Guide to Creating a Business Record Retention Policy in Virginia

Many companies have adopted records retention policies to set forth a routine document destruction process with specified dates upon which a document can be safely destroyed. 

Corporate Document Destruction Policy

Having a document destruction policy can protect against accusations of attempting to purge files of incriminating documents, and can allow a company to maintain regular order in its files. 

In some cases – especially with public companies and tax exempt/non-profit organizations, document destruction and retention policies are either mandated or highly recommended.

But corporate executives are often left wondering if they must keep every outdated letter, expired contract, or scrap of paper to avoid the risk of liability or the shadow of impropriety.  Depending on the document and industry, the answers may vary as there is no ‘one-size-fits-all’ document retention or destruction policy.

Is a Business Allowed to Destroy Documents?

It is reasonable to expect businesses to clean house periodically by getting rid of documents, deleting e-mails and clearing hard drives. But when is it safe to destroy business documents?  The answer is deceptively simple: It is permissible to destroy property, including shredding documents and deleting computer files, unless at the time of the destruc­tion there was a duty to preserve the property. 

What is a Duty to Preserve Documents?

A duty to preserve can arise from a contractual obligation or a regulatory requirement, and this duty is relatively easy to identify and satisfy.  However, a duty to preserve also arises when property is or could be evidence in a current, pending or reasonably foreseeable lawsuit.  “Spoliation” is the destruction of, or failure to preserve, property that could potentially be evidence at trial.  What constitutes spoliation is an unsettled area of law.

Litigation and Destruction of Evidence by a Company

Some courts do not consider destruction of potential evidence before a lawsuit is filed as spoliation, while others find a duty to preserve arises when a party should reasonably know that litigation is imminent. 

Some courts presume that document destruction pursuant to company policy is innocent, while others question whether a duty to preserve was triggered regardless of such a policy. 

The conservative course of action is to keep any document, whether a paper or electronic record, if the sole motivation of destroying the document is to prevent its discovery from a potential regulator or litigant.  Put another way: once there is concern a document could expose a party to liability, whether or not a lawsuit has been filed, it is too late to destroy that document. 

Penalties for the Destruction of Business Documents in Court

A party destroying a document after a duty to preserve arises runs the risk of court-imposed sanctions including dismissal of an offending plaintiff’s case or a default judgment against an offending defendant. 

While courts reserve these sanctions for outrageous cases, they often achieve the same result by imposing a spoliation inference or excluding evidence, which effectively tips the scales in favor of the injured party. 

A judge can instruct a jury that they can assume the destroyed document would have proven whatever an adversary claims.  Since the document is unavailable, the other party cannot use it to limit the scope of the damage.  What might have been a mildly embarrassing memorandum becomes the “smoking gun” proving any bad act an adversary may claim.

Guide to Creating a Document Destruction Policy in Virginia

Other considerations include preserving documents during a statute of limitation period (e.g., the five year statute of limitations concerning contracts or the 3, 7, 10 and indefinite statutes of limitations related to various tax documents).  Other issues include:

1) Is you record retention policy limits reasonable?

2) Is your policy applied uniformly?

3) Is your policy reasonably tailored?

4) Does your policy take into account administrative or regulatory record-keeping requirements (e.g., IRS, SEC, and OSHA )?

5) Was your policy adopted in bad faith or with the primary purpose to avoid preserving potential evidence?

6) Is your policy flexible enough to adapt when a duty to preserve arises?

And the list goes on.  If you require a review of your policy, or if you would like to adopt a record retention policy, we can help.

Corporate and Small Business Lawyer in Northern Virginia

With over 100 years of combined experience, we are seasoned professionals who are battle-tested both in the courtroom and at the negotiating table. Attorneys all over the mid-Atlantic refer clients to our firm, and as leaders in the bar we are selected by our colleagues to receive special recognition, year after year. Whether you need help with arbitration, a job loss, personal injury, divorce or perhaps your business is in trouble, Cook Craig & Francuzenko can help.