If your company was served with notice of a lawsuit or you suspect it may soon face legal troubles, you may wonder what corporate records your business should hold onto and preserve or how long your company needs to hang onto those records. Working with an experienced business litigation attorney can help you abide by your legal obligations to preserve evidence for imminent or ongoing litigation.
Legal Obligations to Preserve Records
In most cases, a company that faces a likelihood of litigation must conduct a litigation hold to preserve relevant records. In a litigation hold, a company will direct employees who have custody of potentially relevant records to preserve those documents for the duration of the hold. Companies should also pause their records retention policies if they include regularly deleting records. The company should turn off any automatic deletion settings for its computer systems or software or back up data from those systems and software to long-term storage.
Various events can put a business on notice that it faces potential litigation, including receiving a subpoena, a notice of a governmental investigation, or a formal complaint triggering litigation. Companies should also trigger a litigation hold if they develop a subjective belief that the company may face litigation.
Critical Business Records to Preserve
Depending on the type of claim your company may face, your organization should hold onto various records. Common examples of records that companies preserve during litigation holds include:
- Financial Records – A company may need to preserve financial documents like profit and loss statements, financial projections, accounting ledgers, tax filings, and bank statements.
- Contracts and Written Agreements – Corporate litigation may arise from a business’s contracts and written agreements, such as employee contracts, vendor agreements, real estate leases, joint venture agreements, purchase agreements, terms of service and end-user agreements, or warranty agreements.
- Emails and Electronic Communications – Most legal disputes or lawsuits require a company to keep records of electronic communications, including emails, text messages, internal message board posts, social media posts, and voicemails. Companies should also preserve metadata associated with electronic communications.
- HR and Employee Records – Employment and labor law litigation will require preserving records such as employee handbooks, employment agreements, employee stock option plans, employee files and disciplinary records, payroll records, and termination notices.
- Corporate Governance Documents – When facing litigation from business partners or shareholders or government regulatory investigations, companies should gather corporate governance records like bylaws, operating agreements, shareholder agreements, stock ledgers, board meeting minutes, notices of shareholder meetings, and shareholder meeting agendas and minutes.
Today, most corporations keep records in electronic format. Preserving company documents must also include preserving the metadata associated with records. Metadata can provide critical information about electronic records, including who created and modified the records, the date and content of modifications, and who accessed the records.
Consequences for Failing to Hold Onto Records
Companies that fail to preserve records for litigation, including by neglecting to implement litigation holds, may face significant consequences in a lawsuit. Even inadvertent destruction or deletion of business records according to standard record retention policies, when the company had an obligation to preserve those records, can result in sanctions against that company in litigation. A court may find that the failure to preserve records relevant to the litigation, intentional or not, constitutes spoliation of evidence.
As a sanction for spoliation, a court may instruct a jury that it can make an adverse inference from the lack of evidence. When spoliation completely prevents the other party from making its case, a court may enter harsher sanctions like default judgment.
Contact a Business Litigation Attorney Today
When your company faces the prospect of litigation, a commercial litigation attorney can help you secure the records you must preserve. Contact Levy Goldenberg LLP today for an initial consultation with a commercial litigation lawyer to discuss the details of your legal dispute and begin gathering the records and evidence your company will need for the case.