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When Should a
Business Destroy Old Records?
Introduction:
Since Watergate, the
destruction of records and notes has assumed an aura of wrong doing that
is, of course, usually utter nonsense. No business (or individual) can
afford to keep the vast amounts of documents and papers that accumulate
over the years and at some point must routinely and efficiently destroy
the archived papers. Certain documents, by their very nature, must be
kept longer than others but the creation of an intelligent and
appropriate method for destruction of old records is a vital part of
every business’s day to day business.
A new industry has
arisen over the past two decades which allows companies not only to
store old paper documents off site, but to scan and store all such
documents electronically, thereby saving space and often allowing easier
access. This has resulted in an additional question (should the paper
documents thus be destroyed sooner or at all?) and the more basic
question as to whether this means all documents should be scanned and
maintained indefinitely.
The question still
remains as to whether it makes sense to retain, in perpetuity, documents
that are unlikely to ever be used and which may often contain
confidential or private information that could cause concern to
customers, employees, or the company. That is a vital question that each
company will have to determine and determine after careful thought as to
the purpose…and the dangers…of such storage. It is a sad fact that such
vital decisions are often made by default…or never made at all. As one
client put it, “Pack rats have nothing on us. If we make it, we keep it
and we keep it forever. That doesn’t mean we can find anything…but we
know it’s there.” Does that make sense? This article shall discuss that
issue.
This should not be
confused with the destruction of evidence that may be of import in a
case or audit which, itself, can be a criminal act. The moment it is
reasonable to assume a document is an important piece of evidence, it
must be set aside and saved from any destruction.
When and how to
determine what documents to destroy is the topic of this article.
The Basic Determination:
Corporate document
destruction has a negative connotation, and some companies find
themselves paralyzed into inaction as a result. But not destroying
documents can be detrimental to a company, as well.
In the
administrative life of any corporation, document destruction is a
necessary and important function. Companies need to destroy documents,
just as they need to do any number of other administrative tasks that
relate to the efficient operation of the company. No company needs to
live in an environment in which employees are expected, literally, to
retain every piece of paper that ever crosses their desks. It's just not
efficient; it's not practical--there are costs associated with that, and
there are risks associated with that, risks that we have dealt with
directly.
When one is
litigating a case, if there is a policy of keeping every document or
many, many documents and of never throwing anything away, it can
dramatically multiply the costs of discovery. When confronted with a
very broad discovery requests that say, "Give us every document relating
to 'X'," and "X" is something like, “the company's business”, and you
have retained all these documents and they are kept in off-site storage
or they are on electronic servers, the cost of reviewing that
information and producing it can be staggering. And so one of the
benefits of having a policy not to preserve everything, is the cost
associated with preserving everything.
There are also risks
in litigation with keeping documents long after they have any beneficial
use within the company. Oftentimes, in litigation, the most troubling
documents can be those that were created by employees who have
long-since left the company and who are no longer around to interpret
what they meant when they said "X" or "Y." And when those documents were
created in the ordinary course of business, but there is no particular
need to keep them, because they relate to long-since outdated things,
and there is no real value to them, it is a legitimate question for a
company to ask itself--does it really need to be keeping documents?
These are documents that can serve no beneficial purpose, but can
potentially, in litigation, add cost and complexity and raise perhaps
unnecessary questions to which there are no good answers, because the
people with the direct knowledge are no longer available.
On the other hand,
there are many important reasons that one may need to keep documents.
Virtually all companies, in some respect or another, are affected by
regulations--federal, state, local, and increasingly international--that
relate to preservation of records for some purpose or another. There are
also business needs for keeping documents. There are documents that have
ongoing value, or that maybe are of historic value to companies, and it
is important to make certain that those sorts of things are being kept
for business purposes or other purposes.
In short, some
documents should be kept but not all documents and a plan must be
established to determine what documents are kept for how long…and why.
THE SYSTEM:
Given that there is
reason to keep records and there is reason to destroy records, it can
become somewhat complicated to put in place a policy that creates some
sort of systematic program that informs employees as to
what it is they should keep and what it is they should discard or that
they are free to discard.
Creation of the
policy should be a joint effort of both the business managers and
the legal and accounting departments of every company. Lawyers and CPAs
will have their own criteria as to what should be kept and what
destroyed and only after their input is received should a policy be
created. Of course the business managers and regulatory managers will
also have their own list of documents that are vital to retain.
The rest should be
routinely destroyed after a set period of time, usually three to five
years, with the policy kept in writing in a secure location so that
later claimants can not allege that the company wantonly destroyed a
particular document in an effort to merely hide evidence. If the company
normally destroys X document in Y time, such a charge will not be taken
seriously by most triers of fact.
Equally true, the
policy should apply to the destruction of electronic documents and for
this process the IT department should be consulted and utilized. It
makes little sense to destroy paper versions of a document if the end
result is merely having to recreate them from electronic versions once
discovery in some case is begun. Thus, the policy should indicate what
type of medium is to be retained; destroyed; or if paper is to be
destroyed (to gain storage area) but electronic to be kept for future
use.
Creating such a
policy is not an easy task. It becomes a complicated thing to do because
you do need to make sure you are complying with the law; you do need to
have a policy that is sensible--that is sufficiently comprehensive that
it really does cover all the bases and that is intuitive and easily
understandable for employees. The last thing you want is to implement a
records retention policy that employees are not going to take seriously
because these policies are being scrutinized increasingly in litigation.
And if it is a policy that looks like a policy only "on paper," but it
does not really function like a policy that is respected by employees,
then it is going to be disregarded. And the risks of putting in place a
policy like that can dramatically outweigh the benefits.
The company must be
serious about creating and implementing the policy. The policy has to be
based on legitimate business concerns and it has to be done cautiously
and with safeguards to make sure that you do not inadvertently destroy
things that should not be destroyed.
It is vital to avoid
written instructions or policies that can be misinterpreted in a manner
to make it appear that the company is seeking to merely hide evidence or
avoiding audits. The instructions themselves should indicate the real
purpose-to avoid mountains of useless paper-and carefully instruct the
employees not to destroy any document within the specified categories
such as:
1. Documents needed
for legal or regulatory record keeping.
2. Original
contracts or understandings of any
kind.
3. Letters
concerning disputes when the statute of limitations has not run.
4. Documents
pertaining to ownership or rights of owners in the company.
5.
Corporate or LLC records and
certificates.
And originals of any
kind of license, permit, etc.
Lawyers, CPAs and
all mangers will add to the list of what documents should be retained
and for how long.
Recall also that
electronic records are equally important to scrutinize and delete over
time. The policy needs to be done with a careful eye to records that are
created and maintained in an electronic form.
Conclusion:
The steps are both
necessary and should be taken pursuant to a written policy:
1. Have
input from legal, accounting and mangers.
2.
Create a system of routine destruction of old records.
3.
Double check as part of the system to ensure no destruction of certain
categories.
4. If
suit or audit appears reasonably likely, immediately pull those records
out from routine destruction.
5.
Review the policy every three to five years to update it.
6.
Assign someone the task no less than annually to make sure the policy is
being followed and to report any failures to implement it properly.
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