seeing or signing the arbitration agreement. In addition, documentary evidence was presented 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 found that Barrows raised no justifiable factual issue as to the validity of his alleged arbitration agreement with his restaurant employer. The district court granted the restaurant’s employer’s motion, dismissed Barrows’ lawsuit and ordered arbitration. Barrows appealed to the Second Circuit.

In reviewing an order compelling arbitration, the Second Circuit considered whether the parties had in fact contractually agreed to arbitrate. The court found that Barrows had created a justiciable question of fact as to the validity of the signature on the electronic arbitration agreement.

The Court of Appeal’s decision was based on the following factors: 1) Barrows’ detailed and sworn statement; 2) the fact that the restaurateur-employer had all the information necessary to create a Taleo account and could therefore have signed the agreement on his behalf; 3) the agreement had an IP address indicating that it was executed from a computer at the restaurant in question; and 4) another employee, Mendez, signed the same agreement using a “wet” signature. Ultimately, based on these factors, the Second Circuit reversed the lower court’s decision and remanded the District Court to further consider the merits of Plaintiff’s claim.

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 managing and signing employment-related documents and onboarding documents. Admittedly, this is not always feasible depending on the location or position of the employees within the company. However, it is better to have a uniform policy that applies to everyone equally. At the very least, employers should treat similarly situated employees consistently. The court pointed to the fact that Mendez used a “wet” signature on the same document to make the decision to quit and fire.

Second, employers should consider implementing two-factor verification when authorizing electronic signatures. Two-factor verification involves the company requiring confirmation from two separate sources to provide incontrovertible proof that the signature is genuine. 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 useful documentary evidence to combat any claims that the employee’s signature is not genuine, and therefore non-binding, on agreements or other onboarding documents.

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