Could Your Electronic Records End Up Sinking Your Business?

December 27, 2007

Does your business have an official policy for the retention and destruction of your electronic information? If not, it should. No business wants to be involved in a lawsuit under most normal circumstances. However, the reality is that whether or not your business gets sued is often beyond your control, and sometimes bringing a claim on behalf of your business is inevitable. If you do any substantial business outside of the Commonwealth of Pennsylvania, you could end up in federal court. And if you end up in federal court, your electronic business records had better be ready for it.

It is no secret that most businesses have kept their records electronically for years. For years, courts tried to resolve disputes over the production of electronic data on a case-by-case basis. After years of trying to fit new technology into old rules, on December 1, 2006, the Supreme Court of the United States put into effect new discovery rules addressing the growing expense and inconsistency in the production of electronic data. With the prevalence of the electronic storage of business records, state courts are likely to follow the lead of the federal courts in the not-too-distant future.

As a result of the new amendments to the Federal Rules of Civil Procedure, every company—including yours—has a new obligation to ensure that it preserves and manages its electronically stored information ( ESI ). Under the Federal Rules, you must produce your ESI (which can be emails, graphs, charts, photographs, sound recordings, images, spread sheets, accounting data or any other data compilations) to the other parties in litigation. Litigants must preserve potentially relevant ESI, which includes not only the file created, such as a letter or report, but also the metadata about that file, such as where it is located in the computer, its size, who created it, and its history.

Consequently, companies now must learn to better manage their ESI in order to respond to discovery requests in a timely, yet least expensive and burdensome manner. A records retention and destruction policy and schedule, with key ingredients shaped to the individual needs of the company, is necessary. Waiting until a subpoena is received will be too late.

To evaluate your company s electronic data readiness, answer these basic questions:

  1. Do you have a written records retention policy that covers paper, electronic data and e-mails?
  2. Do you have a written records destruction policy that covers paper, electronic data and e-mails?
  3. Do you have a handy records retention schedule that summarizes those written policies?
  4. Can your computer software systems efficiently isolate or collect electronic data concerning a specific subject or time period?
  5. Is your record retention system organized, efficient and reliable?
  6. Are your employees trained in record retention and knowledgeable about your policies?

If any of your answers to the above questions were No, your business is not ready for a federal law suit. The new rules provide for sanctions and/or significantly increased costs against businesses who do not have efficient and consistent ESI policies. If you wait until you get involved in a lawsuit, it will be too late. And, even if you never get into a lawsuit, it never hurts to have your business information organized.