Wednesday, May 22, 2019

BY ROBERTA PIKE

legal ease No matter what type of company you operate, chances are it generates an overwhelming and wide array of documents in any given week—both paper as well as electronic. The task of storing and maintaining such records takes considerable time and effort, and can be quite costly as well. Record retention can be particularly burdensome for small businesses that lack the resources necessary to maintain large quantities of archived electronic records on their servers, and/or space in their offices to house boxes and boxes of seemingly obsolete records. Even for larger organizations, properly retaining and archiving records can be a daunting and expensive task.

There are some companies that simply discard or delete what they believe is no longer needed. Others don’t intentionally dispose of outdated records, but they don’t take steps to properly secure and store them either. Both of these scenarios are unwise and risky because there are a multitude of federal, state, and local laws, rules, and regulations that govern how long a business must keep certain records, and failure to comply with those requirements can cause huge problems for a non-compliant business down the road.

Take employee wage and hour records for example. If you fail to properly record how many hours an employee worked and she later brings a claim or lawsuit claiming she regularly worked overtime and wasn’t properly compensated, it will be your company’s word against the employee’s. As a general matter, when faced with a situation where an employer doesn’t have records it is required by law to maintain, the Department of Labor and/or a court will take the employee’s word for what she claims to be owed. In the context of a lawsuit, in the event that records your company should be able to produce were lost or prematurely destroyed, it can find itself accused of “spoliation,” the willful or negligent destruction of evidence, for which there are significant penalties.

Keeping everything indefinitely isn’t the answer to record retention either, and that’s not just because you’ll eventually run out of space. A storage room jammed full of boxes of decades-old records makes it that much harder to locate that one box you may actually need to find to respond to a claim (or audit), as does a file cabinet full of back-up tapes. Furthermore, old records can come back to haunt you. Say an employee brings a lawsuit against the company asserting she was discriminated against based upon her race. The employee recalls hearing that another employee brought a similar claim 20 years ago, promptly tells her attorney, and he then insists that the records be produced as part of discovery to show that your company has long tolerated discriminatory conduct. While the documents related to that mid-1990s lawsuit could have and should have been discarded years earlier, and no court would fault you for having done so, your company is now in the position of having to spend legal fees to determine whether it must produce documents whose only modern-day utility is to prop up a lawsuit against the company.

What should be kept and for how long depends upon (a) the type of document involved, and (b) whether there are any applicable laws, rules, and/or regulations that govern how long such documents must be kept. This is a subject most people don’t want to think about or dedicate resources to given that attending to document retention issues does nothing for your company’s bottom line, and usually involves an ongoing expenditure of time, labor, and money. Nevertheless, having and maintaining a document retention policy is somewhat akin to having an insurance policy; it costs money and you hope never to use it, but if and when you do you’ll be glad that you’ve got one.

The length of time that documents should be saved is not always easy to figure out. Some are relatively easy. Just about everyone knows to retain documents such as deeds and vehicle titles for as long as the property they pertain to is owned; however, when it comes to other business records, the retention period depends upon a number of factors, including space concerns, whether there are any applicable retention laws, and whether the document might be helpful (and not harmful) down the road in the event of future litigation.

As a general matter, when faced with a situation where an employer doesn’t have records it is required by law to maintain, the Department of Labor and/or court will take the employee’s word for what she claims to be owed."

My office recommends that unless the law requires a longer period of time, when in doubt and if space is not an issue, records should be retained for seven years. That period covers the longest IRS limitation period as well the limitation periods for all local, state, and federal anti-discrimination statutes. Note that the laws applicable to a given document often do not require that all records be kept that long. For example, Title VII of the Civil Rights Act requires that employment records and documents concerning “key employment actions” such as hiring, promotion, termination, demotion, changes in rates of pay, or other terms of compensation, etc. only be kept for one year. So too does the Americans with Disabilities Act, and the Age Discrimination in Employment Act. Nevertheless, because a given document may be subject to the retention requirements of more than one law, seven years tends to be a good rule of thumb to operate by when in doubt. Since most companies don’t want to hold on to records for that long unless they absolutely have to, we’ve created a “cheat sheet” to help guide you:

Seven years: We recommend that you keep financial records (including anything that backs up your tax returns) for seven years. The same goes for payroll records, personnel files (from date no longer in employ), as well as time cards, time sheets, and other time records.

Three years: Retain documents showing proof of an employee’s eligibility to work in the United States and I-9 Forms (required by the Immigration Reform and Control Act) for at least three years from the date of submission to the company. The same goes for employment applications, Family & Medical Leave Act requests, internal reports, and letters and e-mails of a routine nature.

As mentioned previously, these are only guidelines, and they should not be applied mechanically. Some degree of thought must be given before a document is earmarked for disposal. For example, you should never discard or delete records pertaining to an employee who has brought or is threatening to bring a lawsuit or file an administrative charge against the company prior to resolution. Doing so could be construed as destruction of evidence. The same applies to individuals who worked with such an individual and/or who are similarly situated to that individual, since the former employee may want to compare himself to these individuals and has a right to do so under the discrimination laws. In the case of “troublemakers” or problem employees, I recommend retaining files pertaining to those individuals beyond the recommended seven year period if they still work for you.

In addition to retaining records for appropriate periods of time, it is important that your retention policy also specify how records are to be maintained. Paper files, particularly active employee files, must be kept in a secure and preferably locked area, and electronic files should be password protected. All such files should be accessible only by authorized personnel. In particular, any files that concern an employee’s personal medical information should be carefully safeguarded and, if necessary, kept in a separate confidential file. When archiving physical files, they should be kept in a secure, dry location and labeled with the date they were archived.

Besides making sure which records and data get archived, and ensuring they are maintained for the legally required period of time, an effective document retention policy also contemplates keeping a list or inventory of what has been stored, where it has been stored, and when it should be discarded. The list should be regularly updated. This practice is important not only for purging records that have been stored for the appropriate length of time, but also so that records are readily found when they are needed. A typical wage-and-hour or discrimination claim, for example, can call for the production of a staggering quantity of electronic and paper records as part of discovery. If you have a proper document retention policy in place, your company can quickly zero in on where records are stored, as well as who knows how to access them if a lawsuit or audit calls for them. Likewise, in the event of a lawsuit calling for the production of materials that are older than you’re legally required to keep, the fact that the materials were purged pursuant to an established document retention policy will generally put an end to any claim of spoliation, and accusations that there was a sinister motive behind the destruction.

Of course, you must suspend the purging function of any document retention policy in the event a lawsuit is underway, or when the threat of such a lawsuit arises. If you’re involved in a court case, and/or if you receive a “litigation hold” letter from an attorney instructing you to suspend the purging of documents, it is important to immediately convey these instructions to your employees, and consult with your attorneys in order to avoid seriously compromising the company’s position in the coming litigation. The loss or destruction of evidence, even if unintentional, can result in the imposition of serious sanctions.

In conclusion, if your company fails to keep the records for the periods required by law, a whole host of problems may result, including estimated damages, adverse inferences, fines, and penalties. On the flip side, if records are kept too long, those records can be used to support future lawsuits, clog up valuable physical and electronic storage space, and create a “needle in a haystack” situation when other records must be located.

The key is to balance these competing interests with a properly formulated and properly enforced document retention policy. In the event of a lawsuit, you ultimately want to be able to find and produce records you’re required to have, or you want to be able to stand before the court and demonstrate that the reason you don’t have something is because your company has a policy in place that disposes of such records on a regular and routine basis once the legally required retention period has lapsed. [CD1216]


Disclaimer: The foregoing is provided solely as general information, is not intended as legal advice, and may not be applicable within your jurisdiction or to your specific situation. You are advised to consult with your attorneys for guidance before relying upon any of the information presented herein.

Roberta Pike is a partner with Pike & Pike Law Firm in Bellmore, N.Y. She may be reached at rcp@pikeandpike.com.