by Quenda Behler
What should you do with all those old business records that
you store in file cabinets, boxes, and stacks in the corner? Do
you have to keep them forever?
Of course, the answer is no. Last winter my husband and I went
through the papers from his contracting business and pitched
the records that I had insisted he keep. He's been retired for
about eight years, and he wanted to get rid of that stuff. Did
I let him throw everything away? Well, despite the fact that
I'm really paranoid about throwing business records away, we
got rid of it all.
So why keep any of it, ever? Isn't it just providing
ammunition for someone who wants to sue you? Well, in a way it
is. Once a lawsuit gets going, the plaintiff can use the
discovery process to root through your business and personal
papers to look for evidence against you. People who have not
been involved in civil litigation have no idea of the extent to
which you can be forced to produce evidence against yourself.
That's because people have heard about how they can't be
required to incriminate themselves. But "incriminate" is the
key word here. A civil lawsuit is not a criminal action, so
those civil rights that protect you if you're arrested are no
help to you at all if you're sued.
Am I suggesting that you put a dumpster outside your office
door and get started? No, certainly not. There are two main
reasons to retain records: some records the law requires you to
keep, and some records you should keep in case you're sued. In
a lawsuit, good records can prove your defense. If you don't
have good records, the plaintiff can imply that you got rid of
them because you had something to hide.
Records You're Required To
Immigration forms are a good example of what you must keep.
The Immigration Act of 1986 requires employers to fill out and
retain the Employment Eligibility Verification Form I-9. The
form attests to the fact that the employee presented the
employer with specified documents that proved he was eligible
to work in this country.
As an employer, you are required to keep the I-9 for each
employee for a minimum of three years and for at least one year
after they stop working for you. This means if someone leaves
after one year of employment, you have to keep his I-9 on file
for the next two years. But if he leaves after five years, you
only have to keep the I-9 on file for one more year.
Accident reports are keepers too. If there's a workers comp
claim, you want to be able to see if your accident report
matches the employee's current description of the accident.
Reporting requirements for OSHA and state accident logs vary
from state to state. Not everyone is subject to them, but as a
rule of thumb the feds require you to keep accident logs for at
least five years.
You also need to keep employee tax records. Hang on to their
W-4s and copies of their W-2s for no less than four years
— even if you go out of business during that time. As
for your own tax records, the current rules require the IRS to
complete an audit within four years of the filing, unless there
is evidence of fraud or significant under-reporting, in which
case the IRS can essentially pursue you at its leisure.
Records To Keep in Case of
If you are sued, you may need some records to prove your
innocence. But you don't need to keep them forever because the
law places "limitations" on how many years people can wait
before they sue you. Limitations vary depending on the state
you are in and the kind of lawsuit it is. For example, warranty
actions are typically limited to one year. However, I just read
about a warranty-based lawsuit that took place on the West
Coast in which the court said the one-year limitation was not
applicable. The action reverted to what you might think of as
the default law about limitations, which in most states is
three to six years. But it may be longer. In California,
there's liability for so-called latent defects for ten
If it's not a warranty, workers comp, or negligence claim,
it's probably a lawsuit about a contract. Those kinds of
actions have longer limitation periods — often up to
When you're saving your business records, don't forget that
those certificates of insurance you get from your subs are
business records, too. So are your personnel records. You
should preserve all of your personnel warnings, discipline
records, and safety records, in case you're ever faced with a
lawsuit from a current or former employee.
So, is there an answer for how long to keep records that
doesn't require you to sort out the different kinds of business
records (with the inherent risk that you thought that the paper
you pitched was one kind of document but it turned out to be
something else)? Sure, just keep everything for six years. I
used to tell people to save everything for eleven years, but as
I've gotten older I'm less nervous. Now I'm comfortable with
six years — unless, of course, you're in
has practiced and taught law for over 25
years and is the author ofThe
Contractor's Plain-English Legal Guide(www.craftsman-books.com).