Document and Data Retention Compliance Understanding and Addressing the Costs, Risks, and Legal Pitfalls

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1 SAP Thought Leadership Paper Human Capital Management Document and Data Retention Compliance Understanding and Addressing the Costs, Risks, and Legal Pitfalls

2 Enterprise information continues to grow in volume and variety. For human resources documents and data in particular, it s crucial to keep records for as long as necessary and no longer. Retaining information for too long is costly and risky, but so is destroying it too soon. Ensuring proper user authorization and access is also crucial. Optimized digital solutions for managing employee files and records enable companies like yours to improve data compliance, increase efficiency, and prepare for potential litigation.

3 Table of Contents 4 The Challenges of Document Retention Throughout the Employee Lifecycle 5 The Legal Landscape Document Retention Obligations Wasteful Discovery Costs 6 The Potential for Litigation From Hire to Retire Enabling Data Compliance with SAP Solutions About Loeb & Loeb

4 Striking the Right Balance The Challenges of Document Retention Throughout the Employee Lifecycle Managing enterprise information, especially HR documents, is complex in an environment of burgeoning digital data and business networks. Organizations must strike the right balance to legally and effectively manage information and keep all the right data for just the right amount of time. Many firms, however, retain more records than necessary or have inappropriate access and authorization controls. As the amount of information including social media, blogs, instant messaging, and text messaging continues to explode, the problem will only grow. Keeping data and documents longer than necessary hurts efficiency, increases cost, and raises the risk of liability. Yet disposal of records in violation of legal obligations to retain them can result in fines and damage the company brand. What s more, a high percentage of records maintained are of little value, and are, in fact, potential liabilities. Many stored files are duplicates, increasing storage and litigation discovery costs. Leading organizations are employing digital enterprise file management solutions to improve data management, authorized access, compliance, and litigation preparedness. These solutions simplify the management of all paper and electronic worker-related documents and files by supporting their integration, storage, retrieval, and archiving. As a result, they enable you to meet your legal obligations and reduce the risks and costs of compliance. The law firm of Loeb & Loeb LLP has broad experience regarding the legal obligations and risks relating to employee records. This paper draws upon this experience to define the legal landscape, litigation challenges, and costs of noncompliance. It also addresses how digital solutions for managing employee records and files can help. 4 SAP Thought Leadership Paper Document and Data Retention Compliance

5 Understanding Retention Regulations and Costs The Legal Landscape Document Retention Obligations Scores of regulations dictate which records you must keep and for how long. Title VII of the Civil Rights Act prohibits discrimination based on race, color, religion, sex, and national origin. Under Title VII, companies have to retain relevant personnel or employment records for one year. These records include application forms; hiring, promotion, demotion, transfer, and termination records; and terms of compensation. The Age Discrimination in Employment Act (ADEA) also calls for companies to retain personnel or employment records for one year. These include job applications, resumes, and failure-to-hire records; hiring, promotion, demotion, transfer, and termination records; and agency, union, and job orders. In addition, for three years companies must keep payroll and other records containing each employee s name, address, date of birth, occupation, rate of pay, and compensation earned per week. The Fair Labor Standards Act (FLSA) has similar requirements covering documents from employment and earnings records to payrolls and contracts, while the Family and Medical Leave Act (FMLA) is concerned with employee leave and benefits records. Other regulations include the Immigration Reform and Control Act (IRCA), state wage and hours laws, and laws concerning employment agreements. Companies have a duty to preserve documents that may be related to ongoing or pending litigation. The obligation to preserve evidence arises when a party knows or reasonably should know that the evidence is relevant to current or reasonably likely future litigation. The eradication of smoking gun documents once a potential discrepancy is discovered can be interpreted as obstruction of justice. While not every shred of paper or electronic document must be retained, a party must not destroy unique relevant evidence. Once litigation is reasonably anticipated, an organization must suspend its routine document retention and destruction policies and place a litigation hold on relevant evidence. Wasteful Discovery Costs Regardless of their disposition, litigation cases can impact the bottom line. Significant costs can be incurred through the discovery process, in which the organization must produce relevant data and documents. These expenses often are accepted as the cost of doing business even though they frequently can be reduced or avoided. For example, in the 1990s a corporation purchased a Pennsylvania-based firm that was shut down soon after the acquisition. In litigation a decade later, lawyers requested records belonging to the now defunct company. After discovering that over 10,000 boxes of records still existed at an off-site facility, the parent company was forced to spend more than US$2 million searching and culling these records to just six boxes of pertinent information. As it turned out, this information neither helped nor hurt the plaintiff s case but the discovery expenses for the defendant were considerable. Similarly, the defendant in a recent discrimination case was ordered to produce some 70,000 s that had matches in a keyword search. For this single-plaintiff case, the cost of providing the s was over US$250,000. SAP Thought Leadership Paper Document and Data Retention Compliance 5

6 Recent Document Retention Cases The Potential for Litigation From Hire to Retire The failure to establish or follow policies for shredding HR-related records can result in the retention of large amounts of unnecessary data and documents. And the risk and cost potential for litigation spans the employee lifecycle, from recruiting, reference checks, and onboarding to maintenance, performance, and separation. If policies are in place and followed, however, companies can legally and ethically dispose of their HR-related documents in a timely fashion reducing the potential for future harm, cutting storage costs, and improving efficiency. The following are some examples of record retention and destruction litigation cases. In Connecticut in 2001, an applicant for a teaching position brought a failure-to-hire claim for age discrimination under ADEA. The court granted adverse inference to the plaintiff due to the absence of requested evidence from the school. The school lost its case because it did not retain the proper documents relating to the hiring process, such as applications, rankings of candidates, and references. A group of employees terminated in New York in 2003 alleged wrongful dismissal due to age discrimination, while the employer claimed it was due to poor performance. The employer lost the claim because it failed to retain documents showing evidence of poor performance, including notations correcting employee work and supervisor performance notes. In 2006 a plaintiff in Connecticut was awarded damages for retaliatory discharge in violation of FMLA, due to the defendant s failure to maintain the notes from the employee s doctor. In the same year, an Ohio corporation was fined for prematurely destroying records of hours worked and paid, in violation of FLSA regulations. Fines assessed in cases like these can add up quickly. Under Immigration Reform and Control Act (IRCA) regulations, employers that fail to maintain onboarding records such as INS Form I-9 are subject to civil penalties ranging from US$100 to US$1,100 for each violation. The risks also extend to documents maintained overseas. In 2009 a federal court compelled a Delaware corporation to produce electronic records created and stored outside of the United States. In recent, separate cases spanning a decade, three companies had to produce potentially relevant evidence related to employee records from a foreign parent or affiliate for a U.S. lawsuit. Without an integrated enterprise solution, how can companies manage growing volumes of records and comply with an array of regulations? Significant cost can be incurred through the discovery process, in which an organization must produce relevant data and documents. These expenses can often be reduced or avoided. 6 SAP Thought Leadership Paper Document and Data Retention Compliance

7 Enabling Data Compliance with SAP Solutions The challenges of managing digital data are many. Storing documents is expensive and inefficient. Keeping them too long exposes the organization to litigation. Destroying data too soon brings expensive fines. With the SAP Employee File Management application by OpenText, companies like yours can enable compliance across the information lifecycle and address a range of legal and regulatory challenges. Tightly integrated with the SAP ERP Human Capital Management (SAP ERP HCM) solution, SAP Employee File Management simplifies the management of paper and electronic worker-related documents. Together the solutions support the integration, storage, retrieval, and archiving of all workforce documents. SAP Employee File Management and SAP ERP HCM enable you to consolidate paper and digital files and collect, digitize, and centralize all employee documents and master data in a single repository. You can securely archive employee documents in accordance with legal regulations. Records can be automatically deleted at the proper time, reducing the risks and expenses of noncompliance. Integrated workflows automate and facilitate review and approval processes and document-related inquiries. About Loeb & Loeb Much of the content in this paper was provided by Mark Goldberg, a partner in Loeb & Loeb s Employment and Labor Practice, and discussed in a Webinar titled The HR Digital Shift Are You at Risk? Goldberg can be reached at or Loeb & Loeb is a multiservice law firm with over 300 attorneys in 5 U.S. offices, as well as a representative office in Beijing, China. For more information, please visit Learn More The SAP Employee File Management application by OpenText, tightly integrated with the SAP ERP Human Capital Management (SAP ERP HCM) solution, helps companies improve information management and data compliance. Together this software facilitates conformity with a host of regulations and helps ensure that you retain documents and data for the right amount of time to satisfy both ethical and legal demands. Automated processes and alerts facilitate document retention and destruction, allowing you to reduce associated expenses and risk. In addition to enabling data compliance, the software helps HR organizations deliver efficient, accurate service. It provides userfriendly access to enterprise information. People in roles throughout the organization can find documents quickly with enhanced search functionality and intuitive folder structures and thumbnails. Employees and managers get secure, role-based access to files with employee self-service and sharedservices functionality. To learn more, contact your SAP representative or visit /solutions/solutionextensions /employee-file-management/index.epx. SAP Thought Leadership Paper Document and Data Retention Compliance 7

8 CMP17702 (12/07) Printed in USA SAP AG. All rights reserved. SAP, R/3, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP BusinessObjects Explorer, StreamWork, SAP HANA, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries. Business Objects and the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius, and other Business Objects products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Business Objects Software Ltd. Business Objects is an SAP company. Sybase and Adaptive Server, ianywhere, Sybase 365, SQL Anywhere, and other Sybase products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Sybase Inc. Sybase is an SAP company. Crossgate, EDDY, B2B 360, and B2B 360 Services are registered trademarks of Crossgate AG in Germany and other countries. Crossgate is an SAP company. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary. These materials are subject to change without notice. These materials are provided by SAP AG and its affiliated companies ( SAP Group ) for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty.

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