Now that so many documents are shared, sent, and stored electronically, having to download them into paper form, receive a physical ink signature, and then upload them again is a real burden. Hence the development of the electronic signature, or eSignature (sometimes referred to as digital signatures). eSignatures allow someone to confirm their agreement to a document or activity using electronic means.
eSignatures have a particular impact on financial services, however, any business that sends large volumes of documents that require a signature must have an eSignature solution. If you expect a customer to sign an arrangement, it can take several attempts because of the hassle involved, and being able to catch them when they are able to take care of it. An eSignature can be captured through email, text message, over the phone, or on a shared platform, removing obstacles and speeding up the process. More so there are questions you should be asking which eSignature solution really covers your true needs.
While eSignatures are extremely important for speed and improved customer experience, they need to conform to legal requirements. If they aren’t carried out correctly, you risk having documents that aren’t considered legally binding.
In this article, we’ll cover the legal issues and requirement for various jurisdictions and take a look at what makes a great eSignature solution. First, a note that our lawyers made us put in: This article is for reference only and should not be considered legal advice by Lightico or the author of this article; consult your own attorney if necessary.
eSignature Legal Issues by County – US, UK, & EU
eSignatures are accepted around the world, but different regions and countries have different frameworks in place to permit them. This post will address the United States, the United Kingdom, and the European Union.
eSignatures in the US
In the US, the legal acceptance of eSignatures is based on two main acts: the state Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (ESIGN). Both acts were passed in 2000.
Both ESIGN and UETA note five main elements that make an eSignature legally binding:
- Validity: Signatures and records that are created electronically carry the same weight and import as traditional paper and ink versions. Just because a signature was recorded electronically cannot be a reason for invalidating it.
- Consent: The person signing must give consent to using an electronic signature. That involves making certain disclosures to them before they sign.
- Intent: Just like a physical signature, an eSignature demands that the person signing has the intent to sign the document. They must agree to what’s written in the document they are signing and fully understand the effect of their signature.
- Recording: An eSignature needs to be accompanied by a record that makes it clear that this is an electronic signature and not a physical one.
- Data integrity: Just like a paper document, records that have been e-signed need to be kept secure from tampering, alteration, or unintentional loss of data.
In the US, documents that have been signed electronically are accepted in almost all situations. That includes B2B, B2C, and C2C interactions, as well as interactions between the government and businesses or individuals. There have been many court cases that recognized the reliability of eSignatures, enshrining them in case law.
There are some instances when eSignatures aren’t accepted in the US. Sometimes, the process is formulated in a way that restricts signatures to ‘wet ink’ or formally notarized signatures. Cases when eSignatures aren’t accepted include:
- Adoption and divorce agreements
- Court orders, notices, and official documents
- Termination of health or life insurance benefits
- Wills, codicils, and testamentary trusts
eSignatures in the UK
Like ESIGN and UETA, the UK Electronic Communications Act in 2000 confirmed that an agreement can’t be termed invalid purely because the signature is an electronic one. Electronic signatures were accepted in the UK under the Electronic Signatures Regulations Act in 2002.
According to English law, a valid contract doesn’t necessarily need a written signature, as long as both parties have full understanding of the contract and reached a mutual agreement. This being the case, an electronic record – like an eSignature – is acceptable proof that both sides agreed to the document. These are Standard Electronic Signatures, or SES.
An SES isn’t seen as having the same weight as a handwritten signature, but UK law does accept a particular type of eSignature as equal to a handwritten one. These eSignatures are termed Qualified Electronic Signatures (QES) or Advanced Electronic Signatures (AES).
An AES is:
- Uniquely connected to the person signing
- Identifies the person who signed it
- Created using a process that can only be accessed by the signator
- Linked to other data, so if there is an alteration then the change will be detected
A QES is:
- A particular type of digital signature that has been approved by the government
- Created using a secure signature creation device
- Accepted as the equivalent to a handwritten signature under all legal conditions
In the UK, standard eSignatures are accepted on most documents, including HR documents, employment contracts, commercial agreements, sales documents, short leases, guarantees, and loan agreements. Other documents need QES or AES.
There are some documents, however, that still have to be signed by hand, including:
- Some family law documents such as prenups and separation agreements
- Real estate deeds such as transfer of title, legal mortgage, and release of a mortgage
- Most leases
- HM Customs and Revenue documents
eSignatures in the EU
In 2000, the EU accepted eSignatures as legally binding through the Directive on a Community framework for electronic signature (eSignature Directive). This confirmed that an electronic signature can’t be rejected just because it was created electronically.
Many European countries share the UK’s approach of accepting contracts as legally binding without a handwritten signature. In 2015, EU legislation replaced the 2000 eSignature Directive with Regulation (EU) No 910/2014, usually referred to as eIDAS. eIDAS stated that there are three types of eSignatures – SES, AES, and QES, just like in the UK.
The standard eSignature (SES) is accepted for most contract and documents, including employment contracts, purchase orders, invoices, sales agreements, software licenses, and real estate documents. An SES is accepted in B2B, B2C, and C2C situations. AES or QES are accepted for most court briefs, consumer credit loan agreements, and residential and commercial leases.
Like in the US and UK, there are just a few situations in which only a handwritten signature will do. These include:
- Contracts to transfer or buy real estate
- Marriage contracts
- HR termination notices
- Incorporation of a limited liability company
It’s important to remember that each member of the EU has its own set of requirements for eSignatures.
You don’t want there to be any chance that your customers’ eSignatures aren’t accepted. To avoid this, follow these best practices:
- Make sure that there is a clear audit trail that backs up the eSignature’s validity. This includes actions that the signator took before signing the document, like having checked a box to show they agreed to terms and conditions or clicked Next Page to sign.
- Set up a secure signature site that uses user authentication to ensure that only the customer can sign.
- Use third-party software to verify that you complied with disclosure regulations.
- Use a third party to maintain a secure storage site that ensures that the document can’t be tampered with after signing.
- Include an easy way for the signer to download and save a copy of the document for their own records.
Next-generation eSignatures that are part of a wider, customer-centric system are making it possible for businesses to instantly collect documents, eSignatures, and payments while customers are on the phone. This use of next-generation eSignatures streamlines workflows, ticks up customer satisfaction and increases completion rates, all in a fully compliant and legally binding manner.