By Douglas B. Large, Partner
April 2014
Both must be addressed. The quandary over if, when and how to deal with the explosion of business information, especially electronically stored information (“ESI”), is a significant issue without a universal solution. What is critical is that each business recognize its need to develop effective policies and procedures now.
In short, your company’s records management policy should include procedures for both record retention and the deletion of records that are no longer necessary for business purposes. The objective of a good records management policy is first and foremost to identify those records which must be retained for a specific reason and/or certain period of time and to destroy those that need not be. Generally, the preservation of business records is advisable for one of three reasons: (1) on-going business needs, (2) regulatory compliance; or (3) the spectre of potential litigation.
Development of a comprehensive plan for such required data retention must be addressed by senior management, with the assistance of either inside or outside information technology (“IT”) personnel. This is not an easy task. It requires a review of all types of company records, which should be grouped (e.g. banking, financial, personnel, etc.) and then scheduled for retention pursuant to one of the three business needs identified above. Once established, such procedures require constant maintenance by IT personnel who should be using archiving software to create and manage a central repository of company information, especially ESI. When such policies and procedures are in place, company records can be reviewed annually to determine which may no longer be necessary to retain and can safely be discarded.
To help ensure your company’s compliance with legal obligations, it is important that any records management policy contain preservation obligations for all relevant information whenever your business reasonably anticipates the initiation of some legal proceeding or governmental investigation. This obligation is triggered when any of your employees becomes aware of the potential for such a proceeding. Appropriate policies should be in place to require your general counsel’s or your outside legal counsel’s involvement to determine the need for and scope of any such preservation obligation. It is likely that your legal counsel will immediately recommend the issuance and circulation of a “litigation hold” letter to all document custodians to ensure relevant information, including ESI, is preserved. Your legal counsel will also likely instruct you and your IT personnel to suspend any document destruction policies which may be in place concerning such records.
Putting aside the need to preserve all information relevant to threatened legal or regulatory proceedings, it is also important to include in your records management policy the goal of eliminating records and information that no longer have any value to your business. As above indicated, it is advisable for your business to create and maintain a central archive for the efficient storage of business data. Assuming the use of modern archiving software, this central repository can (1) automatically delete obsolete and duplicative information, (2) decrease your company’s data storage costs and (3) also reduce legal risks by removing information management and destruction decisions from lower level employees. In addition, such a routine procedure can exploit the statutory exemption for liability for the destruction of ESI, pursuant to California Code of Civil Procedure § 2031.320(d). That section expressly provides businesses with a “safe harbor” for ESI which has been “lost, damaged, altered or overwritten as the result of the routine, good faith operation of an electronic information system.”
The bottom line is that most small to medium–sized companies have inadequate records management policies and procedures. The risks presented to your business by the absence or outdated nature of such policies can no longer be ignored.
Douglas B. Large, Partner
DLarge@BFASLaw.com
(Direct) 805.966.7757
This Advisor is one of a series of business, real estate, employment and tax advisories prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this Advisor.
