Compliance is a big part of human resources. When HR does compliance right, it can give us time to do the other, more strategic parts of our job. Today’s reader question deals with one of the big compliance issues companies face: employee files.
"Hello. We are a small business of around 50 employees. I would like a suggestion or opinion on the best way to organize employee folders. We do not use a virtual system, everything is still on paper and in a file folder. I think the best solution would be a series of several tabbed folders all in one for organization and storage. Any thoughts?"
Employee files are not only a convenient place to store information about employees pay, performance, etc. but they are a legal document. So to help me answer this question, I reached out to Jonathan A. Segal, a partner at Duane Morris, LLP. Their employment practice group helps employers achieve their business goals while maximizing legal compliance and minimizing their legal risks.
Oh, and you guys already know this but, just as a reminder…Jonathan, who is also a SHRM "Next Official Blogger," is very graciously sharing this expertise with us. Please don’t misconstrue his comments as legal advice, as pertaining to a specific factual situation, or as establishing an attorney-client relationship.
Is there a minimum number of employees that businesses should have before they must start keeping files?
[Segal] The answer varies depending on state law. The number of employees an employer must have to be covered by non-discrimination and other state laws varies from state to state. Play it safe and maintain a file for each employee. In today’s litigious world, there is always a risk of a claim and having a personnel file with appropriate documents in it can be helpful.
From a legal perspective, are there laws (federal or state) that govern what information is kept in an employee file
[Segal] Both federal and state laws mandate that certain records be maintained. By way of example, the Fair Labor Standards Act (FLSA), Title VII of the Civil Rights Act and the Age Discrimination in Employment Act (ADEA) impose significant document retention requirements. However, federal law generally does not dictate where the documents are maintained. It dictates only maintenance. One important exception: under the Americans with Disabilities Act (ADA), all medical records must be kept separate and distinct from the personnel file.
Some states have laws which dictate what must be maintained in the personnel file. In these states, employees have the right to inspect (review) or copy certain contents (depending on the state).
Is there a recommended “best” way to organize information in an employee file?
[Segal] First, you want to make sure that you include all documents required by state law. Second, even if there is no state law, the personnel file should include all non-medical documents relating to the hiring process and the employment relationship. This would include discipline, commendations and evaluations, to name just three. Third, it is critical that the personnel file not contain certain information. I already mentioned medical information. Let me give you one more example, among others: I-9s (and any background information maintained). The law does not mandate that I-9s be separate from the personnel file but they often contains information that employers cannot consider (for example, date of birth) in the decision-making process so it is dangerous for managers to have access to it. If a manager sees it, a commission or court may assume the manager considered it.
The reader didn’t ask this question but from experience, I know it comes up. Who “owns” the employee file?
[Segal] The employer owns the file. However, as noted before and discussed below, employees may have the right to review and/or copy certain contents in it.
Traditionally, human resources has been considered the custodian of employee files. Should managers keep a separate file from the one in human resources?
[Segal] Managers often keep informal notes in case there is a problem later. This is inevitable and acceptable. However, there are four key points. 1.The manager’s file is discoverable so the manager needs to be as careful as he or she would be on a formal evaluation, for example. 2.When there is formal discipline, a copy must go to the official personnel file. The manager may keep a copy but must give a copy to HR, too. 3.Informal documentation does not supplant the need for formal discipline with notice to the employee of same, where appropriate. Notice to the employee is often a critical aspect of avoiding and defending claims and the manager’s informal file usually does not include notice to the employee. 4.Upon termination of an employee’s employment, HR should collect the manager’s personal files. They may be needed later and managers may throw them away if steps to the contrary are not taken. Also, when a manager is terminated, all of the personal files that he or she is maintaining should be retrieved
What should the company do if an employee wants to see their file? What if the employee asks for something to be removed from their file?
[Segal] First, check state law to see whether an employee has a statutory right. Even if he or she does, the employer may have the right under the law to remove certain documents, for example, results of reference checks.
Second, even if an employee does not have right to review and/or inspect under state law, the employer may want to consider allowing the employee to review. It’s very appropriate for the employer to ask why the request is being made. The dialogue may bring to your attention a concern which you can resolve in the workplace as opposed to at a court or commission.
Finally, unless a document does not belong in the file, such as a medical document, an employee generally does not have a right to require that documents be removed. However, in some states, employees have a right to submit a rebuttal. Even if such a right is not created by state law, an employer may want to allow employees to respond to that which they do not disagree and include the rebuttal in the file. This may make it less likely that the employee will go to a lawyer because he or she will feel that he or she has ‘preserved’ his or her position.
The reader mentioned virtual filing systems. Is it possible (and legal) to create employee files in the cloud?
[Segal] Yes, but very carefully. Companies need to make sure that documents that don’t belong in personnel file are in a different cloud! And you may want to retain hard copy documents (even if off site) in case there are any disputes later.
Lastly, what’s the most common question you get about employee files?
[Segal] The most common question I get is: ‘How long must I retain a document?’ I recommend that employers ask three questions:
1. What is minimum required retention period under federal and state law for the document?
2. What are statutes of limitations for reasonably foreseeable claims (which may be longer than mandated retention period)?
3. What steps can be taken to increase administrative ease? For example, if an employer operates in multiple states, the employer may want a consistent retention period for the document (the longest of any state).
Finally, don’t forget: if litigation is reasonably likely (or exists), an employer must retain all documents (hard copy and electronic), even if in the ordinary course it would destroy them. That’s a topic for another day!
Thanks again to Jonathan for sharing his expertise. If you’d like to read more of Jonathan’s thoughts, please be sure to check out his blog and follow him on Twitter. While the subject of employee files may seem a bit boring on the surface, it’s clear that we need to put some thought into maintaining excellent documentation.
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