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Signing On The Electronic Line: The Developing Law Of E-signatures

For HR professionals, when it comes to paper-less is certainly more.  One effective tool in moving towards a paperless office is the use of electronic signatures, which can be used for on-boarding documents, including job applications, offer letters, and I-9 forms, as well as for acknowledging receipt of employee handbooks and executing employment agreements.  The use of electronic signatures is particularly useful in the HR arena if your business has telecommuters or employees who are geographically dispersed, or when there are HR issues that are time-sensitive.  However, before diving headlong into the paperless world of e-signatures, employers need to dot their electronic “i’s” and cross their electronic “t’s,” as there are myriad state and federal laws addressing the use of electronic signatures.

The technology associated with electronic signatures has exploded in recent years with innovations such as Smart cards, passwords, biometrics, Public Key Infrastructure (PKI), and digital certificates.  This article will briefly highlight some of the significant laws that govern this developing area of the law, including the federal Electronic Signatures in Global and National Commerce Act (“the E-Sign Act”), the Uniform Electronic Transactions Act (“UETA”), and regulations governing the use of electronic signatures on I-9 forms and W-4 forms.

The E-Sign Act

The federal E-Sign Act, signed by President Clinton in 2000, governs the enforceability of contracts that are formed and/or ratified through electronic means.

The Act equates electronic signatures and records with their pen and ink counterparts.   In other words, the Act provides that a contract may not be denied legal effect solely because it is in electronic form or because it bears an electronic signature.  Beyond that, however, the enforceability of an electronic contract is evaluated under existing substantive contract law, just like any other contract would be.  Thus, the E-Sign Act[2]  sets the stage for the transition to a paperless HR office.

In order to gain the protections of the E-Sign Act (and UETA discussed below) an HR office should, among other things, use an “electronic signature” that has the following two (2) components: (1) an electronic sound, symbol or process attached to or logically associated with a contract or other record; and (2) the sound, symbol or process must be executed or adopted by a person with the intent to sign the record.  Thus, the term electronic signature is an umbrella term used in the E-Sign Act to describe a category of electronic processes that may be substituted for a handwritten signature, and the definition does not require the use of any particular authentication, encryption, or identification method.

The UETA

Similar to the E-Sign Act, UETA is a model state law that validates the use of electronic signatures and records.  Forty six (46) states, as well as the District of Columbia and the United States Virgin Islands, have enacted a statute modeled on UETA.  The only states that have not enacted statutes based on UETA are Georgia, Illinois, New York, and Washington; however some states, such as California, have incorporated some variations to the model UETA.  A state statute can modify, limit, or supersede the requirements of the E-Sign Act if the state statute either: (1) adopts UETA; or (2) specifies alternative procedures and requirements for electronic contracts and records that are consistent with the E-Sign Act.  Thus, it is important for employers to be familiar with the relevant state statutes in each of the states where they conduct business.

Although UETA uses the same definition of electronic signature as the E-Sign Act, UETA has some procedural provisions that are different from the E-Sign Act.  An exhaustive comparison of the two (2) statutes is beyond the scope of this article, but it is worth noting that UETA creates a presumption in favor of the validity of electronic signatures if and only if each party has agreed to conduct transactions by electronic means.  As a result, HR professionals may want to consider educating employees regarding electronic signatures and obtaining each employee’s assent, in writing, for use of electronic signatures for HR-related documents.

The Form I-9

In another move towards the paperless office, employers can now use electronic signatures for completion of Form I-9.  Pursuant to a recent interim rule from the Bureau of Immigration and Customs Enforcement (“ICE”) of the U.S. Department of Homeland Security (“DHS”), employers who are required to complete and retain Forms I-9, can sign and retain these forms electronically, as long as certain standards are met.[3]  Specifically, an employer’s system for capturing electronic signatures of employees for Form I-9 must include the following:

(1)        a method to acknowledge that the attestation to be signed has been read by the signatory;

(2)        the electronic signature must be attached to, or logically associated with, an electronically completed Form I-9;

(3)        a process to affix the electronic signature at the time of the transaction;

(4)        the ability to create and preserve a record verifying the identity of the person producing the signature; and

(5)        a printed confirmation of the transaction, at the time of the transaction, to the person providing the signature.

In conjunction with completing the Form I-9, an employer must: (1) examine the documents that evidence the identity and employment eligibility of the individual; (2) if the document appears to be genuine and relate to the individual, note the document’s identification number and expiration date; and (3) complete an attestation on the Form I-9 under penalty of perjury with a handwritten or electronic signature.  In addition, an employer’s system for capturing electronic signatures of managers must include a method to acknowledge that the attestation to be signed has been read by the manager.

The Form W-4

Employers may also establish a system for its employees to electronically file Form W-4, “Employee’s Withholding Exemption Certificate” pursuant to Section 3402(f)(5)(c)of the Internal Revenue Code.  In order for employee’s to file Form W-4 electronically, the employer’s electronic system must meet the following requirements:

(1)        The electronic system must ensure that the information received is the information sent;

(2)        The electronic system must document all occasions of the employee’s access that result in the filing of a Form W-4;

(3)        The design and operation of the electronic system, including access procedures, must make it reasonably certain that the person accessing the system and filing the Form W-4 is the employee identified in the form;

(4)        The electronic filing must provide the employer and the employee with exactly the same information as the paper Form W-4;

(5)        The electronic filing must be signed by the employee under penalties of perjury.  In this regard, the employer must ensure the following:

(a)        The jurat (or perjury statement) must contain the language that appears on the paper Form W-4;

(b)        The electronic program must inform the employee that the employee must make the declaration contained in the jurat and that the declaration is made by signing the Form W-4;

(c)        The instructions and the language of the jurat must immediately follow the employee’s income tax withholding selections and immediately precede the employee’s electronic signature;

(d)       The employee’s electronic signature must be the final entry in the employee’s Form W-4 submission;

(e)        The electronic signature must identify the employee filing the electronic Form W-4 and authenticate and verify the filing. “For this purpose, the terms ‘authenticate’ and ‘verify’ have the same meanings as they do when applied to a written signature on a paper Form W-4.”

Final Thoughts and Practical Tips

The use of electronic signatures can be an effective tool for HR professionals to move towards a paperless office, and its countless advantages, including cost-efficiency, alleviation of storage challenges, better organization, and improvement of security of employees’ personal identifying information.  However, before an employer uses electronic signatures for HR documentation, the employer should consider:  (1) developing an electronic signature/document policy; (2) training employees on the policy; and (3) implementing a system to monitor compliance with, and enforce, the policy.  Further, in order to take advantage of the exciting new technology of electronic signatures, employers should consult with their counsel to be aware of the developing federal, state, and local laws governing particular types of documents, such as Forms I-9 and W-4.

This article was featured in the January 2007 issue of “The Advantage,” published monthly by Deploy Solutions.


 


[1] By William E. Hannum III, Co-Managing Partner, Schwartz Hannum PC.  The author practices labor and employment law, representing management.  For more information about the author, please visit the Firm’s website at www.shpclaw.com.

[2] Note: The Act has a broad scope encompassing, “any transaction in or affecting interstate or foreign commerce,” which would likely include most signatures used in the workplace. Specifically excluded from the scope of the Act are the use of electronic signatures for testamentary instruments such as wills or testamentary trust, adoption, or divorce papers, and contracts or other records to the extent that they are governed by certain provisions of the Uniform Commercial Code.

[3] The ICE’s interim rule also sets forth standards for retention, security, and authentication which are beyond the scope of this article.  However, employers should consider these issues in determining whether their electronic signature system satisfies the legal requirements set forth in the ICE’s interim rule.