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Lax records management can be costly to business operators
There is an inherent risk in the absence of a business records management system, or a failure to understand what records can be destroyed and what cannot.
Warner Norcross & Judd LLP has launched a new practice group designed to help clients preserve, protect, access and maintain business records, no matter what format they are in.
The new Records Information Management Group designs, implements and oversees customized records retention programs for companies of all types and sizes, to ensure that they preserve key business records as long as necessary and practicable.
Not doing so could potentially have a company paying a high-priced legal team to spend hours sorting through boxes that might contain critical documents — along with old family photos and e-mail jokes left behind by long-gone employees.
Dawn Garcia Ward, the attorney in charge of the new Records Information Group at Warner Norcross, said she once represented a company that had agreed to lease a building it owned to another company. The problem was, the building housed many years worth of company records, and there was very little time to determine which could be discarded and which had to be moved to a new, secure storage site.
Unfortunately, there was "no rhyme or reason" behind the storage system.
"Thousands of bankers' boxes of records could not casually be thrown out or shredded without being reviewed," said Ward. "The company could not toss out records it was legally required to keep — records subject to law or regulation, or records related to current and foreseeable litigation. We knew these files were a mix of records that had to be kept and records that could be destroyed."
Ward was on that team of 10 attorneys and two paralegals who immediately went to work, sorting through all those documents — and it took about three weeks, which undoubtedly entailed a substantial fee.
If the company had had a process in place for managing its records and followed it diligently, that situation would never have occurred.
Another horror story in the world of records retention law was the $2.7 million fine levied against Philip Morris USA and its parent company in 2004. The United States government was in litigation in 1999 with the U.S. cigarette industry, and the court had ordered the parties involved to preserve all documents and records containing information that might be relevant to the case. However, Philip Morris was deleting e-mails that were more than 60 days old on a monthly basis, for at least two years after the order was issued. In 2002, the cigarette company realized it was not complying with the court order and notified the court. Philip Morris said the destruction of the e-mails was "inadvertent" — but had to pay the huge fine, anyway.
Ward said the $2.75 million fine is "definitely a reason to follow your litigation hold. You just can't continue to destroy documents or hide documents" once a litigation hold is obvious.
A "litigation hold" is a point in time when it becomes evident that litigation could possibly be forthcoming. In very general terms, discovery law states that any records pertaining to potential litigation may not be destroyed.
"We really want to keep your business moving forward and that’s the whole point of creating a procedure and a process (related to managing records), before you get in litigation," said Ward. That process enables company management to understand "how you can continue to do your everyday work and, at same time, comply with a discovery request and litigation hold."
Ward joined Warner Norcross as senior counsel last September, in the firm's Holland office. Prior to that, she was a senior attorney with Butzel Long in Holland. She has also worked with other firms in Holland and in Albuquerque, N.M., and her legal work in records retention goes back about 10 years.
The new Records Information Group at Warner Norcross includes a wide variety of legal experience, including environmental law, insurance, employee benefits, health care, litigation and practice areas related to records retention. Ward noted that one such area is discovery, which is represented on the Records Information Group by attorney Kurt Dykstra.
Discovery is that part of the pre-trial litigation process in which each party requests relevant information and documents from the other side in an attempt to "discover" pertinent facts. Although it is a "request," the request cannot be denied if the judge determines that the document in question is probably relevant to the case.
Many businesses generate records that could be the subject of discovery. Those include accounting, human resources, employee benefits (including health care information), information technology, environmental, product development, purchasing, sales, shipping and transportation.
“There is no such thing as ‘one size fits all’ when it comes to records management,” said Ward. “There are literally thousands of federal and state laws that govern record retention and destruction."
She said a business with operations in Europe also will be bound by a different and often stricter set of guidelines.
Add to this the proliferation of e-mail and electronic records, and it is obvious that many businesses have extensive records of which they are hardly aware, while at the same time they may have no formal policies for managing those records — or if they do, not all employees adhere to those policies.
Ward said the records group at Warner Norcross will set up a retention schedule, which spells out which things to keep and for how long. Many records can be legally destroyed after a certain amount of time, as long as those records are not subject to a litigation hold. Some items are considered "archival" and should never be destroyed, while other documents have a useful shelf-life. In the short shelf-life category are many of the e-mails a company receives every day.
Ward said her experience in records retention law has usually involved manufacturing companies, generally because those kinds of businesses have large numbers of employee records, and accidents or injuries are more prevalent in a factory than, say, a candy store. But "it's not limited to manufacturing companies. It's really any company that keeps records," said Ward.
"If you're a highly regulated industry, you need to keep those documents," said Ward. "Whether it’s for litigation or not, you have a certain timeframe that the government requests you to keep those documents," she said.
Government regulations might require some documents to be kept as long as 30 years, said Ward. Those might include records of employees' exposure to asbestos or other hazardous conditions.
There are also statutes of limitations that can extend the amount of time records must be kept. In product liability issues, one might assume that a record need only be kept for the normal lifespan of the product in question, but Ward said there may be a statute of limitations that doesn't start the clock until a product defect is noticed, or the product harms someone. Some office furniture manufacturers, for example, have been sued for injuries involving chairs or filing cabinets that are 30 or 40 years old.
Ward said her team will try to determine a product life span, and then add the statute of limitations to arrive at a point in time when the documents can be disposed of.
"Our team has extensive expertise in developing programs tailored to a company’s size and industry," she said. "We work to develop systems that are cost effective and operationally efficient, allowing businesses to have convenient access to their records without wasting time — or money — in trying to track down key pieces of information.”
She said a good records management policy includes key elements such as e-mail and other electronic recordkeeping, assignment of responsibilities for managing records, provisions for storage and protection of vital records, a formal hold policy, destruction of records, training and audits. There may also be a need to apply the European Union Directive on Data Protection (95/46/EC).
“Records are a key resource for any company,” Ward noted. “On a day-to-day basis, you want to be able to access them as quickly and efficiently as possible. This is particularly true when it comes to litigation, which can be a huge drain of time and resources on any business."
She said the establishment of a records management system, with the help of the Warner Norcross group, will vary in cost, depending on the size of the company and the type of records. A very basic plan for a very small business might cost as little as a couple of thousand dollars, but a highly detailed plan for a large company with complicated records could cost more than $100,000.