As businesses move online, contracting follows suit. Several legal considerations for electronic contracting exists for businesses that are looking to adopt an online business strategy. Additionally, the storage of records, which is done online more often these days, may be regulated by the government. There are ever growing pressures on businesses to adhere to always expanding regulations, or face penalties.
Most online businesses require a terms of service agreement. A common practice amongst new companies is to use a standard template that they found online for their terms of service agreement, however this may bring more issues down the line. Some provisions are not enforceable if put into an online terms of service agreement. Further, some online templates for terms of service agreements include provisions that are specific for a different country, and non-applicable for the business’ country of operations. Accordingly, businesses must consider the applicable laws for the jurisdiction of operations when generating their electronic contracts. For example, consumer protection legislation such as the Consumer Protections Act may make some provisions unenforceable when applied to certain groups of individuals. In TELUS Communications Inc. v Wellman, 2019 SCC 19 the Supreme Court of Canada held that mandatory arbitration clauses may be applicable to corporations under certain circumstances, however under the Consumer Protection Act, individual consumers were protected from the mandatory arbitration clause.
Legislation may also require businesses to retain books and records so as to allow them to be produced on demand. In such situations, the integrity of the information contained in business records is therefore important. Important legislation to be aware of as a business include: (1) the Income Tax Act; (2) the Canada Business Corporations Act; and (3) the Ontario Business Corporations Act. All three of these statutes, as well as others, require certain records to be retained, how to be stored and at times, for how long.
E-commerce transactions often require a greater level of consumer confidence for the infrastructure that supports the transaction than is required for an in person transaction where no infrastructure is necessary. Accordingly, reliable networks and services are a necessity to support and secure the transaction. This includes ways to prove the origin, receipt, and security of information received by any party involved in the electronic exchange. In some worst case scenarios a redress mechanism, such as readily available customer support, may also be necessary.
Depending on the network used, there are varying degrees of security. Historically, closed networks such as electronic data interchange (EDI) were used for electronic transactions. Using EDIs two parties could directly exchange information electronically, almost eliminating the use of paper. Today, however, electronic transactions occur over the internet, which is an open network that is much less secure than historical closed networks and come with unique challenges such as addressing legal, business, and security issues.
Unlike closed networks, open networks do not have the assurances of the identity and authority of the individuals of the transacting parties. The greatest consideration may be the issues with contracting itself. Electronic authentication and records should be as effective as written ones, including in contract formation. Generally, Canadian contract law allows for contracts to be formed by any means of communication. Both Canadian and American cases have enforced contractual agreements, known as “click wrap” agreements where the terms are assented to through the click of an “I Agree” button. A Supreme Court of Canada decision in Douez v. Facebook, Inc, 2017 SCC 33held that a contract could be deemed enforceable if a party clicked an appropriate online icon or button.
The various ways contracts are agreed to online may also make it difficult to determine whether a contract is truly formed or not. All electronic contracts require an “offer” and “acceptance”. In traditional paper contracts this was usually done by signing the contract, but through the pursuit of expediency, e-commerce has developed several other ways of attempting to define offer and acceptance. Parties must know when a contract has been formed, and which parties bear the risk of issues with communication, or with mishaps in operations. A common business practice in today’s online businesses is having users “agree to the terms and conditions” of an online contract by using a variety of mechanisms such as browse wrap, clickwrap, scroll wrap, and sign-in wrap agreements. While various electronic mechanisms exist, they are not all created equally.
For example, clickwrap agreements, as mentioned previously, where a user accepts an electronic contract by clicking a button that states “I agree to the terms and conditions”, have generally been held to be enforceable in some situations. However, cases such as Sgouros v TransUnion Corp, 817 F3d 1029 (7th Cir 2016) (“TransUnion”)show how this may not always be the case. In TransUnion, an electronic contract contained in a scrollable window and agreed to by clicking a button as held to be unenforceable because no instructions were given to users to read the scrollable window and no indication that the user’s clicks constituted assent to the terms in the window were given either.
Businesses may also find themselves at risk of fraud and errors during electronic communications. This may cause repudiation of a contract and losses to either party. Businesses should consider a technical means to reliably authenticate the parties’ identities and intent of an electronic contract by using trusted systems and/or methods. This is especially important as it relates to electronic signatures, as they have become ever more important, especially since the COVID-19 pandemic forced businesses to radically adapt to e-commerce practices. Parties may also consider the use of third party providers that authenticate signatures, known as certification authorities or certification service providers, who are used to certify the authenticity of users.
The law of electronic contracting is vast and wrought with misconceptions among many business owners. Due to this, problems are more often than not approached reactively rather than proactively. However, this ultimately leads to significantly increased costs in the long term because it’s always harder to fix something after it’s broken rather to build it right the first time. Accordingly, companies new to e-commerce should seek legal advice proactively on such issues to reduce costs in the long term.