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A recent opinion out of the Texas 14th Court of Appeals has raised the bar for employers trying to enforce arbitration agreements electronically signed by employees.  See Houston ANUSA, LLC d/b/a AutoNation USA Houston v. Shattenkirk, No. 14-20-00446-CV, 2023 WL 5437714 (Tex. App.—Houston [14th Dist.] Aug. 24, 2023, no pet. h.).

Walter Shattenkirk was a general manager at an AutoNation car dealership.  AutoNation terminated Mr. Shattenkirk’s employment for poor performance after putting him on a performance improvement plan, but he alleged that the termination was in retaliation for internally reporting alleged racist comments by other members of management.  Mr. Shattenkirk subsequently filed a lawsuit against AutoNation for discrimination and retaliation.  In response to his lawsuit, AutoNation filed a motion to compel arbitration under an arbitration agreement that AutoNation alleges Mr. Shattenkirk electronically executed at the time of hire using AutoNation’s Human Resources website.  That agreement required arbitration of all disputes arising from Mr. Shattenkirk’s employment. 

Mr. Shattenkirk admitted that he signed some on-boarding documents at the time of his hire, but denied ever electronically executing the arbitration agreement.  Therefore, Mr. Shattenkirk responded to AutoNation’s motion to compel by asserting that the arbitration agreement was not valid because he had not executed it, and that if it was valid, it was unconscionable due to the potential expense of arbitration.  The trial court denied the motion to compel arbitration, and AutoNation appealed.  The Court of Appeals affirmed the trial court’s order denying the motion to compel, noting that the trial court could have concluded the agreement was unconscionable.  The Texas Supreme Court granted AutoNation’s petition for review, reversed the Court of Appeals’ judgment that the agreement might be unconscionable, and remanded the case back to the Court of Appeals to address the issue of whether the employee electronically executed the agreement.

On remand, the Court of Appeals held that AutoNation, as the party trying to enforce the arbitration agreement, bore the burden of establishing the agreement’s existence by legally sufficient evidence, and bore the burden of negating any contravening evidence from Mr. Shattenkirk that he did not execute the arbitration agreement. 

The Court of Appeals found that, although AutoNation proved that it has an electronic process for obtaining e-signatures from employees, it:  (1) had not adequately proven in the trial court that Mr. Shattenkirk had actually executed electronically the arbitration agreement; and (2) had not adequately proven in the trial court that the security procedures associated with the electronic signature were sufficient to show that Mr. Shattenkirk actually provided the e-signature.  The Court of Appeals further determined that both Texas law and the Federal Arbitration Act require an evidentiary hearing at the trial court level on the issue of whether Mr. Shattenkirk electronically executed the arbitration agreement—affidavits alone were not sufficient.  Accordingly, the Court of Appeals reversed and remanded that issue to the trial court for an evidentiary hearing.

Regardless of the ultimate outcome of the AutoNation case,, one thing is clear—employers should have e-signature systems that leave little room for doubt about the efficacy of the security procedures, and the resulting authenticity of an employee’s e-signature.  Not only does the party seeking to enforce an arbitration agreement have to adequately prove that their normal processes and computer records show that an e-signature occurred, but they must also show that their e-signature systems and procedures adequately protect against a third party providing the e-signature.  Accordingly, employers should re-examine their e-signature processes, or their arbitration and other agreements may not be enforceable.