No Arbitration Where Employer Was Unable To Authenticate Employee's Electronic Signature on Arbitration Agreement - Ballard Spahr's Labor and Employment Group Alert

The California Court of Appeal, Fourth District, recently affirmed an order denying a petition to compel arbitration where the employer failed to present sufficient evidence that the employee electronically signed an arbitration agreement. This decision serves as a reminder to employers and consumer financial services companies that agreements to arbitrate, while now overwhelmingly accepted as a matter of law, must still satisfy basic contract formation principles.

In Ruiz v. Moss Bros. Auto Group, Inc., Ernesto Ruiz filed a putative class action complaint alleging various state law wage and hour violations by his employer, Moss Bros. The company filed a petition to compel arbitration of Mr. Ruiz’s individual claims based on an arbitration agreement it claimed he electronically signed in September 2011. The agreement provided, in pertinent part, that the arbitrator may "hear only . . . individual claims" and has no authority to "consolidate the claims of others into one proceeding." The trial court denied the petition on the ground that Moss Bros. did not meet its burden of proving the parties had an agreement to arbitrate the controversy.

On appeal, Moss Bros. offered the declaration of its business manager, Mary K. Main, who asserted that Mr. Ruiz "electronically signed" the agreement "on or about September 21, 2011," and that the same agreement was presented to "all persons who seek or seek to maintain employment" with Moss Bros. Ms. Main further stated that "[e]ach employee is required to log into the Company's HR system – each with his or her unique login ID and password – to review and electronically execute the Employee Acknowledgement form, which includes the arbitration agreement."

Mr. Ruiz argued that Ms. Main's conclusory statement was not enough to prove that he did, in fact, electronically sign the 2011 agreement. Mr. Ruiz also insisted that he did not recall signing the agreement, and if he had been presented with an agreement that limited his ability to sue Moss Bros., he would not have signed it.

The appeals court affirmed the trial court, concluding that Moss Bros. did not present sufficient evidence to support a finding that Mr. Ruiz electronically signed the 2011 agreement. The court noted that, while an electronic signature has the same legal effect as a handwritten signature under California law, any writing must still be authenticated before the writing, or secondary evidence of its content, may be received in evidence.

The court found that Ms. Main never explained how Mr. Ruiz's printed electronic signature, or the date and time printed next to it, came to appear on the agreement. In particular, the court stressed that Ms. Main failed to show that Mr. Ruiz made the electronic signature because she did not explain that the signature could have been placed on the agreement only by a person using Mr. Ruiz's unique login ID and password, and that all Moss Bros. employees were required to use their unique login ID and password when they logged into the system and signed electronic forms and agreements.

This decision demonstrates that, even though nearly all jurisdictions recognize the legal effect of electronic signatures, employers must be able to establish that the electronic signature was the act of the employee. An employer should therefore periodically review the procedure it uses to obtain electronic signatures to ensure that it will be able to authenticate the signature if necessary at a later time, including for future use in litigation. Such procedures should also be followed by consumer financial services companies that require electronic signatures to implement arbitration agreements with their customers.

Ballard Spahr's Labor and Employment Group routinely assists employers in drafting, reviewing, and defending the enforceability of employment and arbitration agreements. The firm's Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements.

If you have any questions about arbitration agreements or electronic signatures, please contact John P. McLaughlin at 215.864.8241 or mclaughlinj@ballardspahr.com, Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Mark J. Levin at 215.864.8235 or levinmj@ballardspahr.com, John R. Carrigan, Jr., at 424.204.4338 or carriganj@ballardspahr.com, Steven D. Millman at 856.761.3421 or millmans@ballardspahr.com, or the Ballard Spahr attorney with whom you work.

Source: Ballard Spahr's Labor and Employment Group