The Importance of Adopting an E-Signature Policy for Your Business

January 17, 2024

The Importance of Adopting an E-Signature Policy for Your Business

Given the ever-changing landscape and increasing popularity of remote work, the use of electronic signatures (“e-signatures”) is on the rise. Business in general is going virtual, causing electronic transactions and online interactions to become more common. To accommodate this new digital environment, legislators have passed laws to permit the use of e-signatures to bind individuals to electronic agreements. In addition to keeping up with the evolution of online business, providing your organization with a reliable e-signature policy is pivotal to ensure clear reliance on and expectations for e-signatures.

The Uniform Electronic Transactions Act (“UETA”) was published in 1999 by the Uniform Law Commission and was enacted in Michigan in October of 2000. One goal of the UETA was to provide guidance as to how information and signatures can be “transmitted, received, and stored by electronic means.” The UETA permits two parties to enter into an electronic transaction when each party agrees to use electronic means to carry out the transaction. As a part of the electronic transaction, the UETA states that an electronic signature qualifies as a legal, binding signature where a signature is required by law, whether in written form or not. The UETA also specifies that an e-signature must be an act of the signee, which would ultimately need to be proven based on the surrounding circumstances of the e-signature.

The Electronic Signatures in Global and National Commerce Act (“ESIGN Act”) quickly followed the UETA later in 2000. The ESIGN Act reinforced the legal validity of an e-signature, allowing for the use of electronic signatures in transactions that are involved with commerce due to the rapidly increasing use of online business. In conjunction with the UETA, the ESIGN Act established four requirements for a valid electronic transaction and e-signature, including: 1) an intent by each party to sign, 2) the consent of each party to execute the transaction electronically, 3) record-keeping by the system used to capture the transaction, and 4) retention of copies of the transaction for party access.

Following the enactment of the UETA and ESIGN Act, many businesses have opted for implementing an e-signature policy to ensure consistency within their organization. A well-crafted e-signature policy acts as formal acceptance of e-signatures and electronic transactions in general. A key component in establishing an e-signature policy is making sure that any document created in the course of online business and signed through the use of an e-signature will survive a court challenge should the validity of those documents be questioned. Without an e-signature policy, your organization’s online transactions are at risk of being held invalid or unenforceable by a court based on the court’s belief that an e-signature alone was not sufficient evidence of the organization’s intent to bind all parties to the agreement.

A well-written e-signature policy helps ensure that an organization’s electronic transactions are enforceable and that the e-signatures associated with the transaction are evidence of a valid agreement.

An e-signature policy can be drafted to include many provisions that will help protect electronic transactions. For example, a policy can specify what types of documents are approved for e-signature and those that are not. A policy can also communicate expectations to employees, discuss best practices when using e-signatures, and help train individuals in the use of e-signatures. Overall, adopting an e-signature policy allows an organization to specify the scope of its use of e-signatures in online transactions and clearly identify which documents are made valid by use of an e-signature. Such a policy provides the organization more secure protection from invalid agreements and extra confidence in doing business online.

If you are interested in adopting an e-signature policy for your organization, please reach out to one of the authors of this article.

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