A Few Ways to Better Ensure Your Electronic Contracts and Online Agreements Are Enforceable

A recent 3rd Circuit case, ADP v. Lynch, upheld non-compete and non-solicitation restrictive covenants in an online agreement that employees had confirmed when they electronically accepted offers of stock as part of an incentive program.  The process for agreeing to the electronic contract is somewhat discernible from the opinion, the employees, presented with the online contracts, apparently had to check a box in a clickwrap style format which read  “I have read all the documents”, then had to enter their personal passwords and choose between clicking the boxes “Accept Grant”  or “Reject Grant” and received stock based on that selection.

The lawsuit arose because the employees left to work for a competitor and ADP sued to enforce the covenants.  The district court upheld the enforceability of the electronic agreement and the appellate court agreed even in the face of the defendants’ argument that the preamble had only stated that they had “read all the documents.”  

The Accept or Reject buttons probably had a lot to do with the result.

Many in the world of e-commerce have come to view the difference between browsewrap (a passive link at the bottom of a page to terms and conditions) and clickwrap (a pop-out with an agree/accept selection) as the goofus and gallant of electronic agreements.  And this is important as using electronic contracting is evolving well beyond user agreements, terms of sale, privacy policies, and software licensing and these contracts now cover more than arbitration, venue, and terms of use.  People utilize electronic agreements for everything from employment contracts to establishing the terms and conditions for the sale of goods to full electronic format for construction contracts showing that this format is now trusted and used well beyond consumer agreements.

Importantly, these agreements are still contracts and nothing about their electronic nature bends the principals of offer, acceptance and consideration.  Acceptance is the crux of most legal arguments regarding the enforceability of many electronic agreements as proving notice and assent to a contract’s terms and conditions or the manifestation of acceptance, is a lot easier without a paper record.  Claiming the agreement’s terms were buried at the bottom of a page or that you didn’t have to agree to accept anything before you ordered or used a service is the kind argument that recently prevailed against Uber when they recently tried to enforce their terms and conditions against drivers who had used an app to sign up to be Uber drivers.  (interestingly that case is now on appeal over the issue and the Consumer Technology Association has filed an excellent brief arguing for clear and concise laws and conditions to ensure the enforceability of mobile (and by extension, electronic) contracts) (you can read their brief here).

So how can you further your own cause and push your agreement to the enforceable side of the table?

  • For starters, using a clickwrap instead of a browsewrap agreement is a big help for manifesting intent and notice.
  • Is there a separate box and assent by way of an “I have read and accept” or “Agree and Accept” button?  Utilizing the correct terms and ensuring something as simple as that the box says “I have read and accept this contract and understand that I am bound by its terms” as opposed to “Agree and Accept” can forestall arguments like the “it just said that I ‘read’ it, not that I ‘agree’ to it” one from the ADP case.  Thankfully, contract principles still apply and many courts consider this argument as unavailing as the 3rd Circuit found it in the ADP case – holding this type of assent was as binding as a signature in finding that “[w]hen a party enters into a signed written contract, that party is presumed to understand and assent to its terms.”
  • Is the user forced to scroll through the terms?  Forcing a party to scroll through the full agreement to be able to accept and agree to its terms is another factor that can weigh heavily in favor of claims of acceptance.
  • Does the other party have to input an email address and confirm/accept through an active hyperlink sent in a correspondence to the email address? (the old “verify” approach).  This is much in line with the age-old signature approach that’s kept our society contracting over the past 5,000 years of cultural evolution.

Fortunately, there are enough cases to provide direction about the manner and method of online contracting to differentiate good practices from bad ones.  While the certainty of some form of statutory method or safe-harbor would be ideal, the approaches above are a good start in creating an enforceable electronic agreement outside of just printing, signing and turning a paper contract into a PDF.