Record Keeping 101: A Guide to Document Retention Policies and Record Keeping Requirements

RECORD KEEPING 101: A GUIDE TO DOCUMENT RETENTION POLICIES AND RECORD KEEPING REQUIREMENTS

DEVELOPING A DOCUMENT RETENTION POLICY
1. What is a “Document”?
  
  Documents include physical records (i.e. paper copies), as well as e-mail, webpages, and other electronic files.
2. Why Do You Need A Document Retention Policy?
  1. Legal compliance
    
    Many federal and state laws contain recordkeeping requirements. In addition to specifying what records must be kept, these requirements may also dictate how the records must be kept and for how long. A good document retention can help comply with the law as well as promote efficiency by eliminating unnecessary information.
  2. Business risk
    
    In addition to assisting with compliance with specific legal requirements, a good document retention policy can help reduce general business risk by identifying documents that are important and should be preserved in order to protect the business in the event of litigation, audit, employee disputes, and other matters where documents can be used to support or oppose a particular position.
3. Where Do You Start?
  
  Designing and implementing a document retention policy can seem daunting and can lead to simply ignoring the task. However, breaking the effort down into manageable steps can make the process easier.
  1. Identify Critical Participants in the Process.
    
    It is important to first identify the key people who will be involved in the design and implementation of the document retention program. This allows the different types of documents that the company generates to be identified, as well as what document retention procedures are currently in place. Representatives from human resources, information technology, and administration would normally all be involved in the design and implementation process.
  2. Sort Documents Into Categories
    
    Sorting documents into manageable categories can make the document retention process less overwhelming. Categories or sub-categories could include documents that are presently existing and those that will be created in the future, documents that are in hard copy and those in electronic form, and documents related to business unit or function, such as sales documents, human resources or employee benefit documents, accounting records, etc.
  3. Analyze Key Issues
    
    Once the universe of documents has been identified and categorized, the essence of the document retention program, namely, how long to keep a document, when and how to store a document, and how to dispose of the document can be determined. The following key questions can assist in determining specific document retention policies.
    1. Does the law require retention of a particular document?
      
      As mentioned above, numerous federal, state, and local laws may impose mandatory record keeping requirements for certain classes of documents
    2. What current purposes does the document serve and could it be used for other purposes in the future?
      
      Documents that have served their intended purposes in the present may still be valuable for future purposes, such as supporting or opposing a position in an investigation or litigation, supporting a tax deduction, or explaining a business decision.
    3. Will there be adverse consequences if a document cannot be located in the future?
      
      A company will likely encounter various lawsuits and audits from time to time and the ease of accessibility of documents is an important consideration. The destruction of records pursuant to a reasonable document retention program is unlikely to have an adverse impact on litigation that was not pending or threatened at the time of destruction. However, destruction of a relevant document while litigation is pending or threatened is likely to be construed against the company, with potentially serious consequences. Therefore, document retention policies need to have a system to identify potential disputes and protect relevant documents.
    4. Can a document be obtained from other sources?
      
      Multiple copies of a document may exist within the company or it may be available from another source.
4. How Long Should Documents Be Stored And Where?
  
  Many federal and state laws impose specific time requirements for the retention of certain documents. However, it is also important to evaluate applicable statutes of limitation that govern the time frame in which actions may be brought by or against the company. Statutes of limitation vary not only based on the nature of the action (such as a lawsuit based on breach of contract versus a claim for employment discrimination) but also from state to state. In many cases, the statute of limitation period exceeds the specific legal period that the document must be kept.
  
  There are a number of laws, such as the Americans with Disabilities Act (“ADA”), the Family and Medical Leave Act (“FMLA”), and the Health Insurance Portability and Accountability Act (“HIPAA”) that restrict an employer’s access to, and storage and use of, employee medical information. Under the ADA, employers are required to maintain an employee’s medical condition or history on separate forms and in separate medical files that must be treated as a confidential medical record. Under FMLA, medical information gathered for purposes of administering the law must be maintained as confidential medical records in separate files or records from the usual personnel files. For employers with operations in the European Union, the European Union’s Data Protection Directive sets stringent restrictions on collection and storage of personal information.
  
  Employers should maintain a separate personnel file for each employee and only certain information with respect to an employee should be kept in the personnel file. Other information should be maintained separately. For example, the kind of information that should be kept in personnel files is information that has a bearing on qualifications, hiring, transfer, promotion, discipline, and discharge, such as employment applications, resumes, performance evaluations, compensation change records, etc. Records that should not be in personnel files are those that are not relevant to employment decisions, such as EEO information, medical records, workers’ compensation records, family medical leave records, detailed pay and benefits records, and insurance records. Keeping this information separate from an employee’s personnel file lessens the risk of a contention that the information was used improperly in making a decision regarding the employee. Supervisors sometimes maintain their own “private” files with respect to the employees they supervise. These files, which often contain notes and other information that is not in the formal personnel file, almost always work against the employer and the keeping of such files should be strongly discouraged.
5. Email
  
  Email is one of the places that inappropriate or damaging information is most often found in employment and other disputes. This may be due to the common, but inaccurate, perception that once deleted, email is gone forever. It may also be because people are much more casual in their use of email than they are when writing a letter or memorandum. It is important to educate employees that email must be used in the same way as other business correspondence and inform them that they should assume that any email they send is a permanent record that will be likely discovered in the event of a lawsuit.
  
  Establishment of an email policy can help reduce the inappropriate and potentially damaging use of email. A good email policy should prohibit the sending of email that would violate the company’s ethics, discrimination or harassment policies, such as sending sexually explicit or racially derogatory email, prohibit reading or accessing email directed to others, establish the company’s right to review and retrieve email, and place limits on the use of company email for personal purposes.
  
  As with any other document, the length of time email should be kept depends on its content and should be evaluated accordingly. It is common, however, for employees to not be particularly diligent with respect to deleting email that no longer needs to be retained. Limiting the amount of memory available for saving email can force email users to delete or move less important email in order to make room for new email. It is important to emphasize, however, that until the hard drive is destroyed it is often possible to retrieve deleted electronic records.

APPENDIX

SUMMARY OF DOCUMENT RETENTION REQUIREMENTS

General Business Records

Type of Record	Suggested Retention Period

Intellectual property documentation	Permanent

Corporate records such as articles of incorporation, bylaws, minutes of meetings, stock registers, etc.	Permanent

Ethics-related documents, such as communication/ hotline logs, bulletins, and reports	Indefinite (review every 5 years)

Facilities records:
Acquisition or construction data	Indefinite (review every 10 years)
Appraisals	Indefinite (review every 5 years)
Leases	Permanent
Maintenance/repair records	Five years
Plans and specifications	Until superseded
Property management data	Indefinite
Finance records:
Acquisitions/Divestitures
Data for acquired/divested	Permanent
Data for nonacquired/ nondivested	Five years
Banking
Bank statements, reconciliations, deposit slips, cancelled checks.	Seven years
Accounting
Accounts payable	Seven years
Accounts receivable	Seven years
Audit reports	Seven years
Chart of accounts	Permanent
Expense records	Seven years
Annual financial statements	Permanent
Monthly financial statements	Three years
General ledger	Permanent
Inventory records	Seven years
Loan documents	Seven years after final payment
Purchase orders	Seven years
Sales records	Seven years
Tax
Tax returns	Permanent
Supporting documentation for items of income and expense	Four years
Insurance
Expired Policies	Permanent
Other insurance related documents such as claims for loss/damage, accident reports, appraisals etc	Three years

Employment-related Records
1. Statute of Limitations
  
  Various federal and state statutes and regulations provide specific guidance as to how long records must be maintained
  
  In many cases, it is advisable to retain records for a longer period of time, such as the applicable statute of limitations period. The general statute of limitations for actions on a contract is six years in Oregon and Washington, although with respect to oral contracts in Washington, the stature of limitations is three years. Actions for injuries to persons or property are generally subject to a two year stature of limitations in Oregon and three years in Washington.
2. Specific document retention regulations applying to employment
  
  If you would like guidance as to specific regulations regarding various employment documents or practices, please contact one of our attorneys.

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