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Arbitration Agreements With ‘E-Signature’ Raise Risks


Mandatory arbitration agreements are contracts between employers and employees under which they waive the right to take each other to court should a disagreement arise between them and agree to have a designated neutral third party resolve the dispute instead. Employers like these agreements because they help reduce the stress and expense of litigation while promoting efficiency.

Employers are also increasingly turning to online tools to have workers — particularly remote workers — sign off on such provisions electronically.

This may be fine, but before adopting such a practice you should run your procedures by an employment lawyer to make sure your arbitration agreements and other agreements executed with an “e-signature” will be enforceable. That’s because, as a recent California case shows us, sloppy HR practices can result in such agreements being torpedoed in court.

In that case, worker Maureen Bannister sued her employer for wrongful termination. The employer presented Bannister’s e-signed arbitration agreement to the court and moved to have the case dismissed and sent to private arbitration.

Bannister countered that the agreement was void and presented evidence that she didn’t actually sign or review the agreement herself. According to the employee, a member of the HR team signed it electronically for her during the onboarding process.

The trial judge agreed with Bannister, ruling that the arbitration agreement was unenforceable. The California Court of Appeal upheld the decision, pointing to a state law clearly stating that electronic signatures are only valid if it can be shown that they were the “act of the person,” which may be proved by showing the e-signature required a unique login and password known only to the employee.

In Bannister’s case, it wasn’t enough for the employer to show that the HR person needed her Social Security number, employee identification information and pin code to sign the agreement, implying Bannister’s consent. The operative fact was that the HR person could have signed the document in her place.

The bottom line is that while e-signatures are typically enforceable, they’re also risky and more vulnerable to court challenges than regular, written signatures. So the best bet is to use traditional signatures wherever possible, and where not possible check with an attorney to make sure the process is airtight.