As we have previously discussed, if you want your electronic contracts to be enforceable, it is a best practice to require the counterparty to affirmatively accept the contract by checking a box or clicking a button. A recent New Jersey district court decision, ADP, LLC v. Lynch, reinforces this point. Such issues most often arise in the context of website terms of use, but ADP v. Lynch involved a non-competition provision and forum selection clause contained in documentation presented to employees electronically in connection with stock option grants.
The employer, ADP, sued two former employees for taking jobs at a competitor in violation of certain restrictive covenants contained in the stock option grant documentation. The employees sought to dismiss the action on the basis of lack of jurisdiction, and ADP responded by pointing to a forum selection clause in the grant documentation. The employees argued, however, that they had not received adequate notice of the restrictive covenants and that the forum selection clause was unenforceable.
The grant documentation containing the restrictive covenants and the forum selection clause had been presented to the employees in electronic form and, based on the allegations in ADP’s complaint, the employees were required to acknowledge the documentation in order to receive the stock option grants. Specifically, ADP had presented the documentation in such a way that each employee was physically unable to click the required “Accept Grant” button unless he or she had affirmatively checked a prior box indicating that he or she had read the associated documents containing the restrictive covenants and forum selection clause.
The court also noted that ADP’s manager of its stock plan services “provided a step-by-step rundown” of the process that employees were required to follow to accept stock option grants, and that, “in order to accept those awards, an employee would have to affirmatively acknowledge that he or she reviewed the Restrictive Covenants before proceeding.” This illustrates another point we have noted previously: If you want your electronic contracts to be enforceable, you should not only make sure to implement them in a way that requires affirmative acceptance, you should also be prepared to produce evidence that the user at issue actually accepted.
In light of the above, the court analyzed the grant documentation containing the restrictive covenants and forum selection clause as an enforceable “clickwrap” contract similar to the website terms of use at issue in another case we have written about previously, Fteja v. Facebook, Inc.:
“At this stage in the litigation, the Court finds that the forum selection clauses are encompassed by enforceable clickwrap agreements. The complaints unequivocally allege that an employee could not accept any stock grants until acknowledging that he or she reviewed all grant documents, including the Restrictive Covenants that contained the forum selection clauses. […] In order to accept those awards, an employee would have to affirmatively acknowledge that he or she reviewed the Restrictive Covenants before proceeding. […] Therefore, this case involves the type of clickwrap agreement that other courts have found to be enforceable.”
The court also found unpersuasive the employees’ argument that mutual assent was lacking because the acknowledgment box did not expressly state “I agree to the terms of the grant documents,” but instead merely required the employees to acknowledge that they had read those documents. According to the court, this was a “distinction without difference” because, in accepting the option grant, the defendants were required to represent as part of the grant agreements that they had read the restrictive covenant agreements.
Accordingly, as ADP sufficiently alleged that it had required the employees to affirmatively accept the restrictive covenants and forum selection clause as part of the electronic contracting process, the court denied the employees’ motion to dismiss.
While this case does not necessarily break new ground in terms of the enforceability of electronic contracts, it does illustrate that the same principle applies whether you are seeking to impose terms and conditions on users of your website or enforce restrictive covenants and a forum selection clause in an employment agreement: make sure the counterparty is required to take some clear and affirmative action to expressly accept the contract.
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For more on what it takes for an online agreement to be enforceable, see Implementing and Enforcing Online Terms of Use; Three Steps to Help Ensure the Enforceability of Your Website’s Terms of Use; Clickwrap, Browsewrap and Mixed Media Contracts: A Few Words Can Go a Long Way; and Terms and Conditions Buried in Easily Ignored Scroll Box Don’t Cut It, the Seventh Circuit Holds.