We are frequently asked how long an employer should retain employment records. Employers need to keep them as long as they are required, but obviously don’t want to retain and store any records longer than they have to.
Traditionally, employers kept employment records for the length of each person’s employment, plus two or three years after termination. That covered any statute of limitations during which an employee might file a suit after termination of employment. Prudent employers also kept records on individuals who applied for positions but who never became employees. Typically these documents included resumes, job applications, cover letters to all individuals who applied for a position, notes the employer made during reference checks, and any notes the employer made during job interviews; these were generally kept for three years. This covered the statute of limitations for claims an unsuccessful applicant might make (such as that he or she was not hired due to a discriminatory reason or practice.)
Unfortunately, those general rules may no longer apply, due to the passage of the Lilly Ledbetter Act. This law was passed after the Supreme Court rejected a discriminatory compensation claim that the suit was not filed timely because the alleged discriminatory compensation decision had been made years before the lawsuit. The Ledbetter Act says that the discrimination claim is renewed with each and every paycheck, thereby creating a new, extended, statute of limitations at each pay period.
For example, Company A hired a male employee (X) and a female employee (Y) at the same time, in 2000, for the same position, but paid X $1.00 more per hour. Over the years, both received regular raises, usually 2-5% of their income. Because X started at higher pay, he received larger raises each year, causing the pay gap to grow. Company A also contributed to a retirement plan using a percent of income; as a result X received greater retirement contributions than did Y. When Y found out, in 2012, what X was paid she filed a lawsuit. Under the law, before passage of the Ledbetter Act, her claim would probably have been barred by the statute of limitations, since the alleged discriminatory act took place in 2000. But, under the Ledbetter Act, each paycheck renewed the discrimination, making her claim timely as long as it was filed within two years of her last paycheck.
Company A may have a defense to a claim of discrimination. It could be that X had more experience, or additional skills, or some other reason that justified his being paid $1/hour more than Y at the hire date. However, if the company lacks records showing that, it will probably lose the case. If X, for example, left the company in 2006, and three years later all his records were destroyed, Company A no longer has documentation like his resume or application, or the notes from the interview and hire, to show that he was given higher pay than Y for a legitimate, non-discriminatory reason.
The important lesson for companies today, is that employers may have to substantially increase their retention of records regarding hiring, compensation and employment, as well as anything that can justify compensation decisions made at the time of hire or later during employment. It may be wisest to retain those records until the last person who could make a claim against the company has been gone for more than 3 years. In our example, X left in 2006, but because Y was still with the company in 2012, the company realized that all of X’s records should have been maintained. This is a comprehensive change because it means that records for all individuals hired for the same job, all individuals hired around the same time, all individuals hired within a department or a division over a period of time, etc. are affected. In other words, a prudent employer will need to store documents for the long-term, potentially over 20 or 30 years. Since those records take significant, and costly space, the records should probably be saved as electronic records, storing them on a medium that will be accessible in the future.
If as an employer you are confident that no possible discrimination suit will ever be filed, and you believe evidence of prior decisions is never going to be needed, the standard retention periods discussed earlier should be sufficient.