As a result of extremely expensive lessons learned in courtroom litigation over the last few years, one of the hottest trends among informed businesses in the United States is the adoption of a formal electronic document retention policy.

Businesses that have had the unhappy experience of being ordered by a court to produce from their databases electronic documents (such as e-mails and other documents stored in electronic form) have realized in hindsight that, if they had instituted a formal policy of eliminating unnecessary data from their systems, the costs to produce the required documents would have been dramatically lower and the process immeasurably less painful. Moreover, U.S. businesses have also come to realize that, by instituting a formal document retention policy, they are better able to streamline and organize their data systems, reduce their overall storage costs, and dramatically improve access to stored data. For example, because most information used by businesses nowadays is created and/or stored electronically, when businesses are involved in lawsuits in the U.S., it is quite common for parties to demand the disclosure of a broad array of electronic documents relating to the dispute. However, given that a single e-mail is often copied and forwarded to numerous recipients, the volume of relevant electronic documents can be exponentially greater than what may have been the case in the past. As a result, being required to disclose all relevant e-mails could result in the disclosure of thousands of documents, even in a relatively minor dispute.

In a more complex case or when the business at issue has national or international operations, the volume of documents that would have to be produced could easily be hundreds of thousands or millions. More importantly, because the documents generally have to be reviewed by lawyers before they are disclosed, the cost to produce electronic documents in a typical case often generates enormous legal fees.

And, it’s not just in litigation. When government agencies conduct investigations in the U.S., they always look for electronic documents. A due diligence review as part of a merger or acquisition normally will also involve electronic documents. As such, the ubiquitous nature of electronic documents can cost businesses millions of dollars for even relatively simple matters.

Therefore, at a minimum, Canadian businesses involved in litigation in the U.S. or subject to regulation by U.S. authorities could eventually be subject to this sort of procedure. Moreover, the rules are changing in Canada as well. Litigants are becoming increasingly aware of the importance of electronic information and the strategic advantages associated with forcing an opponent to incur the costs of producing electronic data from their vast storage systems. It’s like forcing your opponent to search for the needle in a haystack of electronic data.

In the last decade or so, rapid developments in electronic technology have created a new environment with respect to how businesses create, manage, and store information. The number of people using electronic documents and the number of uses for electronic documents continue to grow almost on a daily basis. Improvements in storage capacity make it easier for businesses to maintain massive databases of old information and store data that is no longer necessary or that was never intended to be stored, such as personal and non-business information.

However, although businesses have a vast capacity to store information relatively inexpensively, little of the information that is created and stored is actually necessary to the operation of the companies. Moreover, taking a rational approach to eliminating data that is no longer useful or that was never intended to be kept can result in significant long-term savings in costs and increased productivity. As a result, a trend developing among informed businesses in the U.S. is the establishment of formal electronic document retention policies designed to reduce the volume of stored data and categorize the data in a more rational manner.

There is nothing particularly new or revolutionary about records management. Businesses have always had to decide what records to keep (and for how long) and what records to destroy (and when to destroy them). However, in the current technological age, with improvements in storage capacity growing almost on a daily basis, businesses nowadays are capable of maintaining massive databases of old information.

Summary and Final Remarks

The use of document retention policies is becoming increasingly important for businesses throughout North America. Technological developments over the last few years have made the volume of electronic documents sent and stored almost overwhelming.

Moreover, companies that could potentially be involved in litigation could also benefit from developing a document retention program. In the last several years, companies in the U.S. have begun to realize that, given the incredible volume of electronic documents (including e-mails) stored on computer hard drives and servers (all of which are potentially subject to disclosure), being required to produce electronic documents to an opponent in litigation can be enormously expensive. Indeed, producing even a relatively small number of documents can cost hundreds of thousands (or more likely millions) of dollars in legal fees and lost worker production. Taking a common-sense approach to eliminating unnecessary data as part of a neutral document retention policy could result in large savings in the event a company is involved in litigation or otherwise subject to an order to produce electronic documents.

Accordingly, a document retention policy that would mandate the destruction of old and unnecessary data under certain prescribed conditions would help reduce the volume of stored data and in turn reduce the costs of storing that data, along with the time and expense of retrieving important data if necessary in the future.

The scope of discovery in the U.S. is much broader than here, but that is soon going to change. Revisions to the rules of procedure will make more information accessible in litigation in Canada. Also, any Canadian company that does business in the U.S. could potentially be involved in litigation in the U.S. And if they are, they will be subject to the more onerous discovery rules in that country. That means that all of their electronic documents are potentially subject to disclosure. The costs of reviewing and analyzing electronic documents can be enormous.

For those reasons, companies should establish document retention policies that outline what data should be kept and stored (and for how long) and what data should be permanently eliminated and when. This will reduce their storage costs, will streamline their data, and could result in massive cost savings in the event they are ever required to produce information either in litigation, in response to a government inquiry, or for some business purpose, such as effectuating a merger.