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Document Retention Policy Basics Image

Document Retention Policy Basics

Posted by: Kaitlin M. Pals

What is a document retention policy?

A document retention policy is a plan outlining (1) what sorts of documents the operation will keep, (2) how they will be stored, and (3) how and when they will be destroyed.

Why is a document retention policy important?

Documents can be key evidence in a lawsuit, and are often the most cost-effective way to prove a fact.  A text message or e-mail from the opposing party may admit facts critical to a lawsuit—and do so far more cheaply than hours of depositions to get the party to verbally admit the same facts.

Document retention policies can also protect an operation when a document cannot be found or has been destroyed.  Typically, if you intentionally destroy a document and it turns out it would have been evidence in a lawsuit, the “spoliation doctrine” allows a judge or jury to presume the document would have hurt your case.  However, if the document was destroyed in the ordinary course under a document retention policy, the spoliation doctrine usually does not apply.

What documents should be included?

Documents are not just physical, paper letters, contracts, invoices and receipts.  E-mails, text messages, spreadsheets and ledgers, photos, PDFs, and output from proprietary software are all documents that need to be evaluated as part of a document retention policy.  Consider organizing your policy by department or function—for example, create separate lists for Human Resources/employee records, production records, accounting, and so on.

How should documents be stored?

Unless a government agency specifically requires the operator to keep the original paper copy, most documents can be stored electronically.  However, the electronic storage method must be able to accurately reproduce the original document, and have sufficient security measures in place to demonstrate that the electronic copy was not altered or tampered with.

On the other hand, storing paper copies can be cumbersome, and it can be much more expensive and difficult to maintain a “back-up” at a remote location in case of fire, flood or other destruction.  Most operations find a happy medium that is right for them, relying on electronic storage for some documents but keeping paper originals as a back-up for their most important documents.

How long should documents be kept?

Some documents should never be destroyed.  These documents include corporate records, such as meeting minutes, by-laws or operating agreements and resolutions.

Most other documents should be kept based on how long a government agency requires you to keep them, or how long they could be relevant to a lawsuit.  For example, the FDA requires veterinary feed directives to be retained for two years.  As another example, the IRS can typically audit tax returns for up to six years, so most experts advise that a business retain tax documents and supporting records for at least seven years.

Critically, if you become aware of a potential lawsuit against your operation, immediately halt all document destruction.  Once you believe you are going to be sued, destroying documents as part of your ordinary document retention plan will not protect you.

Action Items:

  1. Create a list of the documents your operation uses, organized by department or function (e.g., Accounting, HR).
  2. Work with your legal counsel to determine how long each type of document should be kept.
  3. Provide written copies of the policy to key staff. Depending on the size of your operation, charge one employee, or one employee per department, with the task of making sure the policy is carried out.
  4. If someone threatens a lawsuit, stop destroying documents immediately, even if you’re just following your document retention policy. Don’t start destroying documents again until your attorney tells you it is safe to do so.

This information is general in nature and should not be construed for tax or legal advice.