ESIGN Act - Paving the Way For Digital Innovation
This year marks the 20th anniversary of the Electronic Signature in Global and National Commerce (ESIGN) Act in the U.S. and the 10th anniversary of National ESIGN Day.
Just 20 years ago, the only way to reliably collect signatures on business documents was to hold in-person meetings or construct a paper-intensive, slow process involving expensive physical mail, fax machines, printers, scanners and photocopiers.
“The ESIGN Act, together with the Uniform Electronic Transactions Act (UETA), the state equivalent legislation, paved the way in the U.S. for the transformation of business practices, from slow, cumbersome manual processes to fast, efficient automated ones for contracting and approval processes."
- Trâm Phi, SVP and General Counsel of DocuSign.
“Laying the groundwork two decades ago was prescient, as it has allowed businesses to quickly adapt to the work from home environment that’s been accelerated by the COVID-19 pandemic,” continues Phi.
To understand how prescient the ESIGN Act was, consider that the first iPhone was not introduced until January 2007, which was the same year AirBNB was conceptualized. ESIGN was enacted just a year after Salesforce was founded (1999) and predates the founding of both Tesla (2003), and Uber (2009). Today, individuals expect a friction-less digital transaction as they electronically sign a rental agreement for their upcoming vacation, quickly close commercial deals without having to use any paper, purchase an electric car, open a new bank account, or transact in the gig economy - all done electronically from an electronic device like a smartphone.
Outside of our modern consumer experience, widespread adoption of electronic signatures has significantly reduced the amount of paper wasted in the agreement process. Since our founding in 2003, DocuSign estimates we’ve helped hundreds of millions of people around the world to replace over 20 billion sheets of paper with digital processes that do not require paper. Together we have preserved over 2.5 million trees required to make paper.
How e-signature became law
“The adoption of the federal ESIGN Act was unusual in that it was not reactive, as are many statutes, but proactive – it was intended to support the development and expansion of eCommerce over time, not just validate already-existing practices,” notes David Whitaker, Partner at DLA Piper, one of the people involved with the passage of the Act.
To try to promote consistency and ease of use at the state-level, the National Conference of Commissioners on Uniform State Law (now called the Uniform Law Commission) adopted the Uniform Electronic Transactions Act (“UETA”) in 1999. Although UETA was adopted very quickly by a handful of states, exceptions to the scope of the law created inconsistency among the states. To address this issue, the federal government stepped in and passed the Electronic Signature in Global and National Commerce (“ESIGN”) Act in 2000. The ESIGN Act is modeled on UETA, and sets out the same key elements:
- A contract may not be denied legal effect or enforceability solely because of its electronic form;
- If a law requires a record to be in writing, an electronic record satisfies the law; and
- If a law requires a signature, an electronic signature satisfies the law.
“The UETA drafters knew that they were creating a law that needed to allow for ongoing innovation and adaptation, and they were laser-focused on preserving flexibility and technology neutrality. Those of us who worked on the passage of ESIGN Act recognized and promoted the importance of that focus and it was carried over to ESIGN Act. As a result, the ESIGN Act has proven extraordinarily adaptable,” recalls Whitaker.
The ESIGN Act implemented a national uniform standard for all electronic transactions and encouraged the use of electronic signatures, contracts and records by providing certainty for these instruments when parties complied with its standards. As Whitaker notes, the ESIGN Act has validated dozens of different methods for presenting and signing documents electronically, both remotely and in person, and has enabled the use of everything from checkboxes to dual-key encryption to blockchain implementations and smart contracts.
Adoption of this revolutionary technology didn’t happen overnight, however, nor are we done innovating.
Electronic signatures and digital agreements
As noted by Margo Tank, Partner at DLA Piper, who was intimately involved with passage of the Act, “[T]he enactment of the federal ESIGN Act as a national baseline was critical to the significant growth of the internet for modern day business...so much so that today it is hard to imagine a marketplace where [electronic signatures] do not exist.”
According to the Electronic Signature and Records Association (“ESRA”) the industry trade association for digital transactions, electronic commerce has seen a dramatic increase since 2000 and now represents 10.7% of U.S. retail sales, a number that is expected to grow. At its core, ESRA was founded following passage of the ESIGN Act to figure out how to implement e-signature and other digital transactions, according to its current Chair, Harry Gardner. Its board and members have played a critical role in helping further our world’s digital journey for the easy secure and impactful use of electronic transactions.
Since the passage of the ESIGN Act, a body of case law has arisen to support the enforceability and admissibility of electronic signatures across a variety of business uses.
The future of electronic signatures
While electronic signatures and trust in digital agreements are at the next level now with the general public, there is definitely more work to be done in continuing to apply the technology to additional use cases. Efforts by our business and technology leaders, legislators, regulators, and other government organizations are paving the way for further adoption, especially in light of getting business done during the current pandemic. Here are some of the efforts DocuSign is involved in to increase the application and relevance of electronic signatures:
- Facilitating efficient applications for Small Business Loans under the SBA Payment Protection Program.
- Digitizing unemployment insurance claims for hundreds of thousands of people through the NY Department of Labor
- Working directly with local, state and federal governments as well as companies and industry groups, on the adoption of Remote Online Notarization.
- Advocating with federal agencies such as the HHS to consider expanded use of electronic signatures for certain forms.
- Working throughout the world with legislators, agencies, and industry groups, to further the understanding and adoption of electronic signatures.
As noted by a number of people we interviewed for this blog, without the federal ESIGN Act and UETA, the state equivalent, firmly in place, “...modern American commerce could not exist in its current form,” (David Whitaker) and “...doing business during the COVID-19 pandemic would have been next to impossible” (Margo Tank). So please take a moment, amid the Independence Day celebrations this week, to join us in commemorating the passage of this impactful piece of legislation that has made our lives more digitally agreeable. Happy ESIGN Day everyone!