Knowledge Center

Friday, July 15, 2011



Keith H. Berk, Hal J. Wood, and Stavros S. Giannoulias


Some of us are "pack-rats" - we can't allow ourselves to throw things away because of the off-chance that they may come in handy one day.  Others of us are "clutter freaks" - those of us who need to immediately throw away (better yet recycle) things.  While these concepts are generally thought of as paper issues, they are in fact even more relevant in the electronic age.

When it comes to running a business, particularly in today's age where most documents are created and stored electronically, you need a records retention policy that applies not only to your paper records, but also to electronic documents and information.  Saving everything (being a pack rat) or purging everything (being a clutter freak), is not the answer.


Why Businesses Must Have A Written Records Retention Policy, and Follow It

The best practice is a formal, written records retention policy that is easy for everyone in your organization to follow.  Your policy should include uniform filing and storage procedures so that business records are easily filed and retrieved.  Your policy should also include a records destruction policy, including all electronic data and metadata.  In addition to helping your business function efficiently, such procedures will make it easier for your organization to timely and efficiently defend or prosecute litigation claims, defend tax claims, and respond to subpoenas, audits and regulatory inquiries.

Courts recognize that it is impractical to require companies to keep every piece of paper, email or electronic document.  The results of not having records could be harmful, including judges instructing juries that they may presume missing information has been intentionally destroyed.  On the other hand, a company that retains every draft of every document and all emails is likely to be its own worst enemy. 

Consistency is the key.  Federal and many state court rules contain "safe harbor" provisions for companies that fail to produce records because the records no longer exist due to a sound records retention policy enforced in good faith.


Some Basic Principal's of a Good Business Records Retention Policy

Aside from industry specific regulations, there is no magic formula for what constitutes an appropriate records retention policy.  Here are a few basic records retention principals that are applicable to most businesses:

Business Records Generally.  Management should define what constitutes business records.  If your company has central servers where business records are stored, create electronic indexes or folders and procedures for uniform filing of records.  Do your employees work on desktop computers, personal computers, iPads, smart phones, etc.?  If so, employees should save business records on the company's central servers or operating systems; not on their individual desktops, personal computers, etc.

Retention/Destruction.  The length of time for keeping records depends on the functional and legal requirements of your business.  The following are a few basic principals of retention and destruction:

  1. Draft and duplicate documents should be disposed of as soon as they have served their purpose and are outdated by final/execution versions of the same document.
  2. Non-business related and personal documents and correspondence (including emails) should be disposed of promptly.
  3. Emails, letters and memos should generally be retained for as short a period of time as necessary.  Retaining these items indefinitely generally causes more harm than good.  Consult with your attorney for your specific business and legal needs.
  4. Tax records should be deleted after three to seven years.  Consult with your tax advisor for more details.
  5. Never delete or destroy documents (electronic or paper) once a preservation duty is triggered (e.g. upon the filing or reasonable threat of a lawsuit or audit inquiry) even if you should have deleted them long ago had you been following your document retention policy procedures.  Forensic analysis can usually determine the date of deletion of documents, if not recover them altogether.
  6. Follow your records retention policy.  Even the best records retention policies are worthless if they are not followed and uniformly enforced.  Compliance is critical and it starts at the top of an organization.

Litigation Holds.  All organizations are subject to a duty to preserve information, including electronically stored documents and information, upon notice of litigation or a reasonable threat of litigation.  In such instances, companies are required to implement "litigation hold" procedures - measures designed to suspend ordinary document deletion/destruction protocol and identify the key holders of electronically stored information that should immediately be preserved.


Limit Your Costs and Risk By Being Proactive

Making sure your organization has a simple and easy to follow records retention policy is a must in today's age of electronically stored information.  Being proactive will increase the ability of your business to comply with legal obligations, and significantly limit risk in the event of litigation.  If you do not have a written document retention policy, now is the time to create one!

© 2011 Keith H. Berk, Hal J. Wood and Stavros S. Giannoulias of the law firm of Horwood Marcus & Berk Chartered, Chicago, Illinois. 

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