A New York Appellate Court Holds that an Email Message Can Amend an Employment Contract: Why the Decision Was Correct, and What It Means for Employees

By ANITA RAMASASTRY


Thursday, May 29, 2008

Last month, in the case of Stevens v. Publicis, a New York intermediate appellate court held that a series of emails was sufficient to modify an employment contract, because the emails (which included signature lines) counted as “signed writings,” provided details as to the contract modifications and clearly expressed both parties' unqualified acceptance of the modifications.

Businesses and/or employees can avoid the effect of the ruling by amending their original agreements to forbid email modification. But if they do not do so, they should be on notice that a few emails may result in major changes to a contract.

In this column, I will describe the New York case and explain why it was rightly decided.

The Facts of the Case

In 1999, Andrew Stevens sold his public relations firm in New York, Lobsenz-Stevens, to defendant Publicis S.A., a French company with an American subsidiary. As part of the sale, two contracts were executed: a stock-purchase agreement and an employment contract. Under the employment contract, Stevens was to continue as Chairman and CEO of the new company, named Publicis-Dialog Public Relations, New York (PDNY), for three years, performing a CEO’s “customary duties.”

Shortly after the sale, however, problems arose within PDNY, including the loss of a major client. Under Stevens’s leadership, the company reportedly failed to meet its projected revenue targets as well. Around the mid-point of his three-year term as CEO, Stevens was removed from his post as CEO and replaced with acting-CEO Bob Bloom.

What happened to Stevens? He was asked to either leave or suggest changes to his employment terms – in effect a demotion. Bloom and Stevens emailed back and forth about a new post for Stevens, reaching apparent agreement as to a new arrangement under which Stevens would spend his time on different sectors of PDNY’s business. Bloom proposed that Stevens’s time would spend 70% of his time on new business development, 20% on maintaining former Lobsenz-Stevens client relationships, and 10% on management/operations.

In another e-mail, Stevens unqualifiedly accepted the proposed modifications to his original employment contract. He stated: “I accept your proposal with total enthusiasm and excitement... “I'm psyched again and will do everything in my power to generate business, maintain profits, work well with others and move forward.”

Then, in a final confirming e-mail, Bloom unqualifiedly acknowledged Stevens' acceptance. The changes to Steven’s contract were further confirmed by Stevens in a separate e-mail sent to Andrew Hopson, chief operating officer of PDNY.

The modifications to Stevens' employment agreement, agreed upon via e-mail messages, were not memorialized in a separate writing as promised. Stevens filed suit to enforce the terms arrived at and agreed upon in the e-mail exchange.

Stevens believed he had a deal, and the New York Court of Appeals ultimately agreed.

The Key Legal Issue: The Statute of Frauds

The key issue arose under the New York Statute of Frauds, which requires the material terms of certain legally enforceable agreements to be memorialized in a writing signed by the parties to be charged (that is, the parties who will have to fulfill the responsibilities the agreement imposed). Other states also have a statute of frauds as it is standard for legislatures to require that parties have some sort of writing as evidence of an agreement.

There was little, if any, question that that emails were writings, but were they signed just because they contained a signature line? The New York Court of Appeals said yes, because Stevens’s and Bloom’s names at the end of each’s e-mail signified the intent of each “to authenticate the contents.” Under a New York law on electronic transactions (which I discuss further below), that was sufficient.

This was the correct holding – but it seems possible other states may reach other results, requiring the formal putting of pen to paper or not counting the email signature line as a real intent to authenticate a message for contractual purposes. As companies and employees can opt out of either rule in the original contract, by limiting or expanding the ways modifications can be made, the real question here is simply what the default rule should be.

Why the New York Decision Was the Right One

The New York Court of Appeals’ decision was the right one, for several reasons: First, it makes it easier for parties to enter into and modify contracts without the burden of signing paper documents. Moreover, it provides additional guidance for the majority of legislatures around the country that have already adopted the Uniform Electronic Transactions Act of 1999 (UETA). This “uniform” law, drafted by the Uniform Law Commission, is meant to provide uniformity and certainty for electronic transactions throughout all of the states that have adopted the statute.

UETA provides that electronic documents (referred to as electronic records) have the same legal status as paper documents. Under UETA an email message could have the same status as a paper contract. Furthermore, electronic signatures also have the same status as written signatures. The New York Court of Appeals was correct in concluding that an email signature line can constitute an electronic signature.

Some states, including New York, have chosen not to incorporate the UETA into their laws. Those states have adopted their own electronic transactions rules. New York, for example, has adopted General Obligations Law §5-701(b) (4), which categorizes an “electronic transmission of tangible written text” as a "writing," and “any symbol used by a party with the present intention to authenticate a writing” as a "signing." New York’s decision is laudable, as it made the Stevens case clear when it might have been muddy.

In view of this ruling, parties may wish to include new terms and conditions in their employment and other standard form contracts specifying whether and how their agreements may be amended by electronic communications. If they do not address this issue, they may be surprised to find that state law has addressed it for them – in a manner with which they do not agree.

Anita Ramasastry is a visiting professor at the National University of Ireland - Galway and an Associate Professor of Law at the University of Washington School of Law in Seattle and a Director of the Shidler Center for Law, Commerce & Technology. She has previously written on business law, cyberlaw, computer data security issues, and other legal issues for this site, which contains an archive of her columns.

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