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Mar 2002
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March 01, 2002

What Businesses Should Know About Document Retention

With recent headlines regarding the accounting industry and the major bankruptcies, many businesses have become more cognizant of the legal issues surrounding the retention and destruction of documents. Having the right documents can help your business win a lawsuit, but failing to produce the proper documents to a government agency may result in penalties. A properly drafted document retention policy will allow a business to legally destroy certain documents, and to retain and manage other necessary documents.

Documents in the Electronic Age

Traditionally, businesses have developed policies to destroy useless records in order to free up filing space, reduce the staff required for managing information, and speed the retrieval of information. In the electronic age these concerns are lessened since whole boxes of information can be stored on a single CD-ROM.

However, merely saving every document in electronic format is not the answer; there are certain documents your business may not want to save. But destroying records without an established document retention policy is not the answer, either. If you destroy the wrong documents your business may face harsh legal consequences.

To avoid these pitfalls, businesses should adopt a sound document retention policy that provides for the effective electronic storage and destruction of records. Not only will such a policy provide you with a way to properly manage electronic documents, the policy will ensure compliance with the appropriate legal standards.

Legal Retention Requirements

There are many laws and regulations that specify which records your business must retain, and for how long. These laws affect all records – whether in electronic format or on paper.

There are hundreds of very specific federal and state regulations relating to document retention, and the requirements vary among industries and even different companies in the same industry.

The following is a very brief list of laws requiring document retention. The purpose of this list is not to advise, but to just give you an idea of the breadth of document retention regulation.

  • Retirement Plans. Any business offering employees retirement programs like a pension or 401(k) plan is subject to records retention regulations under the Employment Retirement and Income Security Act (ERISA).

  • Consumer Products. Businesses involved in the production of certain types of consumer products may be subject to document retention regulations under the Consumer Product Safety Act.

  • Imported Goods. Businesses that import goods may be required to retain certain documents under the Tariff Act of 1930 and the North American Free Trade Act (NAFTA).

  • Employee Records. Among other employee records, any business with employees seeking family or medical leave must retain certain documents in accordance with the Family and Medical Leave Act.

  • Environmental Records. Any business involved in hazardous waste or the production, processing, or storage of certain chemicals must retain certain documents in accordance with state and federal environmental laws.

  • Health and Safety. All businesses are subject to numerous document retention requirements dictated by the Occupational Safety and Health Administration (OSHA).

Businesses should also understand that the disclosure of certain documents may violate federal or state privacy laws. A document retention policy is necessary to make sure the correct documents are saved to meet legal requirements, and the wrong documents are not disclosed to third parties.

Documents in Litigation

In addition to the numerous state and federal laws regulating the retention of documents, businesses should also consider the possibility of litigation in formulating their document retention policies.

Having the right document in a lawsuit may win judgment in your favor. Not having the right document can cost you the case. Your opponent may discover an old and possibly damaging document that could have been destroyed earlier under a document retention policy. But beware – if you destroy a document at the wrong time, such as after the receipt of a subpoena requesting the document, a court may presume that you destroyed it with an improper motive, leading to harsh sanctions.

Court-ordered discovery of electronically stored records has exploded in recent years, making it all the more important to apply your document retention policy to e-mail and other electronically stored documents.

Although one of the more mundane aspects of any business operation, proper record keeping can prove to be a great asset to your business, while improper document retention can result in heavy liability. Every business should consider establishing or updating an effective document retention policy. The best way to do this is to meet with an attorney to discuss your business activities and needs. Then, a document retention policy can be constructed that insures compliance with state and federal law and adequately plans for future litigation.

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Daniel P. Lennington is an associate in the Grand Rapids office of Warner Norcross & Judd. He may be reached directly at 616.752.2726. Because each situation is different, this information is intended for general information purposes only and is not intended to provide legal advice.

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