e-Signatures Are Safe

As businesses have increased use of electronic records and contracts, one practical problem has been that you can't use a pen to sign a computer screen. (Well, technically you can sign the screen, but then you'd have to put the whole monitor in the file cabinet.) The good news for business is that now you have some legislation that will make it easier for you to use electronic signatures as a substitute for that quaint pen and ink John Hancock.

The idea of e-signatures as a substitute for traditional signatures isn't really a new idea at all. Several good technologies to implement e-signatures have been available for awhile.

The problem has been that while it made logical sense that an electronic record of a person's assent to an agreement should be valid, legal and binding, the law hasn't necessarily been there to confirm the logic. While tech lawyers have generally been able to do a long-winded analysis that ended with "the e-signature was probably valid," "probably" is not always good enough. Would you do a million-dollar deal on a "probably?"

With the legislation the answer is that an e-signature is as good as a pen and paper signature. The "probably" is gone.

The Law

In June 2000, Congress passed the Federal Electronic Signatures in Global and National Commerce Act (E-Sign). E-Sign creates two general rules.

The first is that ``a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.'' The second is that ``a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.'' In plain English, the result of these two rules is that we now have a federal law that validates e-signatures.

Generally, E-Sign doesn't affect any requirement imposed by any other law. It's a narrow law that only deals with validating e-signatures. Importantly, what E-sign doesn't do is require any person to agree to use or accept electronic records or electronic signatures, other than a governmental agency in some cases.

Consumer Protection

As you might expect, consumers get some special protection under this new law. If a law requires that information be made available to a consumer in writing, the use of an electronic record to make it available is allowed only if the consumer has consented to receiving an e-notice and if the consumer, before consenting, was provided with a specific notice required by E-Sign.

The notice deals with things like any option to receive the information on paper, how to withdraw consent, and how to obtain a paper copy. One of the more interesting requirements is that that a consumer must consent "electronically--in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent."

This is a crucial consumer protection provision. It's designed to prevent a consumer from signing a paper form, which, in its fine print, has a consent to receive e-documents in a form that a consumer may not be able to read. If you're at all inclined to begin using electronic documents and contracts in your business, E-Sign is the most welcome thing to come your way in a long time. It's an open invitation to take your business methods into the 21st Century.

While this new Federal law is a big boost for e-signatures and e-documents, there's still a mix with state law that you need to closely examine.

My take on this is that it's now safe to rely on e-signatures in business. While there are more requirements when you're dealing with consumers than other businesses, you can even now do e-signatures with consumers. Just be sure that you're well-informed about the requirements of this new legal landscape before you jump in.