Click Wrap Agreement on Website Accepted by Employee Not Enforceable Against Employee's Company

Many courts have held that online "click wrap" agreements are binding. A "click wrap" agreement is a set of legal terms appearing in a pop-up window on a website; and, the user must click an "I accept" icon before being able to use the website or software on the website. Recently, however, a federal district court held that a website’s online "click wrap" agreement that was "accepted" by an employee is not enforceable against the employee’s company. This case has implications for both technology companies who desire enforceable online "click wrap" agreements and other companies who may want to control the online agreements accepted by its employees.

In National Auto Lenders, Inc. v. SysLOCATE, Inc., the plaintiff, National Auto Lenders ("NAL"), provided lending services for car dealers, taking liens on the cars that were subject to the loans. NAL purchased GPS tracking units from the defendant, SysLOCATE, for each of the cars on which NAL had liens. The GPS units allowed NAL to track the location of its cars via a website maintained by SysLOCATE. However, many of the GPS units were defective and, as a result, NAL was unable to locate and repossess the cars on default, causing NAL approximately $2.5 million in damages.

NAL and SysLOCATE began negotiating a settlement for NAL’s losses. During the negotiations, SysLOCATE posted a "click wrap" agreement on its website. NAL could not access the website to track its vehicles without accepting SysLOCATE’s online agreement. SysLOCATE’s online agreement contained language that limits the user’s damages for losses related to SysLOCATE’s GPS units.

An officer of NAL instructed its entire staff not to login to SysLOCATE’s website to prevent involuntary acceptance of SysLOCATE’s online agreement. NAL also notified SysLOCATE that only three specific NAL executives were authorized to enter into agreements on behalf of NAL.

Settlement negotiations between NAL and SysLOCATE broke down. NAL’s counsel sent a letter to SysLOCATE demanding payment and stating that "all communications regarding this matter should be addressed to me."

SysLOCATE subsequently introduced a new online click wrap agreement which, among other things, required that all disputes involving SysLOCATE’s GPS units be resolved through mediation and arbitration. Two employees of NAL accessed SysLOCATE’s website and "accepted" SysLOCATE’s revised online agreement.

NAL sued SysLOCATE in the federal district court in Miami, Florida over the defective GPS units, and SysLOCATE filed a motion to compel arbitration based on the terms of its online agreement. NAL claimed that SysLOCATE’s online agreement was accepted by individuals who had no authority to do so and stated that its executives did not know that the revised online agreement existed until SysLOCATE filed its motion. Conversely, SysLOCATE argued that the NAL employees who clicked to accept the online agreement had apparent authority to accept it. In the alternative, SysLOCATE argued that NAL ratified its acceptance of the online agreement by continuing to perform under it, even if it was initially accepted by an unauthorized agent of NAL.

The court stated that there are "three elements needed to establish apparent agency: (1) a representation by the purported principal; (2) reliance on that representation by a third party; and (3) a change in position by a third party in reliance on upon such relationship." In addition, the court noted that a party’s reliance on apparent authority must be reasonable.

Because NAL notified SysLOCATE that only certain executives were authorized to enter into agreements on NAL’s behalf and because NAL advised SysLOCATE that only NAL’s counsel was authorized to communicate with SysLOCATE regarding the dispute over the GPS units, the court found it unreasonable for SysLOCATE to believe that the two NAL employees who accepted SysLOCATE’s online agreement had authority to do so.

The court also rejected SysLOCATE’s argument that NAL ratified the online agreement, even if it was initially accepted by two unauthorized employees. The court noted that a principal can only ratify an unauthorized act when the principal is fully informed of it. Because NAL’s executives were unaware of SysLOCATE’s revised online agreement until NAL learned of it in the course of the litigation, the court held that NAL did not ratify the online agreement.

Therefore, NAL was not bound by the terms and conditions of SysLOCATE’s online click wrap agreement, even though two of its employees clicked to "accept" the agreement.

This case involves some rather extreme facts, in that NAL specifically notified SysLOCATE that only certain executives were authorized to enter into agreements on behalf of NAL and that its counsel was the only individual authorized to communicate with SysLOCATE regarding the dispute. However, this case provides practice tips regarding online click wrap agreements for both technology companies and other companies.

Practice Tips:

• For technology companies that use online click wrap agreements: Consider amending your online agreements to include a specific representation that an employee clicking to accept the agreement has authority to bind his/her organization. You might even add a separate "click through" pop-up screen that requires the individual to click a button signifying that the individual has authority to accept the online agreement on behalf of his/her organization.
• For all companies: To avoid being bound by online click wrap agreements entered into by your employees, consider adding language to your employee handbooks or employment policies stating that employees may not, and are not authorized to, accept online click wrap agreements without first obtaining the approval of management or the company’s IT or legal department.