Employer Failed to Authenticate Electronic Signatures, Could Not Compel Arbitration

A Sacramento, Calif., construction company could not compel arbitration of four employees' workplace-related claims where it failed to authenticate the employees' purported electronic signatures on an arbitration agreement, a California appeals court recently ruled.

The employer relied on a declaration from its chief financial officer that the signatures were authentic, but the employer did not show that the CFO had personal knowledge of most of the facts that he asserted in his declaration, the court said. 

At various times from 2018 to 2021, the employees worked for the employer as hourly, nonexempt employees. On Sept. 29, 2021, they filed a lawsuit against the company, alleging Labor Code violations and other employment-related claims.

Shortly after the lawsuit was filed, the employer sent the employees a demand for arbitration, alleging that they previously signed an arbitration agreement covering their employment-related disputes.

The employer filed a motion to compel arbitration of the employees' claims. The motion relied on a declaration from the company's CFO, who asserted that each employee had electronically signed an arbitration agreement at the start of their employment.

Attached to the declaration were copies of an arbitration agreement providing that any dispute between the company and its employees would be resolved through binding arbitration. The signature pages of the arbitration agreements were unsigned, but an appended document included the purported electronic signature of each employee with a time and date stamp, acknowledging that the signatory had read and understood the arbitration agreement.

The employees opposed the motion, arguing that the employer failed to provide any admissible evidence that their purported electronic signatures were authentic or that they otherwise agreed to arbitrate their claims. They submitted declarations disputing the authenticity of the electronic signatures and stating that they did not remember ever receiving or signing an arbitration agreement and that they would not have signed the agreement if it had been provided to them.

The employer argued that each employee signed the arbitration agreement as part of the in-person onboarding process for new employees and that the employees were aware signing an arbitration agreement was a condition of continued employment with the company.

The employer filed a declaration from the CFO, which described the company's onboarding procedures, pursuant to which new employees are required to review and sign all onboarding documentation, including the employee handbook and arbitration agreement. The declaration stated that the company uses a computer program that allows new employees to electronically sign the onboarding documents, using a unique private username and password to which only the individual employee has access.

The CFO also said that, during the onboarding process, a company employee explained to the employees each onboarding document, including the arbitration agreement, and then personally watched the employees review and sign the agreement.

The trial court refused to admit into evidence significant portions of the declaration, including all the statements describing interactions between the employees and the company employee in charge of the onboarding process and the statement that each employee created their own unique private username and password on their first day of employment. The trial court ruled that the statements were inadmissible because there was no evidence that the CFO had personal knowledge of the facts he asserted.

The court denied the motion to compel arbitration, and the employer appealed.

Compelling Arbitration

While there is a strong public policy favoring contractual arbitration of disputes, arbitration is a matter of contract, and a party who has not agreed to arbitrate a controversy cannot be compelled to do so, the appeals court noted. Therefore, when presented with a petition to compel arbitration, the trial court's first task is to determine whether an agreement to arbitrate the controversy exists. In the case of arbitration of workplace disputes, the burden of proof is always on the employer to prove the existence of a valid arbitration agreement.

The court noted that, while the CFO made numerous statements about what happened during the onboarding processes at the start of the employees' employment, the CFO did not personally witness the employees sign the agreements or verify their electronic signatures. Neither did he show that he had personal knowledge of what occurred during the employees' onboarding processes. He described the onboarding procedures that were supposed to happen, but he did not show that he had any knowledge of whether they did happen.

Therefore, the appeals court said, the trial court did not err in refusing to consider most of the CFO's statements in determining whether the employees' signatures were valid. Based on the admissible evidence, the employer did not meet its burden of demonstrating the authenticity of the employees' signatures.

There was no direct evidence that the employees even participated in the onboarding process, the court said. While the purported electronic signature of each employee appeared with a time and date stamp on a form stating that the signatory read and understood the arbitration agreement, the evidence did not explain how the signatures came to be placed on the forms or show that the dates and times printed on the forms were accurate. There was no evidence showing that the electronic signatures could only have been placed on the forms by the employees.

The appellate court affirmed the trial court's ruling refusing to order arbitration.

Chavira v. Mark III Construction, Calif. Ct. App., No. C096236 (Nov. 9, 2023).

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.