California Court of Appeal Refuses to Enforce Electronically Signed Employment Arbitration Agreement After Employee Disputes Signature

On December 23, 2014, the California Court of Appeal held that electronic signatures on employment arbitration agreements in California may be valid, however, the court refused to enforce the particular arbitration agreement at issue because the employer failed to substantiate the employee’s electronic signature to the satisfaction of the court.  Ruiz v. Moss Brothers Auto Group, 2014 WL 7335221 (Cal. App. Ct. 4th Dist., Dec. 23, 2014).

Plaintiff Ernesto Ruiz filed a wage and hour class action lawsuit against Moss Brothers seeking damages and civil penalties on behalf of himself and other employees.  Ruiz alleged typical wage and hour claims, including, a failure to pay all wages and failure to provide meal and rest periods.

Moss Brothers responded to Ruiz’s lawsuit by filing a petition to compel arbitration on the basis that Ruiz had electronically signed an arbitration agreement in which he agreed to arbitrate all disputes against Moss Brothers.  Moss Brothers also sought to have the class claims dismissed from the lawsuit because the arbitration agreement contained a waiver of the right to assert claims on a class basis.  The court acknowledged that the use of electronic signatures is expressly permitted under California contract law.  Cal. Civ. Code § 1633.7.

In support of its petition to compel arbitration, Moss Brothers submitted a declaration from its business manager stating that Ruiz electronically signed the arbitration agreement at issue.  In a competing declaration, Ruiz asserted that he did not recall electronically signing the agreement.  Moss Brothers countered that “all employees” were provided with “unique usernames and passwords” to log-in, review and sign the arbitration agreement.  With the authenticity of the electronic signature in dispute, Moss Brothers had to prove by a preponderance of the evidence that the electronic signature on the arbitration agreement was attributable to and resulted from an act of Ruiz and not some other person.  Cal. Civ. Code § 1633.9.

The trial court concluded that Moss Brothers’ evidence regarding the practice of issuing employee usernames and passwords to “all employees” was insufficient to prove that the electronic signature on the arbitration agreement at issue resulted from an act of Ruiz.  The court explained that the evidentiary standard applied was “not a difficult” one but there was a “critical gap” between the business manager’s statement that “all employees” received a username and password to log-in and sign the arbitration agreement and the conclusion that Ruiz therefore had electronically signed the document.  The court opined that Moss Brothers should have explained how Ruiz’s electronic signature came to be placed on the arbitration agreement and how the electronic signature could only have been completed by an act of Ruiz.  According to the court, this could have been demonstrated through evidence establishing the efficacy of the security procedures applied to the username and password that Moss Brothers issued to Ruiz and explaining that no one other than Ruiz could have electronically signed the arbitration agreement.

What This Means For Employers

 Both California and federal law recognize the use of electronic signatures, but courts have been slow to accept the legal enforceability of such signatures or set guidelines for employers to ensure the enforceability of electronic signatures.  This case lays the groundwork for such guidance, but illustrates the potential difficulty in substantiating such signatures in court.  Where getting hand signed documents is impracticable, employers may consider using an electronic signature method that complies with the U.S. Electronic Signatures in Global and National Commerce Act (“ESIGN”), which the court referenced in its opinion as satisfying the evidentiary burden.  Employers may also look to the detailed procedure laid out by the court that the court stated would have satisfied the evidentiary burden had the employer properly submitted it into evidence.

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