Records retention and the future of your business
Societal attitudes toward digital information have dramatically changed over the last decade, and continue to change. This change was succinctly demonstrated in an exchange I recently overheard:
Q: “Do you have a hard copy of that document?”
A: “Yeah, I have a PDF.”
How many emails are in your mailbox right now? Not just unread ones, all of them, including the ones in your Sent folder. Multiply that by the number of employees, and you can see that the volume of electronic records your business is accumulating quickly becomes staggering.
Word files, spreadsheets, emails, texts, and instant messages now dominate our work and our communications. Billions of electronic records can be inexpensively stored on a device that fits in your pocket. As the cost of data storage declines, the number of records that are being stored indefinitely continues to soar.
All of these electronic files or records are treated by the courts exactly the same as good old-fashioned paper documents. That means that if your business is sued, it must not only retain those electronic records, but it will very likely have to produce a great number of them to the opposing party. “Electronically stored information,” or ESI, includes all forms of electronic data that is relevant or potentially relevant to the lawsuit. This means word processing files, databases, emails, and even the text messages on your phone.
Does your business have the capability to reliably gather all of those records, review them, and produce them in a lawsuit? Litigation is already expensive, but the sheer volume of these documents has caused the cost of litigation to skyrocket because of the difficulty that is often involved in finding, reviewing and producing such a large number of records.
Unfortunately, this problem is likely to escalate in the future. It is therefore more important than ever for businesses to have a plan and a method for dealing with the mountains of electronic data that are now being produced and stored on a regular basis. Such a plan is called a records retention policy, and it is a vital part of your business. A good records retention policy will: (1) promote your business’s compliance with regulatory requirements for retaining documents (e.g., HIPAA, federal labor statutes); (2) reduce the “clutter” of unnecessary and outdated records; and (3) substantially reduce the cost and difficulty of litigation, should it occur.
A records retention policy defines which records must be kept, and for how long. It should also provide a mechanism for routine destruction of obsolete or unnecessary records. Finally, it must address how that routine mechanism is suspended in the case of litigation or anticipated litigation. This is typically called a “litigation hold.”
When your business is sued, or when you reasonably expect that litigation is forthcoming, your business has an obligation to retain records that are relevant to the matter. Your retention policy must provide a clear mechanism to ensure that relevant documents are not destroyed before or during the course of the lawsuit. Destruction of relevant documents can lead to serious sanctions, including a default judgment against you, fines, and paying the other side’s costs and attorneys’ fees.
To be effective, a records retention policy must be: (1) understandable and practical; (2) consistently applied; and (3) legally defensible.
First, the policy should be clear and practical to implement. If the policy is confusing or is too difficult for employees to implement and follow, it will never be consistently applied. To the extent possible, the policy should be automated. Because of the exploding number of electronic files, software companies are beginning to create new tools to help with the process. These may be worth exploring.
Second, consistent application of the policy is critical. Haphazard application of the policy will lead to inconsistent document retention or destruction, which, even if unintentional, could lead to disaster in litigation. Imagine how it looks to a judge if emails for a key witness are missing, while everyone else’s emails for that same period were retained.
Finally, the policy must be legally defensible. That means not only is it consistently applied, but also that its terms are reasonable for your industry. A policy that directs destruction of documents in an unusually short period of time might be viewed with suspicion. Of course, at a minimum, the policy must conform to general federal and state requirements for maintenance of tax records, employment records, etc., as well as any regulatory requirements that are particular to your industry.
In this day and age, it is imperative to include your IT personnel and legal counsel in crafting your retention policy, to make sure it meets the realities of digital data storage. Your IT personnel are likely to be directly involved in both implementing the policy and handling litigation holds. However, it is important that all employees are trained on the policy, including the litigation hold process. Implementing a records retention and destruction policy can not only help you manage all your data, but could save you thousands of dollars and countless headaches should your business end up in a lawsuit, arbitration, audit, or other proceeding.
Kevin Benson is an associate with Allison MacKenzie Law firm with primary focus in the areas of civil litigation, appeals, administrative and regulatory matters, election law, and ballot measures. He is a native Nevadan and former Senior Deputy Attorney General for the state. Kevin can be reached at 775.687.0202 or KBenson@AllisonMacKenzie.com.
Tiffiany Howard, a UNLV professor and recent Congressional Black Caucus Foundation senior research fellow, is the lead author of the study aimed at identifying ways banks can help support and invest in Black entrepreneurs.