In order to succeed in today’s business landscape, organizations must adapt a contract execution system that is both efficient and compliant with all government regulations. Many companies have begun to consider online management solutions as the most suitable replacement for disorganized and outdated paper systems. As with any significant transition, questions arise pertaining to the legitimacy and enforceability of online contracts. Current case law has set strong precedents for the validity of online contracts as long as organizations follow specific guidelines when implementing online management solutions. With these procedures in place, legal teams have precedence regarding enforceability, opening the door to a decrease in sales cycle length and an increase in revenue.
Five Compliance Factors
- Authentication - The ability to digitally verify who signed a document is essential. Without this, time will be spent cleaning up cumbersome messes. The platform must provide authentication for all participating parties.
- Enforceability - Once a contractual process goes electronic, it is subject to tampering. The platform must prevent and detect tampering, and capturing sufficient information to identify who was responsible for the foul play.
- Legal Compliance - The platform must comply with applicable electronic signature laws and other laws to eliminate repudiation and maintain enforceability.
- User-Role Enforcement - Fine grain permission must meet applicable legal requirements, such as HIPAA and other mandates. The platform must also provide an audit trail of access to demonstrate compliance and establish an unbroken chain of evidence in the event of wrongdoing.
- Data Validation - The platform must verify that all required data meets legal and business requirements. It must also prevent incomplete, erroneous, or unauthorized changes from being processed.
Esign and UETA
In 2000, the US Congress passed the Electronic Signatures in Global and National Commerce Act (ESIGN) to promote greater freedom and flexibility in electronic transactions. Most states either preceded or followed suit, adopting either the Uniform Electronics Transaction Act (UETA) or their version of UETA-like laws. ESIGN and UETA are very similar.
Intentionally, ESIGN and UETA broadly define electronic transactions and are technology neutral, allowing enterprises freedom to utilize whatever technological means they deem appropriate to achieve compliant solutions. ESIGN and UETA seem to make common systems such as web sites, email and fax, as well as more sophisticated digital encryption and digitized handwritten signature systems viable options for companies desiring to do business electronically.
However, ESIGN and UETA are not a panacea and understanding what they do and do not provide is important. For example, both ESIGN and UETA do not make electronic transactions enforceable. Instead, both are narrowly focused, specifying only that an electronic record or transaction may not be rendered invalid solely on the basis of its electronic or digital nature.
In other words, ESIGN and UETA make no guarantees about the overall enforceability of electronic contracts. Thus, an electronic record or transaction is only enforceable if it meets the requirements of the laws governing it, as well as ESIGN and UETA.
While a platform like ContractPal cannot guarantee enforceability, it can provide an environment that complies with ESIGN and UETA. ContractPal is that platform. It provides all of the tools to support enforceable transactions.
As mentioned above, other laws impact electronic transactions. While many of these laws may not directly impact enforceability, nonetheless they may have a dramatic impact on how electronic transactions are or should be conducted. In other words, those who engage in electronic transactions should not only be asking, “are my transactions legally enforceable,” but also “are my transactions legally compliant?”
To gauge legal compliance, additional laws and regulations come into play. Some of the additional laws that may have an impact include privacy laws, financial reporting laws, and laws designed to protect the integrity of our systems and way of life. Such laws include common law rights of privacy and state and federal statutes, including the Privacy Act (TPA), the Gramm-Leach-Bliley Act (GLB), the Health Insurance Portability and Accountability Act (HIPAA), the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), the Fair Debt Collection Practices Act (FDCPA), the Sarbanes-Oxley Act, the E-Government Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA Patriot Act).
In addition, regulations should be consulted. While most of us think solely of government regulations when we think of regulations, we should also be thinking of other regulations that may have an impact. For example, if a transaction involves the processing of credit cards, debit cards or electronic checks, financial services regulations should be considered, such as the regulations promulgated by Visa and MasterCard.
So what’s the big deal? Violations of either law or regulations can have an extremely large adverse impact on business. Not only could people be incarcerated, but also very large fines can be levied for noncompliance.