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September 22, 2023
First, a California appellate court held that an employer who failed to countersign an arbitration agreement could not enforce it against an employee who signed it. Ortiz v. Nellson Nutraceutical, LLC, No. G061411 (Cal. Ct. App. Aug. 23, 2023).
In 2015, Adrian Ortiz began working for Nellson Nutraceutical, LLC. Nellson presented Ortiz with an Arbitration and Class Waiver Agreement (Agreement). The Agreement stated that the Federal Arbitration Act would govern its enforcement and provided that, if a dispute or claim of any kind arose between Ortiz and Nellson arising from employment, the parties would submit such dispute or claim to final and binding arbitration. On the last page of the Agreement, two paragraphs before signature blocks for Ortiz and Nellson, the Agreement stated, “THE PARTIES UNDERSTAND THAT BY SIGNING THIS AGREEMENT, THEY GIVE UP THEIR RIGHT TO A CIVIL TRIAL AND THEIR RIGHT TO A TRIAL BY JURY.” Ortiz signed the Agreement and returned it to Nellson’s HR department with no further communication from Nellson on the subject.
In 2020, Nellson terminated Ortiz’s employment. Ortiz sued in court, alleging that Nellson terminated his employment after he complained about unsafe working conditions. Nellson moved to compel Ortiz’s claims to arbitration based on the Agreement. Ortiz argued that no mutual consent to the Agreement existed because Nellson never countersigned it.
The trial court ruled in favor of Ortiz, holding that the Agreement “envisioned that each side would physically sign” and that the Agreement’s language is evidence of the parties’ intent to bind the parties based on their signatures. Because Nellson failed to sign, the trial court concluded that no mutual consent existed. Nellson appealed.
The appellate court affirmed the trial court’s decision, finding that the parties’ conduct objectively manifested a lack of communicated mutual consent about arbitration. The signature paragraph made each party’s signature a condition of waiving that party’s right to resolve a dispute or claim through litigation in court. Because Nellson failed to sign the Agreement, it did not agree to arbitration and could not enforce the Agreement against Ortiz.
Second, a Texas appellate court held that proof of an employee’s electronic signature on an arbitration agreement requires evidence of the efficacy of the security procedures used in the transaction and, where a factual dispute exists regarding a signature, requires an evidentiary hearing. Houston ANUSA, LLC. v. Shattenkirk, No. 14-20-00446-CV, 2023 Tex. App. LEXIS 6540 (Aug. 24, 2023).
Houston ANUSA, LLC, doing business as AutoNation USA Houston (AutoNation), owns and operates a car dealership in Houston, Texas. In May 2017, AutoNation hired Shattenkirk as a general manager. In August 2017, Shattenkirk alleged that his supervisor made racist comments and Shattenkirk reported them to senior management. AutoNation put Shattenkirk on a Performance Improvement Plan one month later and then terminated his employment in November 2017. Shattenkirk filed suit, alleging that AutoNation’s termination of his employment was discriminatory and retaliatory.
AutoNation moved to compel arbitration based on an arbitration agreement that Shattenkirk allegedly signed electronically at the commencement of his employment through AutoNation’s Human Resources website. In response, Shattenkirk claimed that he did not sign the arbitration agreement and, that even if he had signed it, the cost of arbitration made the agreement unconscionable.
Because traditional methods of establishing whether a party’s signature is genuine is of no help when documents are signed electronically, the Texas Legislature enacted the Uniform Electronic Transactions Act (Act). A party seeking to hold another party responsible for signing an electronic contract must present evidence to establish the efficacy of the security procedures [1] used in the transaction.
Though AutoNation presented an affidavit of its Human Resources manager that outlined how Shattenkirk electronically signed the arbitration agreement, as well as a copy of the arbitration agreement with Shattenkirk’s purported electronic signature and a time and date stamp, AutoNation did not present evidence establishing security procedures that would prevent unauthorized access or demonstrate that users were required to complete all steps before proceeding on the website.
Shattenkirk presented his own affidavit in which he stated, among other things, that he manually signed onboarding documents, that the Human Resources manager who submitted the affidavit for AutoNation was not present when he was onboarded, and that he does not recall ever seeing the arbitration agreement.
Courts do not have the authority to resolve disputed factual issues concerning the formation of an agreement to arbitrate based solely on affidavits. An evidentiary hearing is required. Thus, the appellate court remanded this case back to the trial court for further proceedings.
Employer Takeaways
If your arbitration agreement (or other employment documents) contemplate signatures by the employee and the company, both signatures likely will be required for enforcement.
Furthermore, to enforce an electronically-signed arbitration agreement (or other employment document), be sure to have security procedures in place – and present them to the factfinder on a motion to compel arbitration – to prove that the employee truly was the signer.
*Special thanks to Leah Vozzi, our Pre-Law Intern, for her contributions to this article.
The author of this article, Patricia Tsipras, is a member of the Bar of Pennsylvania. This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in California, Texas, Pennsylvania, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist. Always consult an attorney with specific legal issues.
[1] The Act defines a security procedure as any “procedure employed for the purpose of verifying that an electronic signature, record, or performance is that of a specific person or for detecting changes or errors in the information in an electronic record.” The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or other acknowledgment procedures. Tex. Bus. & Com. Code § 322.002(13).
