Electronic Signature Law: ESIGN and UETA

The ESIGN Act and the UETA are federal laws that have a major impact on electronic signatures in digital contracting, and it’s important to understand the requirements of both. Both laws protect the validity and enforceability of digital signatures when their requirements are met.

Electronic signature law is complex but can be made simple with the right technology. Modern contracting software utilizes clickwrap and other electronic signature methods that comply with the ESIGN Act and the UETA.

The ESIGN Act was signed into law on June 30, 2000. It provides rules governing the validity of electronic signatures and records for transactions that affect interstate or foreign commerce. It is one of the primary pieces of legislation that makes electronic agreements enforceable.

The law facilitates the use of electronic signatures in the marketplace and lays out requirements for an electronic signature, defined as “any electronic sound, symbol, or process” that would be “logically associated” with the contract, to be considered valid. This definition encompasses many kinds of online signatures and clickwrap agreements.

Enforceability of these agreements is only possible when they conform to the requirements of this federal law. Compliance with these federal statutes is an absolute requirement to protect the enforceability of your contracts and streamline your contract management processes. 

Consumer disclosures under the ESIGN Act

Businesses are required to have the consumer’s prior consent with a clear and conspicuous statement that tells the consumer:

• of any right or option for the record to be provided or made available in paper or electronic form, and the right to withdraw consent
• whether the consent applies only to a particular transaction or to categories of records
• of the procedures the consumer must use to withdraw their consent
• how they may request a paper copy of a record and if any fees apply

The Act also requires that customers be made aware of the software and hardware requirements necessary to access and retain electronic records, and the consumer must reasonably be able to access the information in an electronic form. Businesses are expected to update these requirements if new technology is needed to handle these electronic records.

These consumer disclosures are highly technical and are best handled with effective digital contracting software. For example, a well-crafted clickwrap agreement makes sure you comply with the Act.

Record retention

Record retention in digital contracts should not be complicated. A sophisticated software maintains accurate and complete records of all user agreements. A dynamic contract repository meets the requirements of the ESIGN Act and make it easier for you to maintain your records.

The UETA is a state law, not a federal law. It was adopted by the National Conference on Uniform State Laws in 1999 and has since been adopted by 49 of the 50 states. It predates the ESIGN Act, and lays out additional requirements for electronic signatures and records not listed in the federal law. It makes clear that electronic records should be accounted for in the same way as their paper counterparts. This important change helped usher in the era of digital contracting.

The two acts go hand-in-hand and govern how electronic agreements are handled and recorded. The UETA focuses on electronic contracts that are related to business, commercial, and governmental matters. Certain types of agreements are excluded from this legislation, including:

• Creation and execution of wills or trusts
• Divorce, adoption, and other family law matters
• Uniform Commercial Code
• Court documents.

The UETA is designed as a more comprehensive counterpart to the ESIGN Act. It addresses several important issues that the ESIGN Act omits, but many of the requirements of the UETA and ESIGN overlap. Where they overlap, both control so long as they agree and do not conflict. Both are important to maintaining a compliant electronic contract management system for your company.

Protections for Electronic Signatures

The UETA provides legal protection for electronic signing methods. It includes provisions that state:

• A signature or record may not be denied validity simply because it is in an electronic format
• A contract may not be denied enforceability simply because a record was in an electronic format
• When a law requires a document to be in writing to be enforced, an electronic record satisfies this requirement
• If a law requires a signature, an electronic signature satisfies the law

Both acts require a clear intention by both parties to sign the agreement. Certain steps are necessary to show that each party consented to the contract and agreed to be bound. Both laws require:

• an intent by both parties to sign the agreement
• identifying information coupled with affirmatively taking an action (like clicking “Agree”)
• conspicuous notice of what the consumer is agreeing to
• a signature line that contrasts with the background and requires a separate action

With your agreements, you want to make them as obvious as possible. An effective clickwrap agreement, for example, ensures the customer can read the terms of the agreement and requires them to affirmatively click “Agree” to enter into the contract, demonstrating a clear intent to sign. Intent to sign is one of the most important elements a court will look to when determining enforceability. The more your software can do to prove this intent, the more likely it is the contract will be enforced.

Consent to contract electronically

Parties who decide to contract electronically must affirmatively consent to conduct the transaction digitally. This consent must be obvious and clear. It is shown expressly through legal language that the consumer consents to contract electronically. It is shown implicitly when the context of the agreement makes clear the consumer has agreed, like when they sign a document that’s clearly a binding contract.

Best practices dictate that an express agreement to contract digitally should be part of an effective agreement. The clearer the terms are, the more likely they are to be enforced. As this consent is so essential to both Acts, the inclusion of consent language is highly encouraged.

Consumer contracts require certain disclosures that must be made at the time the contract is signed in order for these requirements to be met. Determining who meets the legal definition of “consumer” can be tricky and takes time. Express consent provisions negate the need to worry about who is signing.

Association of the electronic signature with the record

Accurate record-keeping is both good business and legally required. The electronic signature must be linked or logically associated with the record and the signer. Both the UETA and the ESIGN Act require effective records to establish an enforceable contract.

The UETA provides useful commentary on how attribution can be established, including by:

• Security procedures that authenticate the signer
• Information in the record that links it to a particular person (i.e. with numerical codes, personal ID numbers, etc.)
• Demonstrating that, by necessity, the user could only have gotten the information through the process on the website

A third-party system that records this information can help bolster this information and increase enforceability in courts. Many companies use contract lifecycle management software to ensure accurate record keeping. 

Retention of contracts and records

Both the UETA and ESIGN Act carry specific requirements that govern record retention. Electronic records may satisfy the needs of both laws when they are:

• Accurate
• Easily reproducible
• Accessible to both sender and signer (and entitled parties)
• Available for reference by all relevant parties

Use of record retention software and other new technologies is crucial to ensuring compliance. In the digital marketplace, electronic signatures are a key part of establishing a valid contract. If you cannot easily locate and produce acceptance methods, you will find it challenging to enforce your contract in court.

Yes. Clickwrap agreements are online agreements that users agree to by clicking a button or checking a box that indicates “I agree.” These are legally enforceable provisions that bind the signor to the agreement. They are obligated to follow the requirements of the UETA and the ESIGN Act. The UETA even specifically states that an electronic signature includes “the standard webpage click through process.”

Clicking “I agree” or other clear language manifests the necessary intent to sign the contract. Case law makes it clear that a clickwrap agreement may constitute an electronic signature and is enforceable when it meets the requirements of both laws. When companies follow best practices for creating clickwraps, they are able to build customizable tools that comply with both the ESIGN Act and the UETA.

The ESIGN Act is federal legislation. As the UETA is adopted by every state except New York,  it likely applies to your business as well. In the pre-digital era, legal compliance was difficult and time-consuming. Terms and Conditions and other typical clickwrap agreements were manually analyzed by the legal department—significantly slowing the contract lifecycle.

Effective software makes it easy to meet the requirements of both. Because the laws are so similar, your clickwrap or other electronic signature method can be designed specifically to meet both laws.

Compliance with the UETA and the ESIGN Act does not have to be complicated. With appropriate record retention strategies and a focus on legal compliance, you can create enforceable digital contracts.

To make your online agreements comply with electronic signature law, let Ironclad help you. Our contract management software is designed to comply with federal and state requirements and make contracts easier to manage.

Request a demo of our software to get started.