eSignatures: Legal Perspective

Electronic Signatures have been accelerating businesses for nearly 2 decades. As the solution becomes more widely adopted, it's important to understand eSignatures legal perspective. This paper provides some high-level legal perspectives on eSignatures.

What is an electronic signature?

• The term `electronic signature‘ means an electronic sound, symbol, or process, attached to or clearly connected to a contract or form and executed by a person with the intent to sign the record or form.
• Electronic signatures (eSignatures)are legally binding for nearly every business or personal transaction. With Lightico's intuitive electronic signature service, businesses can obtain eSignatures legally that are binding from their customers, simply even while on a call.
• Businesses trust electronic records and legally-binding electronic signatures thanks to its simple user interface and its security procedures. With Lightico's eSignature, obtaining legally-binding electronic signatures is fast, easy and convenient.

Are eSignatures legal?

Yes. Today, after decades of eSignatures and the ESIGN Act, there is no question about eSignatures legal position.

eSignatures Legal Background and Requirements

In the year 2000, the federal Electronic Signatures in Global and National Commerce Act (ESIGN) and the state Uniform Electronic Transactions Act (UETA) entrenched the validity and criteria for electronic documentation and signatures. Below are the fundamental elements. A fuller reading is available here

• Validity

The fundamental development of both ESIGN and UETA is that electronic records and signatures have the same legal standing as handwritten signatures and paper. Particularly that a document or signature cannot be denied legal effect or enforceability solely because it is in electronic form.

• Intent

The law directs that signatures are only valid if the signer(s) had intended to sign. This is no different than ink and paper signatures. This is another core tenant ensuring eSignatures legal status.

• Recording

ESIGN and UETA require that the electronic signatures must be accompanied by associated elements that show a graphic or text element that clarifies that it was executed electronically or detailing the electronic process by which the signature was created.

• Consent

The law directs that there must consent to electronic sign. This can be either explicit or as a result of actions. Where one party is a consumer, the consumer must receive UETA disclosures, actively consented for electronic interactions and have not retracted that consent.

• Retention

For electronic documents and signatures to be valid and legally effective, they must be both retained and be able to be reproduced by all parties entitled to the document.

eSignatures Legal Issues by County – US, UK, & EU

eSignatures are accepted around the world, but different regions and countries have different frameworks in place to permit them. This post will address the United States, the United Kingdom, and the European Union.

eSignatures in the US

In the US, the legal acceptance of eSignatures is based on two main acts: the state Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (ESIGN). Both acts were passed in 2000. Both ESIGN and UETA note five main elements that make an eSignature legally binding:

• Validity: Signatures and records that are created electronically carry the same weight and import as traditional paper and ink versions. Just because a signature was recorded electronically cannot be a reason for invalidating it.
• Consent: The person signing must give consent to using an electronic signature. That involves making certain disclosures to them before they sign.
• Intent: Just like a physical signature, an eSignature demands that the person signing has the intent to sign the document. They must agree to what's written in the document they are signing and fully understand the effect of their signature.
• Recording: An eSignature needs to be accompanied by a record that clarifies that this is an electronic signature, not a physical one.
• Data integrity: Just like a paper document, records that have been e-signed need to be kept secure from tampering, alteration, or unintentional loss of data.

In the US, documents that have been signed electronically are accepted in almost all situations. That includes B2B, B2C, and C2C interactions and interactions between the government and businesses or individuals. There have been many court cases that recognized the reliability of eSignatures, enshrining them in case law. There are some instances when eSignatures aren't accepted in the US. Sometimes, the process is formulated to restrict signatures to ‘wet ink' or formally notarized signatures. Cases, when eSignatures aren't accepted, include:

• Adoption and divorce agreements
• Court orders, notices, and official documents
• Termination of health or life insurance benefits
• Wills, codicils, and testamentary trusts

eSignatures in the UK

Like ESIGN and UETA, the UK Electronic Communications Act in 2000 confirmed that an agreement can't be termed invalid purely because the signature is an electronic one. Electronic signatures were accepted in the UK under the Electronic Signatures Regulations Act in 2002. According to English law, a valid contract doesn't necessarily need a written signature, as long as both parties have full understanding of the contract and reached a mutual agreement. This being the case, an electronic record – like an eSignature – is acceptable proof that both sides agreed to the document. These are Standard Electronic Signatures, or SES. An SES isn't seen as having the same weight as a handwritten signature, but UK law does accept a particular type of eSignature as equal to a handwritten one. These eSignatures are termed Qualified Electronic Signatures (QES) or Advanced Electronic Signatures (AES). An AES is:

• Uniquely connected to the person signing
• Identifies the person who signed it
• Created using a process that can only be accessed by the signator
• Linked to other data, so if there is an alteration, then the change will be detected

A QES is:

• A particular type of digital signature that has been approved by the government
• Created using a secure signature creation device
• Accepted as the equivalent of a handwritten signature under all legal conditions

In the UK, standard eSignatures are accepted on most documents, including HR documents, employment contracts, commercial agreements, sales documents, short leases, guarantees, and loan agreements. Other documents need QES or AES. There are some documents, however, that still have to be signed by hand, including:

• Some family law documents, such as prenups and separation agreements
• Real estate deeds such as transfer of title, legal mortgage, and release of a mortgage
• Most leases
• HM Customs and Revenue documents

eSignatures in the EU

In 2000, the EU accepted eSignatures as legally binding through the Directive on a Community framework for electronic signature (eSignature Directive). This confirmed that an electronic signature can't be rejected just because it was created electronically. Many European countries share the UK's approach of accepting contracts as legally binding without a handwritten signature. In 2015, EU legislation replaced the 2000 eSignature Directive with Regulation (EU) No 910/2014, usually referred to as eIDAS. eIDAS stated that there are three types of eSignatures – SES, AES, and QES, just like in the UK. The standard eSignature (SES) is accepted for most contracts and documents, including employment contracts, purchase orders, invoices, sales agreements, software licenses, and real estate documents. An SES is accepted in B2B, B2C, and C2C situations. AES or QES are accepted for most court briefs, consumer credit loan agreements, and residential and commercial leases. Like in the US and UK, there are just a few situations in which only a handwritten signature will do. These include:

• Contracts to transfer or buy real estate
• Marriage contracts
• HR termination notices
• Incorporation of a limited liability company

It's important to remember that each member of the EU has its own set of requirements for eSignatures.

Best Practices

You don't want there to be any chance that your customers' eSignatures aren't accepted. To avoid this, follow these best practices:

• Make sure that there is a clear audit trail that backs up the eSignature's validity. This includes actions that the signator took before signing the document, like having checked a box to show they agreed to terms and conditions or clicked Next Page to sign.
• Set up a secure signature site that uses user authentication to ensure that only the customer can sign.
• Use third-party software to verify that you complied with disclosure regulations.
• Use a third party to maintain a secure storage site that ensures that the document can't be tampered with after signing.
• Include an easy way for the signer to download and save a copy of the document for their own records.

Next-generation eSignatures that are part of a wider, customer-centric system are making it possible for businesses to instantly collect documents, eSignatures, and payments while customers are on the phone. This use of next-generation eSignatures streamlines workflows, ticks up customer satisfaction and increases completion rates, all in a fully compliant and legally binding manner.

Digital Power of Attorney Depends on State Laws

A power of attorney document allows one party, the agent, to make financial decisions on behalf of another party. This is obviously a very sensitive document and consent must be meticulously documented. At the same time, many parties may prefer to execute the documents electronically. If that’s the case, they will normally want to use a digital signature. But is that legally valid? The answer to that question depends on the nuances of the Electronic Signatures in Global and National Commerce Act (ESIGN), the Uniform Electronic Transactions Act (UETA) and other state laws that govern the use of eSignatures. States that have adopted the UETA, will use that law as a basis of the determination rather than the ESIGN Act. But three states that have not adopted UETA — New York, Illinois and Washington — answer to the ESIGN Act. It’s important to note that the majority of states do not require a written Power of Attorney, though there are specific exceptions such as healthcare and real estate transactions. Given that POAs don’t usually need to be in writing to begin with (though often they are as a matter of convention), they can be executed electronically with an eSignature. If the POA document does need to be in writing, however, the question of whether a digital signature is acceptable depends on the purpose of the POA. For example, the UETA and EIGN Acts only authorize the use of electronic records and eSignatures (instead of a traditional wet signature) during a “transaction,” related to “business, commercial, or governmental affairs.” If the POA is required to be in writing, the eSignature laws should authorize the use of electronic records and signatures in its execution. If the POA is not required to be in writing, then using an eSignature is also not necessary, but can be optionally used.

Exceptions to Digital Power of Attorney

But it’s less clear how eSignature laws apply to healthcare directives, particularly in states that have not adopted the Uniform Power of Attorney Act (UPAA). These documents usually allow the agent to represent the principal under any circumstances, even if they don’t fall under the specified transaction. Furthermore, the appointment of the agent may not even be considered to fall under “conduct of business, commercial, or governmental affairs.” The Reporter’s Comments to the UETA (specifically Comment 9 to Section 3) acknowledge this gray area: “Records used unilaterally, or which do not relate to business, commercial (including consumer), or governmental affairs are not governed by this Act in any event, and exclusion of laws relating to such records may create unintended inferences about whether other records and signatures are covered by this Act…” Health POAs have been established in some states. These POAs may be subject to unique requirements regarding execution, acknowledgment, and even notarization. Typically, such powers are not considered a transaction and, therefore, wouldn’t be covered by the Act. However, even if such a record were to arise in a transactional context, this Act simply removes the barrier to using an electronic medium and preserves other requirements of applicable substantive law, avoiding any necessity to exclude such laws from the operation of this Act. Especially in light of the provisions of Sections 8 and 11, the substantive requirements under such laws will be preserved and may be satisfied in an electronic format. Accordingly, under existing law, the ability to use electronic records and signatures in connection with a POA may depend on one or more of the following: (1) the purpose for which the POA is created, (2) any specific legal requirements related to the formation of the POA, and (3) the purpose for which the POA is used. In addition, note that it is not clear whether a POA revocation, if state law requires it to be in writing, constitutes a “transaction” – creating the possibility that revocation could not be done using electronic records and signatures, either. For states that have adopted UPAA without significant variation, the ability to use electronic records and signatures for durable powers of attorney is clearer: except for POAs related to healthcare and other exemptions, the POA can be completed using electronic records and signatures. There may be additional considerations in those states that have not adopted the uniform version of the UETA. This includes Washington state, which did adopt UPAA but did not adopt the definitions allowing for electronic records or signatures, and New York, which expressly excludes certain POAs from coverage under the New York Electronic Signatures and Records Act, but separately authorizes electronic execution of some POAs under other law.

The Bottom Line: Digital Power of Attorney is Usually Possible

In most cases, digital power of attorney is legally recognized. This is especially true in cases where it’s not even necessary to have a written POA. If a company or person chooses to electronically execute their POA, they should consider adopting eSignature software to go along with it.

The Business Impact of Lightico's eSignatures

In a world where customers are on their mobile phones, businesses are thirsty for ways to sell and service them in real-time, wherever their customers are. With Lightico, agents have an integrated suite of digital tools they can add to their live phone conversations to better serve their mobile customers: Leapfrogging PC and face-to-face customer experiences. While speaking with customers on their mobile phones, phone agents can seamlessly add in-call tools like real-time media sharing, instant identification collection, real-time finger-eSigning, smart document creation/completion & instant, PCI compliant payment collection. Lightico's ‘no-app required' approach to digital service, combined with deep learning and rich analytics, equip call agents with a full suite of the right digital tools to close sales and improve service.