ABA Section of Business Law
July/August 2001 (Volume 10, Number 6)
So long, paper
Electronic employment records: Checklist for a transition
By Rosemary Strunk
The paper files have become too much. It's time to make 'em all electronic. That, as the saying goes, is easier said than done. At least when it comes to employment records.
Many corporations are embracing the concept of a paperless environment. This effort challenges the traditional notion that record retention requires us to maintain the physical hard copy of original documents.
A company I work with has evaluated whether the use of optical imaging for the retention of current and historical U.S. employment records is an acceptable alternative to keeping original physical records (that is, I-9 forms, employment applications, employee-handbook acknowledgement forms, W-2s, etc.)
From a legal perspective, at least two fundamental questions are imbedded in this issue. They need to be explored before moving ahead with any desire to implement paperless record retention:
o Is it permissible under federal and state law to retain optically imaged employment and benefit records in lieu of hard-copy originals?
o In the event of litigation, will optically retained employment and benefit records be admissible into a federal or state court at a later date when hard-copy originals have been destroyed?
No federal law and state law prohibits the use of optical imaging to retain employment and benefit records, but many states have not specifically addressed the question.
In litigation matters, the federal courts expressly allow the admissibility of optically imaged documents as long as the company has taken precautionary measures to ensure that the images can be "authenticated" in accordance with the Rules of Evidence. In a few states, optically imaged documents are expressly permitted as admissible documents. In most states, this issue is not decided and would be one of "first impression."
Since the legal validity of optical imaging in lieu of retaining the hard-copy originals from a retention and admissibility perspective is not conclusively settled, a transition period of two to three years where the company continues to maintain the hard-copy originals is recommended. This allows introduction and implementation of the optical-imaging program and works out the bugs before the physical originals are forever destroyed.
In order to ensure the admissibility of documents in the future and comply with applicable laws, the following recommendations are - at a minimum - advised.
Record-retention compliance. The electronic images will need to be maintained in accordance with federal and state record-retention time periods.
Privacy laws compliance. Various federal and state statutes limit and control the use and access of certain employee records, such as medical information and drug-testing results by the employer. Security controls will need to be built into the electronic handling, access, maintenance and retrieval of electronically imaged documents as well as into the destruction of documents.
U.S. employment and benefit records only. Given that this is a new area of law, please note that these suggestions apply to employment records only. There may be other individual state or federal laws that require an original document to be retained (that is, IRS regulations, DOT regulations, etc.).
Imaging procedure and software requirements. A company's program must ensure that each document is:
o Handled in accordance with a strict chain-of-custody procedure that details when the original was created, who handled it and when, and when and by whom it was imaged.
o Imaged in accordance with a standard procedure and time frame. It is important that the records are imaged near the time of their creation.
o Evaluated as to whether the original document should be imaged or not because of a peculiar or unusual nature of the original that cannot be captured by the optical-imaging process. These types of documents should be physically retained in accordance with written procedure.
o Duplicated exactly, including the color, highlights, shading and other peculiarities of the original (such as, frayed, torn edges, discoloration of document).
o Stored in such a way that does not allow any physical alteration of the original document in any manner whatsoever. For example, the software must be able to prevent "morphing," a technological advance that allows for a user to physically stretch, compress, distort or transform an electronically imaged document. In addition, the software program should be aware of - and anticipate how it will become aware of - and track imaged documents that are altered by mechanical error or alterations caused by their storage.
o Logged in so that it can be retrieved later. This procedure should include the document's processing date, the date viewed, from which workstation the document was displayed, as well as what was done to it. That is needed to rebut an allegation that the document was either opened inappropriately or was manipulated. This log-in should be built into the software so that it cannot be altered by the employee. The employee's activity should be tracked automatically, so that at any time a report can be run to indicate this information.
o Tracked so that the software indicates to the program administrator when an attempt to "morph" or alter the document has been made - or has been attempted - when and by whom.
o Stored by a type of software and hardware that can keep the document intact for its required storage life. Digital disks including CD-ROMs and optical drives deteriorate quickly and become unreadable often, with no warning, even if they are stored properly. Magnetic fields, oxidation, humidity and hardware decay can erase or damage stored imaged documents or materials.
o Retrievable in the years to come. Since technology rapidly improves, leaving software and hardware obsolete the day after purchase, the program needs to include the retention of software and hardware over the document-retention period (which could be up to six years depending on the record after an employment termination date), so we can retrieve an old record when needed.
Optical-imaging policy. The electronic imaging program should include a written policy and manual detailing all of the above and why the company opted to destroy its original documents and institute the electronic-imaging program. The policy could state something like this:
The company chose to electronically image its original documents and destroy the hard copies: (i) to promote the efficient storage, retrieval, organization and retention of records; (ii) to reduce the use of the physical storage of original documents, (iii) to reduce insurance expenses; and (iv) to ease the process of locating documents.
Contract and insurance obligations. There may be vendor or customer contracts or insurance policy provisions that affect the destruction of originals.
Employee rights to view personnel files under state laws. Almost every state allows an employee to view and obtain copies of their "personnel file" from his or her employer. Those imaged documents in an employee's personnel file will need to be designated as such so that at any time they can be printed out in response to an employee request or identified and provided in response to a legal proceeding.
Comprehensive index to imaged documents. As records are imaged, an index of the documents and record-search abilities needs to be developed so that when responding to employee matters, subpoenas and discovery requests, the records can be easily located and retrieved.
If the imaging-retention program is created with a transition period as well as these recommendations - accompanied by a detailed, written policy that uses software and hardware to guard against document deterioration, alteration or manipulations - a company can save significant costs, space, time and staff as well as improve document retrieval.
Strunk is a lawyer and consultant in Scottsdale, Ariz. Her e-mail is
rosestrunk@aol.com. Thanks go to Raj Sivananthan and Bhavi Shah, of Snell & Wilmer in Phoenix, for their research.
