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In the previous issue of Franchising World, we introduced the Electronic Signatures in Global and National Commerce Act (E-SIGN), a federal law that took effect on October 1. E-SIGN declares that, in "transactions" (as defined in the statute), electronic records and electronic signatures may not be denied legal validity just because they are in electronic form. Part I of the article explained how E-SIGN clears the way for franchisors to take their contracting process online,
In Part II, we briefly explore some related subjects: first, the practicalities of storing and retrieving electronic franchise agreements; second, whether E-SIGN also permits franchisors to take their UFOC disclosure process online; third, the potential effect of E-SIGN on state requirements to give default notices, etc., in writing.
Storage and Retrieval.
Under Old Economy, paper-based contracting systems, the natural habitat for tree-vaporizing franchise agreements is typically a fireproof filing cabinet at the franchisor's headquarters. Surely this will be an antiquated storage method in the paperless contracting world that E-SIGN portends. So where will electronic franchise agreements be stored?
E-SIGN does not require that electronic franchise agreements be stored or accessed in a particular form. However, E-SIGN does provide that if another law requires record retention, an electronic record will satisfy the requirement if the electronic record, one, accurately reflects the information in the contract or document; and two, remains accessible to all relevant parties in a form "that is capable of being accurately reproduced for later reference" (by printing, electronic transmittal, or other means). The FTC Franchise Rule and current UFOC Guidelines contain few, if any, specific requirements for records retention, even in paper form, but state franchise statutes frequently mandate that franchisors keep records, presumably including copies of franchise contracts. For example, the New York statute requires franchisors to maintain a complete set of books and records, as well as accounts of franchise sales. E-SIGN effectively provides that electronic records kept by the franchisor would meet these requirements, provided that the records satisfy the two conditions above.
With respect to documents that must be filed with a government agency, E-SIGN gives regulators a bit more leeway. It leaves undisturbed government agency requirements that records be filed with the agency "in accordance with specified standards or formats." There seems...