Is It Time To Clean Out Your File Cabinets?

How long should you keep your business records? Many business owners are unsure about what records they are required to keep, and for how long. As a result, many businesses keep nearly every document until they simply run out of room.

But holding onto your records for an indefinite period of time can put your business at risk. Old records can be used as evidence in subsequent litigation and can be taken out of context by an opposing party. Your records may also become a target in litigation. Distributors involved in welding fume litigation have learned firsthand that one of the reasons they are being sued is to gain access to their records so that plaintiffs can prove which manufacturers’ rods were sold to plaintiffs’ employers. As a result, many distributors involved in welding fume litigation have spent countless hours retrieving decades worth of sales records at significant cost. In the litigious society we live in, every business, large and small, should have a document retention policy.

What Is A Document Retention Policy?
A document retention policy is simply a written policy to govern how documents are kept at your business. It should describe what types of documents should be kept, how they will be kept and for how long. It should cover written and electronic documents, including e-mail. It should also designate the person responsible for implementing your document policy. Lastly, it should describe when and how records should be destroyed.

Why Does My Business Need A Document Retention Policy?
A document retention policy has several advantages. First, it will enhance efficiency by eliminating the storage of unnecessary records. It will help you make sure that you are in compliance with federal and state laws and regulations. A document retention policy can also protect you in litigation. Simply put, a document retention policy allows you to systematically dispose of records. Destroyed records cannot be subpoenaed or used against your business in litigation.

What Sort of Records Should a Document Retention Policy Cover?
The short answer is every record used in your business, whether in written or electronic form. In addition to transactional documents, the policy should cover internal and external correspondence, including e-mail, employee records, accounting and tax records, bank statements, legal documents and insurance documents.

How Long Should I Keep My Records?
It depends upon the type of record, but the short answer is no longer than necessary. Any record you do not need should be disposed of pursuant to your document retention policy as soon as it is prudent to do so. Again, unneeded documents take up valuable space, and records cannot be subpoenaed or used against your business once they are destroyed.

There are no hard rules governing the length of time you must keep most records that are not subject to a litigation hold. Some records should be kept permanently, such as financial statements, tax returns, corporate records (minutes, shareholder records), legal documents (deeds, patents) and debt obligations (notes). Contracts should be kept for as long as the contract is in force, plus the period of time equal to the applicable statute of limitations after the contract has been completed. Most other documents need not be kept longer than three to seven years. Consult an attorney if you have questions regarding how long to keep your records.

Litigation Hold
The exception to any document retention policy occurs when you receive notice of litigation, an investigation or subpoena. This is commonly referred to as a “litigation hold.” You cannot destroy records that are subject to a litigation hold—even pursuant to a document retention policy. Once your business is given notice of pending or threatened litigation, a subpoena or investigation, you must immediately preserve any and all records that could be subject to the litigation or investigation. Your document retention policy should describe how your business will preserve records that are subject to a litigation hold. It is important to include policies to ensure that electronic documents, such as e-mail, that may be subject to a litigation hold are also preserved. This is important because many companies have e-mail servers that automatically delete e-mail after a certain period of time.