In the last two years we have witnessed large swaths of the business world adapting to remote working in response to the COVID-19 health crises. Many people, including HR practitioners, are now negotiating contracts from home and arranging for them to be signed electronically. Technology and document management platforms have made this process remarkably straightforward, but the question we keep getting asked is…’are these contracts legally binding?’ This article considers the legality of using electronic signatures on employment contracts.
There are two ways of executing an employment contract:
- As a simple contract which means that both parties sign the document to confirm their acceptance of the terms.
- As a deed which means that the document must satisfy various legal requirements, including being executed as a deed. For this, the employee must sign the contract in front of a witness who then attests their signature. The employer needs one director signing in the presence of a witness (or without a witness but the signature of two directors or one director and the company secretary).
In some cases a simple employment contract will be sufficient. However, there are reasons why an employer would want an employment contract signed as a deed, including if there is a power of attorney contained in the document (to be effective, a power of attorney must be signed as a deed). Power of attorney clauses will be necessary:
- If there are intellectual property rights that the employer wants to protect.
- To procure the transfer of shares or resignation of offices after termination.
Another reason to enter an employment contract as a deed is if restrictive covenants are being entered into during the course of the employment relationship and where the employer is not offering new consideration (such as promotion or money).
If an employment contract is being signed as a simple contract, without the need for a witness, then it is fairly straightforward to use electronic signatures. Most platforms have an ability to email the document to the employee and the employee can then add their signature electronically by clicking to confirm they accept the terms and conditions of the document. Many employers are comfortable with this and are using it regularly for new starters.
The difficulty lies where there is a requirement for the contract to be witnessed. Some electronic signature platforms get around this by asking the parties to the document to input the name and email address of their witness. An email will then be sent to that person who will sign to confirm they have witnessed the signature. However, unless the witness is physically present to attest the employee’s signature, it is unlikely that this will satisfy the legal requirement for the deed to be signed in front of a witness. This was confirmed by the Law Commission in 2019 when they carried out a review on electronic signatures and concluded that the requirement under the current law for a deed to be signed “in the presence of a witness” requires the physical presence of that witness; and that remains the case even where both the person executing the deed and the witness are using an electronic signature.
It is likely that we will get some more clarity in due course, but in the meantime you may want to consider the following approaches if you want to ensure that your employment contract is binding as a deed:
- Ask the employee to confirm that their witness was physically present at the time they electronically signed the document (and you could add some wording to the signature block to this effect).
- Ensure that employees ‘wet sign’ the employment contracts with a witness present. This could be done when they attend for their induction (and could be done as an alternative to or in addition to obtaining an electronic signature).
- Remove the power of attorney provisions from the contract and ensure that employees enter into these separately and when they are able to sign with a witness present.
One final point to make is that if you are dealing with any cross-jurisdictional employment documents, the requirements in different jurisdictions may differ. Therefore you would want to take specific advice to ensure that the deed is binding.
This is only intended to be a summary and not specific legal advice. If you would like further information or advice, please do contact a member of our team.