Employee document storage and retention policies: it is not cutting edge legal theory or management philosophy, but companies that think about and actively develop a plan will save large amounts of money.  The costs savings will come from being able to better defend litigation because the key documents were maintained, and it will come in the form of saving time and effort in searching for and retrieving employment documents when needed.  This Friday’s Five review five best practices for document retention for California employers:

  1. Define what is kept in a personnel file

The terms “personnel records” or “personnel file” are not defined under California law and there is considerable ambiguity about what documents should be keep in an employee’s personnel file.

While not legally binding on employers, there is some guidance from the Division of Labor Standards Enforcement (“DLSE”) expressing the following view:

Categories of records that are generally considered to be “personnel records” are those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of “personnel records” (this list is not all inclusive):

        Application for employment

        Payroll authorization form

        Notices of commendation, warning, discipline, and/or   termination

        Notices of layoff, leave of absence, and vacation

        Notices of wage attachment or garnishment

        Education and training notices and records

        Performance appraisals/reviews

        Attendance records

Employers need to clearly define what they will keep (or not keep) in an employee’s personnel file so that all management understands which documents need to be placed in the personnel file of an employee and where to locate documents pertaining to employees.

2. Time records must be kept long enough and must be in a “user friendly” format

Employers must record and maintain accurate time records under California law. If the employer knows employees are not properly recording their time, the employer needs to enforce a policy to have employees accurately record their time, even if it requires disciplinary action. Also, how can time records be “inadequate”?

  • The records that do not record the employee’s actual time working. For example, the employee records their start and stop time and the same time every day even though the employer knows it changes.
  • Not keeping time records long enough. The statute of limitations can reach back four years in wage and hour class actions, and these records will be the primary issues in most cases.
  • Not recording all required information. For example, employers are required to record employee’s meal periods under the IWC Wage Orders (see section 7 – Records).
  • Not keeping the time records in a manner that is usable. Maintaining records in a form that makes reviewing the records almost impossible is almost equivalent to not maintaining them in the first place. Some thought should be put into how an employer is keeping old time record information and how that data could efficiently be reviewed in the future if needed.

3. No institutional knowledge of document storage and retention policies

Is there one person with full knowledge of the employment policies implemented by the company? Institutional knowledge about the various policies put into place by the company, when they were implemented and why they were implemented is critical knowledge. Also, this information should not reside with just one person in case that person leaves the company.

4. Consider how to store documents and whether certain documents need to be kept separately

Just as I-9 forms are routinely kept separately from other employment documents for employees in order to be able to retrieve them easily if requested by the U.S. Citizenship and Immigration Services and to ensure the information is maintained confidentially, employers should consider if any other employment documents should be store separately.

For example, if an employer has arbitration agreements with employees, the arbitration agreements may be store separately for ease of access and easy of verifying which employee has entered into an arbitration agreement.

In addition, employers should consider storing documents electronically.  I’m a big advocate of electronic storage of documents because I believe it is more secure and easier to retrieve the documents, but it there is a matter of preference.  Moreover, federal and state law may regulate whether certain documents (such as time records or I-9s) can be maintained electronically.

5. Consider having a “miscellaneous document” policy

What should employers document? Conversations with employees, reviews, days absent and the reason for the absence, performance issues (both good and bad – see below), etc…. With email and the ability to scan documents or take pictures of documents on a phone, there is almost no excuse not to have everything documented. The only issue preventing employers from documenting issues is not stressing the need to do document, and the press of business.  Employers should have a miscellaneous document retention and storage policy that allows issues to be document and store in a place that can be retrieved later.

In See’s Candy Shops, Inc. v. Superior Court the court addressed whether an employer’s policy of rounding  employee’s time clock entries to the nearest tenth of an hour.  See’s Candy’s policy rounded employees’ time entries either up or down to the nearest tenth of an hour in its Kronos time keeping system. For example, if an employee clocked in at 7:58 a.m., the system rounds the time to 8:00 a.m., and if the employee clocked in at 8:02 a.m., the system rounds down the entry to 8:00 a.m.

Plaintiffs challenged this rounding policy by arguing that this policy prevented employees from receiving all of their wages twice a month as required by California law. The court noted that even though California employers “have long engaged in employee time-rounding, there is no California statue or case law specifically authorizing or prohibiting this practice.” See’s Candy argued that given this lack of clear authority on the issue, courts should adopt the federal standard, which is also used by California’s Division Labor Standards Enforcement (“DLSE”), which allows rounding.

The court agreed that time entry rounding is permissible under California law:

Relying on the DOL rounding standard, we have concluded that the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and ‘it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.’ (29 C.F.R. § 785.48; see DLSE Manual, supra, §§ 47.1, 47.2.)

See’s Candy presented evidence that across all of its employees the rounding policy actually resulted in a total gain of 2,749 hours for the class of employees involved in the litigation. Therefore, the court held that the rounding policy that rounded both up and down from the midpoint of every six minutes did not result in a loss to the employees.

It is important to note the limitation of this holding. This case involved clear evidence, presented in the form of an expert witness, establishing the effect on the total time paid to the employees did not result in a loss to the employees. Also, the rounding policy would round both up and down. Had the policy only rounded in favor of the employer, that would have violating the rule established in this case. Employers utilizing rounding for payroll must still do so with caution. For example, there should be periodic audits to ensure the effect of rounding does not favor the employer over a period of time. The opinion can be read here: See’s Candy Shops, Inc. v. Superior Court.