Jan 23

RECORD RETENTION POLICY: WHY IT IS IN YOUR COMPANY’S BEST INTEREST TO HAVE ONE

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Bunch of Papers by Seiichi Kusunoki - Visual Maintenance*
Bunch of Papers by Seiichi Kusunoki – Visual Maintenance*

There are good legal and practical reasons for your company not to hold onto every document that comes across its proverbial desk. There are also good reasons not to destroy documents too hastily. Instead,  you can adopt a well-considered record retention policy that dictates which documents are retained, for how long, and when to destroy them. Working with your legal counsel to draft the policy will help ensure the proper timeline for document destruction and help you avoid legal headaches.

First Things First – What is a Record?

Records include essentially all documents created or kept by the business in paper (or other tangible format) or electronic form. This includes paper-based documents, e-mails, electronic files and programs, desk calendars and appointment books, photographs, plans, maps, diagrams, and various other vehicles for the transmission of language, images, plans, and numbers.            

Some records kept by typical businesses include:

  • Tax Records
  • Personnel Records
  • Contracts (with suppliers, customers, and others)
  • E-mail
  • Board and Board Committee Materials
  • Marketing and Sales Documents
  • Trade Secrets

Why Not Just Keep Them All?

You can’t have everything. Where would you put it?

– Stephen Wright

There is a good practical reason not to keep them all – document storage can get expensive. Even if you do it electronically, which is significantly less space-intensive (and easier to search later, if properly indexed), there is a cost to keeping all of your documents for all time.

Also, the longer a document remains around, the longer it has the potential to cause trouble. And, you do not always know which documents are most likely to cause trouble – if you did, you would not have allowed that document to be created in the first place. We have all heard stories about embarrassing e-mails or other documents used against the company that kept it – sometimes at a great financial and reputational cost. Had those documents been destroyed on a set timetable under a valid record retention policy, it is possible they never would have been uncovered.

You may want to keep documents out of the hope that a particular document might exonerate you from allegations of wrongdoing or help you prove your case. This could happen. But, there are ways to mitigate this concern. First, your document retention policy should account for the statute of limitations for actions you are likely to bring so that you avoid destroying documents that may be relevant to such cases (see the section below on spoliation for more on not destroying documents once litigation becomes likely). Also, when you are the defendant in an action, the other side has the burden of proof.

Thus, while it is possible a destroyed document might exonerate you from wrongdoing alleged by another, they need to prove their case first – and they have the obligation to produce all documents they have in their possession or control in connection with the litigation. So, if there is an exonerating document that both sides have, they have a legal duty to disclose it or risk being found liable for spoliation themselves. Plus, if you really do have such a gem of a document, consider retaining it in a file of documents that are not subject to destruction – or are on a much longer timeline than others.

Why Have a Formal Policy for Retaining and Destroying Documents?

There are myriad reasons to have a formal record retention policy. First, it keeps everyone on the same page. Your employees will know what is expected of them and you will have a benchmark against which to compare their performance in the category of document retention and destruction.

Also, having policy that describes not only when but how the documents are to be destroyed can help with your data security obligations. If you have documents that contain sensitive customer information, you want to be sure that the record retention policy expressly states that they will be destroyed in a secure manner.

In addition, having a set schedule for destroying documents will help avoid an argument that you destroyed documents that may be relevant to future litigation.

A Word on Spoliation

Your company has a legal duty to preserve records that may be relevant to a particular legal dispute once you become aware of the likelihood of the dispute.  If you destroy documents once you become aware of a likely legal dispute, you may be found liable for spoliation, which can mean that the court or jury is allowed to draw a negative inference from the absence of the document. In other words, they can assume that the document supported the other side’s position.

Destruction of documents consistent with a formal document retention policy can provide good evidence to refute a spoliation claim. If you have a document retention policy that calls for the destruction of documents on a certain timetable, the risk that documents that happened to be destroyed shortly before you became aware of likely litigation will be held against you is decreased significantly.

Components of a Record Retention Policy

There are at least three categories of records that should be addressed in a company’s Record Retention Policy:

1. Legal Reasons. Those records the company is required to keep by law, whether that is a law that applies to a particular industry or a general legal obligation.  One of the general legal obligations relevant to this category is records relating to likely or pending litigation (see the section on “Spoliation” above).

2.  Business Reasons. Records the company wants to keep for business reasons. These are documents the company finds valuable for reasons other than legal obligation.

3. No Reason. Documents that are not necessary for legal or business reasons are subject to destruction. This includes those documents that have outlived their usefulness from a legal or business standpoint.

The policy should set forth the timeline for destruction of the documents in each category and the company should ensure that its employees adhere to that timeline.  One way to do this is to automate document destruction for electronic records.  If you do this, keep in mind the cautions about spoliation above and ensure that there is a way to turn off the automation quickly when you learn that litigation is likely. Consult with an attorney licensed in your jurisdiction regarding which documents to stop destroying and when.

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

*Image courtesy Visual Maintenance, © 2011 by Seiichi Kusunoki,  some rights reserved.