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The legal implications of a paperless office

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Editor’s Note: Bridget L. Welborn is a member of the Business, Health Care, and Intellectual Property Practice Groups at Ward and Smith, P.A.

Being "green" is about much more than being hip. A socially-conscious business that works to reduce its environmental impact is no longer a vision of tomorrow – the environmentally-friendly business is a reality of today. Often the first step a business will take in any green initiative is to reduce its paper consumption and become "paperless."

Going paperless can increase work productivity and the sharing of information, decrease costs and office space needs, and reduce a business's impact on the environment. There is also a number of tax incentives available based on the reduction in environmental impact. Notwithstanding these benefits, a business, before deciding to go paperless, must take into account various issues regarding security and which documents should be kept in hardcopy form.

Maintaining Security in a Paperless Office

A paperless office is created when communication and information are stored in a computerized, versus paper, form. The widespread use of computers, e-mail, and the Internet, along with computerized data management, file transfer, and word processing systems, has made the transition to paperless relatively easy. However, before all filing cabinets are replaced with electronic storage servers and all communications are transmitted via e-mail, a business should assess whether its information will be safe.

There are several software programs on the market that address computer security issues, electronic file storage, and e-mail security procedures. Many of these security programs, however, have a high initial cost, but, over time, the cost/benefit of such systems can save a business money compared to the paper alternative. Computer security is also an important issue because it is necessary in order to preserve trade secrets and keep otherwise protected business information confidential.

In North Carolina, a trade secret is any business or technical information that has value from not being well-known in the business community. Trade secrets can include, among other things, formulas, patterns, or programs used by a business; marketing strategies; client lists; and new inventions for which a patent has yet to be filed. To ensure the protection of these items as trade secrets, a business must take steps to keep such information confidential. To keep trade secret information confidential, a business does not have to keep the entire office under lock and key or resort to storing all potential trade secret information in the vault of a highly secure bank. Instead, simple procedures can keep such information safe in a paperless office. These include investing in a computerized security system, encrypting all trade-secret-related emails, and protecting confidential files and documents with mandatory password use.

What Do I Do With All of This Paper?

If the goal of a business is to go entirely paper-free, then why would it need to store hard copies of documents after retaining electronic copies on a computer system? It once was thought that businesses needed to keep original documents in anticipation of litigation. Under common-law rules of evidence, a copy or reproduction of a document was not admissible at trial unless the party wanting to use the copy or reproduction could sufficiently demonstrate that, through no fault of that party, the original document was not available. Thus, if a business destroyed or could not locate an original hardcopy version of a document, that document could not be used at trial.

Now, however, the Federal and North Carolina Rules of Evidence allow the admission of electronic copies of original documents as long as the electronic copies are accurate duplicates of the originals. A business nevertheless should retain certain original documents, including:

• Original corporate organizational documents such as the certificate or articles of incorporation – Maintaining these documents is advantageous should the business need to prove dates of incorporation or organization or need to supply copies of the documentation for other reasons.

• Original loan or mortgage documents, negotiable instruments, or other documents demonstrating another party's promise to pay – The originals of these documents are needed to show ownership of the loan should the borrower default or another type of dispute occur.

• If the business is a corporation, all outstanding, canceled, or redeemed stock certificates – Under most circumstances, the original stock certificate is needed to transfer stock. The original stock certificate is proof of ownership and contains evidence of any limitations on the sale or trade of the stock.

Thus, with limited exceptions, most day-to-day communications or documents no longer need to be kept in original form to be admissible in litigation or enforceable against another party.

Incentives to Take the "Green" Step

By initiating paperless procedures and other energy-saving and environmentally-friendly business practices, a business can save money in the form of tax credits, discounts, and exemptions. The federal government and many state governments offer tax incentives including tax credits, sales and use tax discounts, and other cost-saving programs for businesses that go "green."

Conclusion

As technology improves and an emphasis is placed on "green" practices, more and more businesses are moving toward becoming paperless. While tax incentives and credits may be available for certain "green" practices, the decision to go paperless should not be made lightly. Businesses operating in a paperless environment should have appropriate security measures in place to protect trade secrets, electronically-stored documents and agreements, and e-mail communications. If those measures are taken, there are many benefits to going paperless.

© 2009, Ward and Smith, P.A.

Ward and Smith, P.A. provides a multi-specialty approach to the representation of technology companies and their officers, directors, employees, and investors. Bridget L. Welborn practices in the Business, Health Care, and Intellectual Property Practice Groups at Ward and Smith. Comments or questions may be sent to blw@wardandsmith.com.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.