All American businesses, regardless of size, that could ever be involved in federal court litigation or agency inquiries are now required to store and be able to retrieve electronic records, according to new rules that quietly took effect on December 1.
If your business could ever be involved in IRS audits, interstate lawsuits (lawsuits that cross state lines), HIPAA or Sarbanes-Oxley actions, fraud investigations or company buyouts and mergers, then the new Supreme Court-sanctioned amendments to the Federal Rules of Civil Procedure apply to you. In other words, hardly anyone is exempt. Failure to comply could bring huge fines.
All electronic records, known as “e-records,” are covered by the new rules. These include emails, backup discs and drives, network activity logs, video and voice messages, photographs, drawings, website pages, invoices and other customer records, contracts, home computer records, BlackBerry and other PDA communications, instant messages, employee and student records, financial spreadsheets, text documents, databases, medical records and cell phone records. Use your imagination: if something has ever been in an electronic form, then it’s covered.
The rules also require that company attorneys and information technology (IT) managers establish clearly defined e-records storage and archiving policies. Attorneys and IT staff are required to know and describe how e-records are being archived, how they can be searched and how they can be produced on demand. Depending on the quantity of e-records generated, this means that most businesses will need to install backup/archiving hardware and software.
For some small businesses that are knowledgeable regarding file formats, i.e., how to backup email files in Microsoft Outlook, the new rules may not represent much of a burden. They may get away with purchasing an external hard drive and performing regular backups of the proper files in order to be in full compliance. However, many folks will need to hire someone to install archiving hardware and software, teach them how it’s used and help them to write their e-records policies. The policies also need to include descriptions of how and when certain e-records may be deleted.
Big companies with many employees won’t get off so easily. Large volumes of e-records may be generated every day, and minimal or haphazard storage methods simply won’t cut it when faced with a legal request for records. In a business survey conducted by Enterprise Strategy Group, almost half of the respondents said that they had been required to search for and retrieve e-records in response to a legal proceeding or regulatory inquiry. Oftentimes, judges are not known for their patience. In a case before the Alabama Circuit Court of Appeals, General Motors was fined $700,000 for failing to produce records in a timely manner.
Sadly, too many businesses are unaware of the new rules. Over half of the attorneys surveyed by LexisNexis were unaware of the December 1 deadline, and almost half of the groups surveyed by Cohasset Associates have no email retention policy. The time to act is now, rather than when you’re faced with a cranky federal judge.