When Employees Click 'I Agree' for Their Employers

Most people generally understand that when they click “I Agree” to the terms of use or other agreement when registering to use a Web site or purchasing products or services online, they will be bound by the terms of that agreement, assuming it otherwise meets the requirements for an enforceable contract. (See, “Obtaining Assent in Today's e-Conomy” in this issue.)

But what happens when the individual clicking the “I Agree” button is accepting the clickwrap agreement on behalf of his or her employer?

For example, large companies typically negotiate master agreements with a number of technology vendors for things like outsourcing services or the purchase of hardware, software and related services. These agreements include complex provisions on key items such as the scope of the software licenses, payment terms, confidentiality and data security, limitations of liability, indemnification and dispute resolution.

Who Can Agree?

If a company employee goes to the technology vendor's technical support site to download the latest release of an accounting software package covered by a master agreement but must click through a standard form license agreement considerably more favorable to the vendor, a question arises as to which agreement governs the company's use of that accounting software package. The answer may depend on the meaning of “written” in the master agreement.

Three statutes in the U.S. have a potential impact on electronic contracting: the Electronic Signature in Global and National Commerce Act (“E-SIGN”) (www.ftc.gov/os/2001/06/esign7.htm), the Uniform Electronic Transactions Act (“UETA”) (www.law.upenn.edu/bll/archives/ulc/fnact99/1990s/ueta99.htm), and the Uniform Computer Information Transactions Act (“UCITA”) (http://www.ucitaonline.com/). (UCITA has been adopted only in Maryland and Virginia so is not covered in this article.)

Subject to certain exceptions and requirements, E-SIGN and UETA generally give the same legal effect to an electronic signature or electronic record as a handwritten signature or physical record. E-SIGN provides that “a signature, contract, or other record relating to” any transaction in or affecting interstate or foreign commerce “may not be denied legal effect, validity, or enforceability solely because it is in electronic form” and that “a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.”

The legal effect of electronic signatures and electronic records under UETA depends upon “the context and surrounding circumstances at the time of its creation, execution or adoption, including the parties' agreement, if any, and otherwise as provided by law.”

Define 'Written'

It is generally understood that E-SIGN and UETA recognize the validity of electronic contracts such as the clickwrap agreement mentioned above, but how do they affect the meaning of “written” when used in various contractual requirements?

For example, most agreements obligate the parties to provide the other with prior written notice of certain events, such as a material breach or other default or non-renewal of the agreement, or to obtain the prior written consent of the other party before undertaking certain actions, such as assigning the agreement, performing additional or different services or disclosing confidential information.

With respect to the example above, it is fairly common for agreements to simply provide that “no amendment to, or change, waiver or discharge of, any provision of this agreement shall be valid unless in writing and signed by an authorized representative of the parties.”

Both E-SIGN and UETA also recognize that companies are not required to conduct business electronically. Accordingly, an agreement may change the application of E-SIGN and UETA by defining a “writing” to mean a manually signed, physical copy.

If this is not done, then an e-mail or other electronic record may suffice for compliance with contractual requirements for a writing. For example, one court recognized that an e-mail to an advertiser from a television broadcaster signifying in the e-mail that it “is OK” for the advertiser to assign one or more of its advertising spots to a third party satisfied the prior written consent requirement under the agreement between the broadcaster and the advertiser.

Therefore, if the master agreement in the example above contains typical language simply requiring amendments to be in writing and is silent on the meaning of a “writing,” then it is possible that a court would find the click-through agreement to amend and supersede the master agreement with respect to that software package.

It would be easy to avoid this problem by defining in every contract that “written” means a manually signed physical copy, however, this is simply not realistic in today's business environment. Companies must do business electronically to stay competitive.

List Authorized Signers, Events

Recognizing this practicality, how do companies, particularly large companies with hundreds or thousands of employees, avoid the situation in our example?

Rather than relying on arguments that the employee did not have apparent authority to bind the company when he or she accepted a clickwrap agreement or sent an e-mail, the company should identify in its agreements which individuals have authority to take certain actions, such as agreeing to amendments or consent to assignment, or to receive certain notices, such as a notice of material breach.

The federal district court in the Southern District of Florida held in a February 2010 decision that if the online vendor of a clickwrap agreement receives notice that only certain people are authorized to bind the company, it will not be bound by subsequent clickwrap acceptance by others.

In National Auto Lenders, Inc. v. Syslocate, Inc., 1:09-cv-21765-MGC (S. Dist. Fla. 2010), National Auto Lenders alleged that Syslocate's GPS units for tracking vehicles were defective. During settlement discussions, National Auto Lenders notified Syslocate that only its officers were authorized to bind the company and all communications regarding the matter should be directed toward plaintiffs counsel.

While the case was pending, Syslocate implemented a new clickwrap agreement significantly limiting its liability for defective products. All of its customers, including National Auto Lenders, had to accept the amended clickwrap to access the Syslocate Web site to track vehicles using the GPS products.

Because National Auto Lenders previously notified Syslocate that only its executives were authorized to bind the company, the court held that this notice made it unreasonable for Syslocate to believe that the individuals who accepted the clickwrap were authorized to do so.

To create the most flexibility while protecting the traditional contracting process, companies should consider a multi-pronged approach to its contracts, particularly for contracts that are complex, create long-term relationships or involve the sale of stock or other significant assets.

For example, the company may decide that it is comfortable receiving e-mail notices of certain events, such as notices that software under development is available for acceptance testing, but not others, such as notices of material breach.

The company also may decide that only certain significant actions may be taken by a designated senior executive and those actions must be in a manually signed physical writing, such as an amendment to the contract, but that a day-to-day contract manager may take other actions, such as approving changes pursuant to change control procedures, which may be done electronically.

Practice Tips

• Review internal policies governing contracting authority and revise if necessary to clarify the use of electronic signatures and electronic contracting.
• Consider specifying in agreements when it is acceptable for amendments, consents, approvals, acceptances or notices to be electronic and when they must be manually signed in a physical writing.
• Consider specifying in agreements which individuals or corporate titles are authorized to bind the company and for what types of actions.
• Employees and agents should avoid accepting an offer by e-mail and be clear during negotiations that an agreement is contingent upon the execution of a written contract that satisfies the company's contracting requirements.

Most people generally understand that when they click “I Agree” to the terms of use or other agreement when registering to use a Web site or purchasing products or services online, they will be bound by the terms of that agreement, assuming it otherwise meets the requirements for an enforceable contract. (See, “Obtaining Assent in Today's e-Conomy” in this issue.)

But what happens when the individual clicking the “I Agree” button is accepting the clickwrap agreement on behalf of his or her employer?

For example, large companies typically negotiate master agreements with a number of technology vendors for things like outsourcing services or the purchase of hardware, software and related services. These agreements include complex provisions on key items such as the scope of the software licenses, payment terms, confidentiality and data security, limitations of liability, indemnification and dispute resolution.

Who Can Agree?

If a company employee goes to the technology vendor's technical support site to download the latest release of an accounting software package covered by a master agreement but must click through a standard form license agreement considerably more favorable to the vendor, a question arises as to which agreement governs the company's use of that accounting software package. The answer may depend on the meaning of “written” in the master agreement.

Three statutes in the U.S. have a potential impact on electronic contracting: the Electronic Signature in Global and National Commerce Act (“E-SIGN”) (www.ftc.gov/os/2001/06/esign7.htm), the Uniform Electronic Transactions Act (“UETA”) (www.law.upenn.edu/bll/archives/ulc/fnact99/1990s/ueta99.htm), and the Uniform Computer Information Transactions Act (“UCITA”) (http://www.ucitaonline.com/). (UCITA has been adopted only in Maryland and Virginia so is not covered in this article.)

Subject to certain exceptions and requirements, E-SIGN and UETA generally give the same legal effect to an electronic signature or electronic record as a handwritten signature or physical record. E-SIGN provides that “a signature, contract, or other record relating to” any transaction in or affecting interstate or foreign commerce “may not be denied legal effect, validity, or enforceability solely because it is in electronic form” and that “a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.”

The legal effect of electronic signatures and electronic records under UETA depends upon “the context and surrounding circumstances at the time of its creation, execution or adoption, including the parties' agreement, if any, and otherwise as provided by law.”

Define 'Written'

It is generally understood that E-SIGN and UETA recognize the validity of electronic contracts such as the clickwrap agreement mentioned above, but how do they affect the meaning of “written” when used in various contractual requirements?

For example, most agreements obligate the parties to provide the other with prior written notice of certain events, such as a material breach or other default or non-renewal of the agreement, or to obtain the prior written consent of the other party before undertaking certain actions, such as assigning the agreement, performing additional or different services or disclosing confidential information.

With respect to the example above, it is fairly common for agreements to simply provide that “no amendment to, or change, waiver or discharge of, any provision of this agreement shall be valid unless in writing and signed by an authorized representative of the parties.”

Both E-SIGN and UETA also recognize that companies are not required to conduct business electronically. Accordingly, an agreement may change the application of E-SIGN and UETA by defining a “writing” to mean a manually signed, physical copy.

If this is not done, then an e-mail or other electronic record may suffice for compliance with contractual requirements for a writing. For example, one court recognized that an e-mail to an advertiser from a television broadcaster signifying in the e-mail that it “is OK” for the advertiser to assign one or more of its advertising spots to a third party satisfied the prior written consent requirement under the agreement between the broadcaster and the advertiser.

Therefore, if the master agreement in the example above contains typical language simply requiring amendments to be in writing and is silent on the meaning of a “writing,” then it is possible that a court would find the click-through agreement to amend and supersede the master agreement with respect to that software package.

It would be easy to avoid this problem by defining in every contract that “written” means a manually signed physical copy, however, this is simply not realistic in today's business environment. Companies must do business electronically to stay competitive.

List Authorized Signers, Events

Recognizing this practicality, how do companies, particularly large companies with hundreds or thousands of employees, avoid the situation in our example?

Rather than relying on arguments that the employee did not have apparent authority to bind the company when he or she accepted a clickwrap agreement or sent an e-mail, the company should identify in its agreements which individuals have authority to take certain actions, such as agreeing to amendments or consent to assignment, or to receive certain notices, such as a notice of material breach.

The federal district court in the Southern District of Florida held in a February 2010 decision that if the online vendor of a clickwrap agreement receives notice that only certain people are authorized to bind the company, it will not be bound by subsequent clickwrap acceptance by others.

In National Auto Lenders, Inc. v. Syslocate, Inc., 1:09-cv-21765-MGC (S. Dist. Fla. 2010), National Auto Lenders alleged that Syslocate's GPS units for tracking vehicles were defective. During settlement discussions, National Auto Lenders notified Syslocate that only its officers were authorized to bind the company and all communications regarding the matter should be directed toward plaintiffs counsel.

While the case was pending, Syslocate implemented a new clickwrap agreement significantly limiting its liability for defective products. All of its customers, including National Auto Lenders, had to accept the amended clickwrap to access the Syslocate Web site to track vehicles using the GPS products.

Because National Auto Lenders previously notified Syslocate that only its executives were authorized to bind the company, the court held that this notice made it unreasonable for Syslocate to believe that the individuals who accepted the clickwrap were authorized to do so.

To create the most flexibility while protecting the traditional contracting process, companies should consider a multi-pronged approach to its contracts, particularly for contracts that are complex, create long-term relationships or involve the sale of stock or other significant assets.

For example, the company may decide that it is comfortable receiving e-mail notices of certain events, such as notices that software under development is available for acceptance testing, but not others, such as notices of material breach.

The company also may decide that only certain significant actions may be taken by a designated senior executive and those actions must be in a manually signed physical writing, such as an amendment to the contract, but that a day-to-day contract manager may take other actions, such as approving changes pursuant to change control procedures, which may be done electronically.

Practice Tips

• Review internal policies governing contracting authority and revise if necessary to clarify the use of electronic signatures and electronic contracting.
• Consider specifying in agreements when it is acceptable for amendments, consents, approvals, acceptances or notices to be electronic and when they must be manually signed in a physical writing.
• Consider specifying in agreements which individuals or corporate titles are authorized to bind the company and for what types of actions.
• Employees and agents should avoid accepting an offer by e-mail and be clear during negotiations that an agreement is contingent upon the execution of a written contract that satisfies the company's contracting requirements.