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Developing a File Retention Policy for Your Firm

by Terri Olson

What does a good file retention policy contain? Although it is not possible to design a policy that will serve the needs of all firms everywhere, a few generalities can be made. First, the client should be made aware in the initial agreement what will happen to client documents and client files, and under what circumstances. Second, the policy should provide the person responsible for closing out a file clear guidance on what information should be kept and what information may be discarded. Finally, the policy should specify the length of time the remaining material will be kept, as well as where materials will be stored.

The first step in any file retention policy occurs, oddly enough, before the file is created. The attorney should set out, in writing, a detailed explanation for the client of the disposition of any documents in the case before those documents are created. This explanation may be in a general representation agreement or in a specific fee agreement; the important thing is that the client must see (and agree to through signing) the firm's plans for the file. In addition, in order to better protect itself, the firm may wish to make a policy of not retaining original client documents unless those documents must be presented later as exhibits. If the documents are needed only as reference material, the firm should photocopy them, place the copies in the file, and return the originals to the client.

Before any decision can be made concerning how or whether to dispose of the file, the file must actually be closed. What determines when to close the file? Many matters are, as they say, open and shut. For others, however, considerable judgment must be exercised in determining whether the file can properly be called closed.

The first consideration is generally a practical one -- no matter is closed until full payment has been received for it! Therefore, the file must pass in some way through the firm's bookkeeping or accounting department for a status report. Other factors are tied to the nature of the case. The accompanying sample model policy includes a description of common types of actions and suggested closing definitions for each.

Once the file is closed, it should be "stripped" or "culled." In other words, the attorney on the case should review the file and approve the removal and destruction of unnecessary material. Some candidates for "unnecessary material" are duplicate copies (only one need be retained); copies of published material that could be located again (e.g., court opinions); draft versions of memoranda, briefs, pleadings, etc., except when highly significant or contested changes were made between the original and final versions; informal notes; depositions; and purely extraneous material.

After the culling has take place, the stripped-down version of the file should then be analyzed document-by-document. Documents will either belong to the attorney or to the firm, or to the client. Any documents in the file that belong to the client (such as client-provided tax records, expense statements, bank records, trust documents, etc.) should be returned. When a document has been returned to the client, the firm should get a receipt, so that there can be no dispute later about whether it was retained or returned. Ideally, however, the firm will have photocopied material whenever possible at the outset of the case, so there should be few originals to return.

Unfortunately, there are occasions when, try as the firm might, it cannot located the client in order to return documents. What is proper for the firm to do in this case? Most authorities agree that the attorney has an ethical duty to retain important documents permanently if, for some reason, they cannot be returned to the client. Such documents include recorded deeds; accountants' audit reports; tax returns (including all related documents and worksheets); year-end financial statements and depreciation schedules; accounting journals; bills of sale (for important purchases); certificates of incorporation, along with bylaws and minute books; capital stock and bond records; insurance policies and records; property records and property appraisals; copyright, trademark, and patent applications and registrations; major contracts and leases; and actuarial reports.

A final and useful step is for the attorney to distinguish opinions and research items that might be re-used for similar cases in the future, and for those items to be copied and stored in a centralized "reference files" available to all attorneys. Some may object that this results in the creation of more paper, instead of the laudable goal of trimming the office files. While this is superficially true, it is nonetheless preferable in terms of office efficiency that this genuinely useful material be available when needed. If it is not, attorneys will demand that all closed files be stored on the premises or even interfiled with active ones for easy access.

The file should now be in proper form to be removed to a centralized "closed file" location. Inactive or closed files should never be interfiled with active ones, because this will result in a system clogged with files that typically will be examined, if at all, only once every few years.

Given the above complexities, many firms are turning to microfilming files, or other electronic media storage, as a means of avoiding the question of what to retain and for how long. Permanent storage of microfilmed files, they reason, is space-efficient and prevents any future disputes over file contents. While microfilming files may have a place in law firm file retention policies, it should not be regarded as a panacea. It is still necessary, for example, to examine the file to see what must be returned to the client, and it is not legal to microfilm certain documents, such as drivers' licenses or evidences of citizenship. In addition, it is not physically possible to microfilm or scan some client property in one's files. So, while it is tempting to construct a policy that consists mainly of "microfilm everything and keep it forever," this is generally not practical or wise.

We must return, then, to the central question in any law firm file retention policy: how long must the closed files be kept before they are destroyed? While there is no one safe answer for all types of cases, firms can used the following to establish their own timelines for destruction.

In no circumstances should a closed file be destroyed before the statute of limitations has run on the action. This is an obvious necessity for the attorney to protect himself or herself in case of charges of malpractice. It is important to remember that this protection element should be the prime consideration in file retention, since, if a reference file as discussed above has been established, there will no longer be a need to retain files for research purposes. This minimum time will, of course, vary by case type, so it is entirely possible that a firm may have different destruction schedules for different categories of files.

The prudent firm will then add in a cushion of a few extra years, just in case. The grand total for file retention has been put by experts at anywhere from seven to 15 years; clearly, there is much room for subjective judgment on the part of the firm, although a conservative interpretation is probably called for. In addition, files for some type cases are generally retained permanently. These include bank reorganizations, Chapter 11 bankruptcies, and estate planning files.

A destruction policy is not simply a statement of how long files are kept; other things must be taken into consideration to make file disposal work smoothly. For one thing, will the files be reviewed before they are disposed of, or will the destruction policy automatically go into force on the retention period has expired? If the files are reviewed, then by whom? Unfortunately, although on one level it makes sense to have files reviewed by an attorney before the are destroyed, in practice this is often unworkable; attorneys have many other demands on their time and will likely rank this as an extremely low priority. In addition, the natural conservatism of lawyers and law firms may make the reviewing attorney acknowledge that the time for retention has expired, but suggest that the file be kept anyway, because "you never know."

The firm must realize that the review step, if it takes place, is merely a final check that no mistakes were made when the file was closed, and not an opportunity to re-analyze the firm's existing policy and suggest ad hoc improvements. The job must also be seen as a priority item, one which must be done quickly so the file can move on.

How the actual destruction takes place must also be determined. Will files be shredded, pulped, burned? By employees of the firm or by an outside agency? However the files are disposed of, the confidentiality of any sensitive material remaining in the files must be preserved, and the means of destruction should be consistent. In other words, it is not good practice to turn over half the 1981 files to ACME Shredders, Inc., and then dispose of the remaining ones personally in the partner's fireplace. Again, since one of the primary reasons for having a policy is to prevent even the appearance of wrongdoing in case of a malpractice action, destruction should always be carried out in accordance with written firm policy.

A review of the relevant ethical considerations regarding records retention amply demonstrates a reluctance to designate a number of years as an indicator that a closed file may be discarded. A well-designed and implemented records retention policy will address the issue in a prospective manner, detailing up front in a representation agreement the intent of the firm not to hold original documents and the offer to return them to the client. The policy must address the overriding concern that in all instances the firm follows the expressed instruction of the client. Whatever policy a firm finally develops must also be internally consistent and adhered to by all firm staff in order for the firm to gain any protection from having such a policy in place.

MODEL LAW OFFICE FILE RETENTION GUIDELINES

In General

A lawyer shall establish a written policy governing the disposition of all correspondence and documents, of whatever nature, that are maintained as part of the client file during the course of the representation. It is incumbent upon the lawyer to advise the client of the provisions of the file retention policy at the time of engagement. Providing a copy of the written policy suffices to satisfy this requirement. If the policy requires specific action by the client at the conclusion of the matter, then the client should be advised again at the time of final billing.

The file retention guidelines provided herein represent minimum standards and are not intended to usurp the lawyer's responsibility for maintaining a complete and thorough record of the representation. Nor are these guidelines intended to be a substitute for the judgment of the lawyer. However, retention policies less stringent than these guidelines are generally considered unacceptable and should be pursued with caution.

Definitions

Retention -- That designated period of time following the closing of the matter (active to inactive status) but before final disposition.

Disposition -- The final action taken during the life cycle of the record; one of the following actions:

Vital record -- Any record that, in the event of a disaster, would be necessary to protect the interests of the lawyer or the firm and essential to the resumption of business. These records must be secured in a destruction proof environment such as a fire proof safe or vault.

Retention Guidelines

1. A client file should always be reviewed by the lawyer before being closed and prepared for storage. Closing of a file should be in accordance with a prescribed written policy which should consider the following factors:





2. As a general rule, no file need be retained in an inactive status for more than ten years beyond the date of closing, except in cases where the law imposes on the lawyer a duty to preserve records for a longer period of time. Notwithstanding the general rule, there are a number of considerations the lawyer must take into account when establishing a retention schedule:


Destruction of Files

1. Except where required by law, no lawyer is obligated to retain any document or file relating to any client's matter beyond the retention period, provided the retention period is in accordance with a written policy which meets the minimum standards prescribed by these guidelines.

2. Final approval for destruction of a client file or related documents must be affirmatively given by the lawyer following the retention period. The lawyer should sign an appropriate destruction authorization form which should be retained as a permanent record.

3. Several methods are acceptable for destruction of client files. Destruction should be accomplished by shredding, pulping, or any other method that destroys media beyond reconstruction in an environmentally sound manner. The person or service performing the destruction should certify, on the authorization form, the date, location, and method used.

NOTICE THAT FILE SHOULD NOT BE CLOSED

TO: Records Department

FROM: Attorney ______________________
(or, alternatively, Bookkeeping Department)


RE: [Matter]

DO NOT MARK THIS FILE CLOSED OR RETURN OR DESTROY ANY MATERIAL IN THIS FILE AS THERE IS A BILLING PROBLEM.

NOTICE REGARDING FILE DESTRUCTION

[Date]

As you know from your retainer agreement, we hold all the file information pertaining to your matter for a period of _______ following the conclusion of the matter.

At the expiration of that period, all material in the file will be destroyed according to firm policy. If you would like a copy of any or all of the material in the case file before it is destroyed, please contact our office before the expiration date for your file to make arrangements. You will be charged a nominal fee for copying costs.

Terri Olson is the former Director of the Law Practice Management Program.

This material comes in part from an article by J.R. Phelps and Terri Olson entitled "When May I Destroy My Old Files?", originally appearing in the January 1994 issue of the Florida Bar Journal, and is reprinted with the permission of the authors. 

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