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  • A Texas Case Could Put Electronic Agreements In Jeopardy

    In our ever-connected world, business moves at lightning fast speed and we have come to expect everything to be done with the click of a mouse. The same is true for signing important documents.

    Whether it's an apartment lease or new-hire paperwork, electronic signatures have become the norm. But how reliable are they, and will they be upheld in court if one party claims they did not click that button to trigger the electronic signature?

    An illustrative case, Aerotek Inc. et al. v. Boyd et al.[1] began when four employees filed a lawsuit against the staffing company that employed them for temporary labor work for various companies. In the lawsuit, each employee alleged race discrimination, harassment and retaliation pertaining to their employment on a construction project in Plano, Texas.

    Aerotek Inc., the staffing company at the center of the matter, filed a motion to compel arbitration because all four individuals had signed an agreement to arbitrate in their pre-employment paperwork. Despite virtually uncontested evidence indicating that Aerotek's online application system would not allow anyone to complete the application process without having first agreed to the mutual arbitration agreement, a Texas state trial court and the Texas Court of Appeals denied the employer's request to compel arbitration.

    Background
    The process for completing the Aerotek paperwork exists only in an electronic format. The paperwork is provided to a job candidate through an invitation sent to the candidate's email address, and each invitation has a unique candidate identification number, which links the candidate to his or her own set of paperwork.

    After the candidate has created his or her username, password and security questions, the candidate is presented with an electronic disclosure acknowledgement, which states, among other things, that the user agrees to use an electronic signature in lieu of a handwritten signature. The job candidate must electronically sign the electronic disclosure acknowledgment in order to proceed through the pre-employment paperwork.

    The Case
    In fall 2016, one of Aerotek's customers, a glass installation contractor, began work on a construction site. In order to staff this project, the glass installation contractor requested contract personnel from Aerotek on an as-needed basis, including the four plaintiffs.

    Several months into the project, the plaintiffs filed claims alleging employment discrimination while working on the Texas job site. After the plaintiffs filed the complaint, Aerotek filed a motion to compel arbitration, arguing that all four plaintiffs had entered into an agreement to arbitrate the claims alleged in their petition.

    In response to Aerotek's motion to compel arbitration, the plaintiffs claimed they never saw or digitally signed the arbitration agreements and, thus, there was no valid agreement to arbitrate. To support this argument, each plaintiff executed an individual affidavit.

    However, the plaintiffs also "expressly and affirmatively denied having ever seen an agreement to arbitrate claims (before this lawsuit was filed), let alone actually agreed to arbitrate claims against any defendant" and claiming that they "had never seen" the arbitration agreement before it was produced in the underlying lawsuit; "did not sign any document, electronically or otherwise, providing my agreement to arbitrate claims against Aerotek or any of its customers"; and were never presented with any document, electronic or otherwise, that "mentioned arbitration."

    On these and other similar denials, the plaintiffs argued that they should not be compelled to arbitrate their claims against Aerotek.

    The Evidence
    In light of the plaintiffs' admissions that they had reviewed and executed Aerotek's onboarding paperwork and had agreed to certain terms, conditions, policies and procedures for Aerotek, the question became how they could not have agreed to the arbitration agreement that was contained within that electronic paperwork.

    The trial court conducted an evidentiary hearing regarding Aerotek's motion to compel arbitration, during which Aerotek submitted extensive evidence from its long-time program manager, who assisted in designing and developing Aerotek's onboarding technology application. As the witness described the online onboarding process, she demonstrated each step on a laptop connected to a monitor visible to the trial court.

    During that demonstration, the witness showed the trial court that:

    • The first task in the paperwork process was to acknowledge and electronically sign an "Electronic Disclosure Agreement," in which the candidate agreed to use an electronic signature in lieu of a handwritten signature throughout the process;
    • The paperwork had to be completed in the order that it was presented;
    • The system doesn't allow candidates to go out of order in completing their paperwork;
    • When they're electronically signing, the program date stamps the time in which they signed that particular document;
    • A mutual arbitration agreement is located in the policies and procedures section; and
    • Candidates cannot get to the last step in the process of finalizing and submitting the data without completing each and every single one of the steps.

    The Aerotek witness also testified that this process is the only online process used by Aerotek for completing employment paperwork and that this is the same one the plaintiffs went through when they applied for employment with Aerotek.

    In addition, Aerotek offered into evidence each of the plaintiff's individual "electronic disclosure agreements" and "mutual arbitration agreements," each bearing a nonhandwritten notation describing a date and time the plaintiffs electronically signed. Aerotek's program manager testified that the signatures on the agreements indicated that the person that logged in is the one that signed that document.

    When asked, if these individuals "went online, went through the process, reviewed the terms and conditions, policies and procedures and they affixed electronic signatures and they submitted the information to Aerotek, is there any possible way that they could have done that without executing the arbitration agreement?" She unequivocally answered, "Not with this process. It's locked throughout the process, so they have to complete everything in that section before they can get to finalize and submit section. So everything has to be signed and completed before they get there."

    Other than cross-examination questions about the potential of the system going down, the plaintiffs presented no evidence of a technical anomaly. Despite the evidence presented at the evidentiary hearing by Aerotek and the lack of evidence presented by the plaintiffs, the trial court denied the motion to compel arbitration in May 2018.

    An Appeal
    Aerotek appealed[2] the decision, arguing that the trial court abused its discretion by finding that the mutual arbitration agreements were missing from the online onboarding paperwork reviewed, electronically signed and submitted by all four plaintiffs. The main issues on appeal focused on whether the arbitration agreement was part of the online process and if Aerotek presented evidence establishing the plaintiffs had electronically signed the arbitration agreements despite the plaintiffs' statements.

    After briefing by all parties and oral arguments, in August 2019, the Texas Court of Appeals for the Fifth District of Texas in Dallas affirmed the trial court's ruling by an opinion of 2-1, written by Justice Cory Carlyle and joined by Justice Partida-Kipness; Justice Bridges was the lone dissenter. Aerotek then filed a petition for review with the Texas Supreme Court, which is currently pending.

    The Decision
    In its order affirming the trial court's denial, the Texas Court of Appeals provided justifications as to why the trial court's ruling was not an abuse of discretion.

    Specifically, the majority suggested that the trial court may have believed that Aerotek did not present evidence establishing the opposite of a vital fact: that the plaintiffs' denials of ever seeing the arbitration contracts were physically impossible given Aerotek's computer system. The majority also reasoned that the trial court may have concluded Aerotek's witness had insufficient capacity to establish the system was fail-safe and discredited the testimony because of a personal interest in the case.

    The minority disagreed, believing the witness accurately described and demonstrated how the system can be used to access records in a database showing the date and time documents were purportedly signed electronically.

    Potential Remedies
    Once the Texas Supreme Court decides if it will undertake review of this important issue, there a variety of potential remedies.

    First, it could simply reverse the trial court's decision based on the facts presented and uphold the arbitration agreement, thereby sending this matter into arbitration, in accordance with the plain language of the agreement. Even if the Texas Supreme Court were not inclined to go so far, at the very least, it could reach a determination whether Texas jurisprudence supports a ruling whereby an entire contract provision in four separate employment agreements is effectively eliminated after co-plaintiffs all identically argue that they did not provide an e-signature, despite the fact that unrefuted evidence was put forth making clear they could not have finished their employment applications had they not provided their e-signature.

    And if not, it should reverse and remand with instructions for the trial court to rule in accordance with its orders. Further, the Texas Supreme Court can and should provide guidance on whether the arbitration agreement at issue in this case can be treated as if it simply did not exist at all in the employment agreement despite the fact that all parties performed for months under this very agreement that the plaintiffs suggested for the first time in this lawsuit that they did not fully execute.

    Commentary on Electronic Agreements
    The majority's opinion also shows a surprising amount of judicial activism and a healthy skepticism for electronic agreements. For instance, the majority also took Aerotek's witness to task for never vouching for the records' integrity, nor being able to supposedly adequately explain the security measures Aerotek took.

    It suggested Aerotek could have, but did not, call a witness from the onboarding system vendor to provide a technical explanation and vouch for system security. Could these comments show the majority's true concern - skepticism of electronic systems and agreements?

    That answer could potentially be yes, as the dissent pointed out several flaws in the majority's opinion.

    For example, despite the fact that the majority concluded Aerotek's witness may have had insufficient capacity to establish the onboarding system was fail-safe, the dissent pointed out there was no evidence presented that there were any computer glitches that would result in the online application paperwork being filled in as a result, much less that any of the four plaintiffs experienced any glitch whatsoever in the paperwork.

    Important Takeaways
    The implications of the majority's decision, if allowed to stand, could be far-reaching and result in a domino effect, which would alter well-established contract law as well as negatively impact companies that are seeking to embrace the future and the prolific use of electronic agreements, which is so commonplace in today's ever-increasing technological and global world.

    This decision could obliterate the law of contract in the context of electronic agreements and electronic signatures in an era where electronic agreements are becoming the norm in order to allow employers and businesses generally to be competitive for talent in an increasingly mobile labor market.

    This case highlights the slippery slope of employees attempting to get out from unfavorable clauses in employment contracts and the dilemma employers will find themselves in trying to enforce electronically signed contracts if courts deny electronically signed arbitration agreements. It could even set a dangerous precedent by enabling parties that simply want to get out from under pesky employment or arbitration agreements.

    Electronic Signature Statutes Could Be in Jeopardy
    Texas, like many other states, has enacted a Uniform Electronic Transactions Act, which governs, among other things, the use and applicability of electronic signatures in electronic transactions.[3] This act signals Texas lawmakers' expectation and understanding that electronic agreements and transactions have become a common business practice and need to be consistently transacted in accordance with Texas law.

    Despite the presence of this act, the ruling in this case could single-handedly call into question its relevance and applicability if a jurist who may simply be skeptical about how electronic systems work disregards the act's language authorizing and embracing electronic signatures by allowing parties to submit self-serving affidavits about not executing an e-signature when the facts show that the electronic employment application system would absolutely not allow applicants to complete the process without executing an e-signature electronic agreeing to arbitration.

    One wonders what good is this act at all, if, as was the case in this lawsuit, a party simply suggests they did not "click the button" when the technology proves that it is not possible that they did not. This ruling, if it stands, could erode the efficacy and undermine the purpose of the act and create very real uncertainty of its application to future electronic transactions.

    The Chilling of Electronic Hiring Practices
    Similarly concerning is what havoc a decision such as this could wreak on the future of the hiring process generally and the broader access to jobs that employees have recently enjoyed through global online and electronic hiring systems if employers seeking to hire new workers do not have confidence that the employment relationships they enter into with employees can be enforced unless an employee is provided hard-copy application materials or is forced to sign all pre-employment paperwork using only a "wet signature" or only if they are physically present in a future employer's office. Could this concern ultimately spark a reversion to the days past of paper applications and hiring processes?

    Because of the continuing trend toward electronically posting job openings and a more mobile workforce, one cannot help but notice that an employer's ability to use electronic agreements and e-signatures when attempting to hire new employees has seemingly sped up the hiring process and has made job opportunities far more available to potential employees who are not geographically located in the same location as their future employers.

    Thus, employers and employees being able to connect, despite not being in the same location, provides tremendous value not only to employers who are likely able to choose from a much larger pool of talent but also means that broader job opportunities are more accessible and available for employees as well.

    However, if employers begin to fear whether electronic transactions or e-signatures for new employees will be enforceable in the future and may expose employers in ways they had not expected to be exposed given that electronic agreements and e-signatures have become commonplace in the world of commercial transactions, one cannot help but wonder if the erosion of this confidence in e-signatures could result in a chilling effect where employers begin to refrain from using electronic agreements or relying on e-signatures. The concerning potential effect being the constricting of job opportunities in the future for employers that are not located in the same location as employers.

    Inconsistent Enforcement of Future Contracts
    This ruling could signal a big problem for not only employers but all companies that transact business outside of their own locale, such as either nationally or globally, where the use of electronic signatures has become commonplace and is used on a daily basis to efficiently and effectively conduct business.

    Indeed, if an e-signature can so easily be thrown out by one party simply claiming they never triggered their e-signature when the technology suggests otherwise, imagine the chaos this same result could wreak on a multibillion dollar merger or acquisition, or the purchase of millions of dollars of widgets or supplies, or in contracting for a multimillion dollar construction project. Simply put, no industry that uses e-signatures would be safe from the effects of this perverse outcome if it is allowed to stand.

    Indeed, contract law has many tentacles and since the beginning of contracts there have been countless issues around the formation and performance of contracts. But, if material provisions in all contracts were simply cast aside at the whim of one of the contracting parties, such as in this case, where the plaintiffs were hired on and paid for work performed for months and, as such, able reap the benefits of being employed but simultaneously able to cast aside a contract provision that did not serve their purpose, this could spell big trouble for all other parties that enter into contracts and could create a gulf of uncertainty around which terms will and will not be enforced in a particular agreement.

    Further Public Erosion of Trust in the Law's Ability to Keep Up With Technology
    Perhaps most troubling of all is the fact that this ruling may further fuel the concerns about the growing divide between the law, which already struggles with the public perception of being antiquated and slow to change with the times, and the practical realities of the constantly changing, forward-focused, technologically minded world in which we live.

    While the law may never be perceived as leading the charge in creating change, it certainly does not want to be left in the dust either. The concern with a ruling such as this is that it may evidence the judiciary's reticence to embrace the increasingly electronic and tech-savvy world in which we live. While perhaps not true, this perception could erode the public's trust that the law is capable of interpreting legal issues and issuing rulings that demonstrate an understanding of the technology of the times.

    Conclusion
    The ramifications of this decision are further buttressed by the increasingly technologically savvy world in which businesses operate. If nationwide employers cannot rely on electronic application processes to make job opportunities accessible to potential candidates around the country, this could also stem the flow of available jobs to willing workers and force companies to return to a day when agreements signed with wet ink are the only enforceable agreements.

    This would harm not only employers that are looking to cast a wide net for future qualified applicants who would not otherwise apply, if not for the application process online, but also job seekers who would not be afforded the luxury of applying for a potential employment position from the comfort of their own home.

    In sum, the implications of a decision such as this, by one of the most populous states in the nation, could signal a big problem for employers doing business in Texas.

    This article was originally published in Law360.


    [1] No. DC-18-00907 (Texas District Court, Dallas County 2018).
    [2] Aerotek Inc. et al. v. Boyd et al., No. 05-18-00579-CV (Texas App. 2018).
    [3] Title 10, Section 322 of Texas' Business and Commerce Code. This act has been in effect since April 1, 2009.