Once upon a time, verifying agreement with contracts or statements involved physically signing them with ink on paper.
While ink signatures remain widely used today, electronic signatures have increasingly gained momentum. Laws in both the US and other countries recognize them.
Electronic signature offers faster and more secure document signing for organizations, departments, or projects.
Users have the flexibility to select the option that is most cost-effective for them. Under the US Electronic Signatures in Global and National Commerce (ESIGN) Act from 2000, electronic signatures were legal in every state or US territory where federal law applies.
Electronic signatures provide security, convenience, and ease in documenting transactions remotely - especially beneficial in today's environment of social isolation.
Below, you will find information to help you understand their validity and legal enforceability.
What are the Laws that Govern Electronic Signatures?
In general, two laws govern electronic signatures:
Law 1: Electronic Signatures in Global and National Commerce (ESIGN) Act
This act provided electronic signatures the same legal standing as handwritten ones throughout the US, greatly simplifying and speeding up how organizations collect, track, and manage signatures and approvals on agreements and documents of all sorts.
According to the ESIGN Act, an electronic signature is defined as any sound, symbol, or process attached or associated with a contract or record and executed or adopted with the intention to sign them." As stated, electronic signatures are legally recognized as valid means to indicate agreement to contracts.
The ESIGN Act only covers business, commercial, and governmental matters; ink signatures may still be necessary for the following:
- Estate and family law issues.
- Court orders, pleadings, motions, and other documents related to court matters.
- Notices of foreclosure, eviction, or repossession.
- Cancellation notices for utilities or insurance benefits.
- Recall notices.
The Electronic Signature Identification and Authorization for Government Act:
- Prevents court from disallowing electronically executed agreements as evidence solely because of being presented electronically.
- Allow electronically executed contracts to be presented as evidence.
- Avoid denial of legal effect, validity, or enforceability because the document exists only electronically.
For an electronic signature to be legally binding under the ESIGN Act, all signature workflows should include these elements:
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Clear Intent of Signing
To sign an agreement electronically, signers must show clear intent by drawing their signature with a mouse cursor or typing their name, typing their full name, or clicking an "Accept" button clearly marked as such.
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Consent to Do Business Electronically
Most electronic signature laws also require some form of consent in order to conduct business electronically, with enterprise solutions typically asking signers to "click to accept" standard consent clauses or providing options to customize consent clauses as appropriate (for instance, terms such as confidentiality or security).
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Opt-out Clause
Should a signer decide not to sign an agreement electronically, clear instructions on how to sign manually must be easily accessible as part of the signature workflow.
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Signed Copies
Each signer must receive an executed copy of the agreement they are signing; many electronic signature solutions offer this feature as part of their approval workflow, providing signers with signed copies.
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Record Retention
Record retention requirements are satisfied through the ESIGN Act, which legitimizes electronic records as long as they accurately reflect an agreement and can be reproduced as necessary.
Often, this requirement can be satisfied by giving each signer their copy or permitting them to download it directly from our system.
Law 2: Uniform Electronic Transactions Act (UETA)
In 1999, the Uniform Law Commission proposed the UETA model act to establish legal guidelines for using electronic signatures across states and jurisdictions.
Since its creation, 49 states plus DC, PR, and USVI have adopted it.
The UETA establishes electronic signatures as legally valid signatures on equal terms with ink-and-paper signatures for business, commercial, and governmental transactions; it does not cover wills, trusts, family law matters, and many other important legal procedures.
New York remains the sole state to have not adopted UETA and instead implemented its statute on electronic signatures.
UETA sets forth four basic principles pertaining to electronic signatures:
- Records or signatures cannot be denied legal effect simply because they exist electronically.
- An electronic record does not negate legal effect or enforceability simply because its formation requires an electronic record.
- When the law mandates written records to satisfy that obligation.
- An electronic record satisfies this criterion, as does an electronic sign if that requirement exists.
All states with UETA laws typically exclude birth, wedding, and death certificates from this regulation; wills, codicils, and testamentary trusts can also often be exempted.
Law 3: Electronic Signatures and Records Act (ESRA)
Since 2000, electronic signatures have been legally binding in New York under the Electronic Signatures and Records Act (ESRA), which established their legal equivalent with handwritten signatures and also introduced an "electronic facilitator" role within the New York Office of Information Technology Services.
This department oversees all technology used to increase government efficiency and effectiveness, including electronic signatures.
They publish a best practice guide to assist those implementing electronic signatures under ESRA.
Electronic signatures in New York enjoy legal recognition equal to handwritten ones. They may be admissible into courts of law provided they comply with rules of evidence.
As with all electronic signature laws, no government organization or citizen is obliged to utilize them.
ESRA does not apply to documents that provide for the disposition of an individual's person or property upon death or incompetency or which name a fiduciary for their affairs upon incapacity.
Such documents include wills, trusts, and "do not resuscitate" orders, as well as powers of attorney and health care proxies.
E-Signature Legal Requirements Around the World
Electronic signature legal requirements are consistent around the globe, with most jurisdictions accepting documents or contracts signed electronically without being rejected on that basis alone.
Yet there may be important variations across jurisdictions when it comes to types of e-signatures accepted, as well as situations when electronic signatures won't be accepted.
Legal Requirements for Electronic Signatures in the UK
Similar to ESIGN and UETA, the UK Electronic Communications Act in 2000 made clear that an agreement could not be voided solely because an electronic signature was delivered electronically.
Electronic signatures became legally codified under the Electronic Signatures Regulations Act in 2002.
UK law stipulates that for a contract to be valid, both parties need only reach an understanding and reach an agreement about it - this means an electronic record serves as acceptable proof that both sides agreed upon this document.
There are various levels of legality for making an esignatures.
Standard Electronic Signatures (SES), for instance, don't carry as much weight as handwritten ones. However, UK law recognizes Qualified Electronic Signatures (QES) or Advanced Electronic Signatures (AES) as being equivalent.
An AES (Advanced Electronic Signature) must:
- Be unique to each signer who creates it
- Identify them by name
- Creation requires only access by the signer
- Bound to other data so any changes or tampering will be detected
A QES (Quantitative Encrypted Signature) must:
- An approved digital signature issued by government bodies
- Generated by using an extremely secure signature creation device
- An electronic signature is legally equivalent to a handwritten signature in all circumstances.
In the UK, standard e-signatures are accepted on most documents, including employment contracts, HR documents, commercial agreements, sales contracts, short-term lease agreements, and loan agreements.
Other documents require AES or QES signing.
E-Signature Legal Requirements in the EU
Beginning in 2000, the European Union recognized electronic signatures as legally binding under the Directive on a Community Framework.
This ruling confirmed that an electronic signature cannot be denied solely because it was created electronically.
Many European nations followed Britain's lead of accepting contracts as legally binding without handwritten signatures, and in 2015, EU legislation replaced the 2000 e-signature Directive with Regulation (EU) No 910/2014, commonly known as eIDAS.
eIDAS identified three forms of electronic signatures.
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Standard Electronic Signatures (SES)
According to eIDAS, a simple electronic signature encompasses any signature in which electronic data is attached and used for authentication.
As its technology agnostic, any document could include one.
No matter its underlying technology, a simple electronic signature should clearly demonstrate its signer's intent, be created by those providing consent, and be part of the document it accompanies.
Standard electronic signatures (ES) are accepted for many contracts and documents, such as employment contracts, purchase orders, invoices, sales agreements, software license agreements, and real estate documents.
An SES signature can be accepted in B2B situations. At the same time, AES or QES signatures can also be accepted for court briefs, consumer loan agreements, and residential/commercial lease agreements.
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Advanced Electronic Signatures (AES)
An advanced electronic signature must include additional elements that verify both its signer's identity and document security.
Specifically linked to their data and capable of detecting any changes made after signing, any attempts at falsification can easily be detected.
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Qualified E-Signatures (QES)
Finally, eIDAS defines another signature type known as qualified electronic signatures (QESs). Although both advanced and qualified signatures are tied directly to their signer's identity, qualified E-signatures require special certificates that can only be issued by an industry-approved certification authority (CA).
Certificate authorities must be accredited and monitored by bodies appointed by EU member states, meeting all of eIDAS' stringent requirements.
Qualified certificates must be stored on an approved signature creation device such as a USB token, smart card, or cloud-based trust service - like those found in the US and UK - although in certain instances, handwritten signatures will still suffice in EU environments, such as
- Contracts to transfer or buy real estate
- Marriage contracts
- HR termination notices
- Formation of limited liability companies (LLC).
Note that each member of the European Union (EU) has different requirements regarding electronic signatures.
Are Electronic Signatures Legally Binding Outside of the US?
What the law of your country says on electronic signature depends entirely upon you. Some may offer more open and flexible laws, while others have stricter requirements.
Federal and state laws in the US do not mandate any specific technology or process, similar to Canadian, UK, and Australian legislation.
However, members of the EU, South Korea, and China have adopted laws which, in addition to providing details of regulations found within the ESIGN Act, have specifically included lists of approved technologies and processes as requirements.
However, this does not necessitate using specific technologies or processes for electronic signatures if one of your signees resides in Europe or China.
Most laws allow private parties to enter an electronic agreement using whatever technologies and processes are suitable.
However, some countries, including Brazil, India, and Israel, are more specific about the technologies and methods used for electronic signatures.
Signatures that don't meet with mandated technology or processes may not be legally binding in those jurisdictions. If you have questions regarding your specific situation, it may be beneficial to speak to a lawyer first.
Electronic signature free solutions offer convenient and legally valid methods of electronically signing documents electronically, streamlining workflows while assuring compliance.
Key Takeaways
Electronic signatures have become an essential element of modern business and legal transactions. As technology progresses, individuals and organizations must understand the legal framework surrounding electronic signatures.
Electronic signatures have gained wide acceptance across numerous jurisdictions, supported by laws and regulations that acknowledge their legitimacy and enforceability.
Digital signatures offer efficiency, convenience, and security - reducing paperwork for faster, smoother transactions.
Notably, the legal landscape surrounding electronic signatures may differ based on your region and adhering to specific regulations is imperative for success.
Furthermore, having an efficient and secure electronic signature system in place is vital in preserving document authenticity.
Staying abreast of electronic signature laws and best practices in an age characterized by digital transformation is of critical importance to both individuals and businesses alike in navigating modern commerce and legal proceedings.