E-signatures: sign of the times

At a time when it is common for a US or Singaporean based company to recruit, train and communicate with an employee in the UK purely over the internet, with no physical interaction, it is an inefficient anachronism for hard copy contracts to be produced and couriered back and forth around the world before becoming valid.

Employers therefore want to use e-signature platforms to allow them to process contracts quickly and efficiently. Unfortunately, this is an area where English law has yet to catch up with the modern world – leading to confusion about where these contracts stand under English law and potentially stifling businesses adopting e-signatures as standard.

In August 2018, the UK's Law Commission launched a consultation in an effort to improve clarity on the subject and bring the law into the 21^st century. This is relevant for all companies who have already adopted or are looking to execute their documents via e-signature.

The good news…

The good news for those employers already using e-signature platforms is that e-signatures are, in principle, accepted under English law.

For standard documents (i.e. those only requiring one signature with no special requirements, as will be the case with the majority of employment contracts), e-signatures are a valid form of execution and will be treated by the courts in the same way as 'wet-ink' signatures.

…and the bad

Complications arise when additional signing requirements are introduced for certain documents, such as real estate contracts or when an employment contract needs to be executed as a deed.

What is a deed?

A deed is a specific form of contract in the UK that requires a witness to observe the signature and confirm that they have done so by signing the document themselves.

Deeds are necessary in the employment context primarily where a power of attorney is included in an employment contract or a separate confidentiality deed. This power of attorney allows employers to sign documents on behalf of their employees in order to, for example, formally transfer intellectual property rights to itself – particularly useful in circumstances where a former employee can no longer be contacted or traced, or where an existing employee simply isn’t cooperating.

When the parties sign a deed by hand, it is simple to have another individual in the room to witness the signature. This becomes harder to demonstrate if a deed is being executed via e-signature and the witness is not physically with the signatory at the time of signing. For example:

• if the signature is being witnessed via video link
• if it is being witnessed by another individual logging onto the e-signature platform and 'virtually witnessing' it,

has the statutory requirement for the deed to be signed in the presence of a witness been met? The prevailing view under English law is that it probably hasn't, so risking the effectiveness of the deed and so the power of attorney contained within it.

Even if a deed is not validly executed as a deed, as long as it is signed it will still be considered a valid contract and all parts of it that do not need to be contained in a deed will still be effective.

A way forward?

The consultation launched by the Law Commission stops short of recommending a radical overhaul in the law.

Instead, the Law Commission provisionally concludes that electronic signatures are valid and that deeds should retain their special requirements. However, the current law and guidance should be updated to reflect the needs of a modern business. In order to do this, it sets out proposals to provide some reform and practical guidance to bring an antiquated system into the 21^st century.

The Commission's primary proposal is that it should be possible for a witness to observe the signature of an electronic signature by video link and verify this either:

• via a signing platform, through which the witness can see the signatory's electronic signature on the document, and then apply their own electronic signature to complete the attestation
• by affixing their own electronic signature to a copy of the document which is emailed to the witness by the signatory after they have signed it.

But far enough?

Adoption of the Law Commission's proposals would undoubtedly provide some welcome clarity for organisations using e-signatures across all their contracts, including those executed as a deed. However, these proposals do not escape the basic requirement for a signature to be actually witnessed (whether physically or by video link) – still providing an administrative headache for employers who will need to ensure that remote employees validly execute a deed.

The consultation does tentatively acknowledge this and explores a new concept of 'electronic acknowledgment'. Under this model, the signatory would acknowledge to the witness that they have signed a document (for example, in writing, by telephone or via a video link) and the witness would then sign the document with their own electronic signature and include a statement that the signatory had acknowledged the signature.

Such a system, without an actual 'witness' to the signature, would obviously have security concerns as without a way to identify the signatory, the authenticity of a signature could be questioned. However, developments in cryptographic, blockchain and third-party verification technology can be utilised to provide reassurance of the signatory's identity, recording the time, date and IP address of the computer being used to create a 'digital signature'.

Unfortunately, the Law Commission stopped short of endorsing this approach as it would require major legislative change.

What should employers using e-signature platforms do now?

In the short-term, the consultation gives some comfort to employers as it reinforces the current thinking that normal contracts signed by e-signature are as valid as 'wet-ink' signed ones.

We expect the Law Commission's response to clarify questions around the witnessing of deeds. Until then, employers using e-signature platforms should:

• operate on the assumption that a deed signed and witnessed electronically may not be a valid deed. For the majority of employee contracts this will not be a major issue. If a contract's enforceability as a deed is important then a cautious approach should be taken and it executed by a 'wet-ink' signature and a physical witness attesting. For example, if an employee is involved in creating particularly important intellectual property, having a valid power of attorney included in the contract will be an important additional layer of protection for the company.
• consider any cross-border aspects to the contract. Although e-signatures are legally valid and enforceable in most countries, many will have their own set of laws and standards regulating their use. If the employee signing the document is located in another country, it is important to obtain confirmation from local counsel that the method of e-signing being used is valid.

The outcome of the consultation currently seems unlikely to provide a satisfactory long term solution for businesses using e-signatures, especially in relation to deeds. Some form of 'witnessing', although potentially soon to be possible by video link, will still be necessary and will create additional administration that will hamper what would otherwise be an efficient signing process.

It is therefore likely that any changes to English law that arise out of the Law Commission's consultation will be swiftly overtaken by technological changes. More substantial reforms, supported by improvements in digital security, will be needed to ensure that the law facilitates the employer's ideal situation.