Pitfalls in the Use of E-mail and Electronic Records
William C. Last, Jr. and Frederick J. Northrop
Contractors are increasingly using electronic documents and e-mail communications. There are some important differences between computer records and paper ones and between e-mail and other communications. Properly used and preserved, e-mail can speed communications and reduce transaction costs. Carelessly used, however, it can give the illusion of security and expose businesses to liability.
The successful resolution of disputes which arise in the course of a construction project often depends upon the thorough documentation of all significant events and communications among the parties. Electronic records, like paper records, must be created and preserved in an organized fashion so that they can be retrieved and relied upon as needed. This article will examine some of these issues as they apply to project documentation.
Pitfall 1-Relying on E-mail when a Signature or Regular Mail is Required.
California adopted the Uniform Electronic Transactions Act in 1999. The act allows parties to agree that electronic exchanges will be enforceable in certain situations, but not in most construction agreements. An "electronic signature" is ineffective unless the parties have already agreed to using such a signature. (Civil Code section 1633.5.)
Significant construction contracts are invariably in writing and signed by the parties to the contract. Typically, such contracts state that any modifications must also be in writing and also signed by the parties. Many also require change orders and force account directives to be "signed." Often notices must be written and sent by a particular form of transmission.
Some contracts, such as home improvement contracts, must be signed or they may violate the Contractors Licensing Law. Others may even be unenforceable. The Act expressly excludes situations where another statute requires that specific text or disclosures must be signed or initialed. (Civil Code section 1633.3) This exclusion would probably apply to any consumer transaction and any residential building agreement of less than four units.
Pitfall 2-Failing to Make Organized Preservation of Electronic Records a Regular Practice.
A document cannot be used in a court unless it can be authenticated. There are a number of ways to authenticate a document, however many of them require a witness to the document's creation. Many documents, paper or electronic, are so similar to one another that witnesses and even authors cannot authenticate them unless they can find a duplicate in their own or their employer's records. In those cases it may be necessary to be able to prove that the records were maintained as a regular business practice.
Nearly all businesses will routinely file a hardcopy of any document, form, or written correspondence as a matter of course. But documents transmitted by e-mail or instant messaging have an ephemeral quality in the minds of many people and are too frequently discarded. Since e-mails generally do not pass through the clerical and administrative personnel responsible for most recordkeeping, it may be that no copy is kept at all or that it is kept in a file or directory that may never be consulted when the record is needed.
Destruction of a business record risks accusations of tampering with evidence and makes it more difficult to rely upon records which were maintained. Contractors should therefore have and follow procedures to preserve and organize e-mail and all electronic records.
Most e-mail programs allow copies of incoming and outgoing e-mails to be saved in a directory aside from the catch-all "inbox" and "sent items" directories. In many cases the e-mail server or client programs can be customized to make these copies based on the content of the subject line or text in the e-mail. Such directories should be used for each project and an archive file of all the communications should be made and kept with the other project records. If copying the file is too difficult, a contractor can set up an e-mail account for a project and simply "cc" all outgoing e-mail and forward all incoming e-mail to that account.
Whatever procedure is used, it should be routine, ideally automatic, so that the record can be authenticated even if the author is unavailable or uncooperative at a later time.
Pitfall 3-Making a Record Only When You Think You Will Need it.
In general, the hearsay rule prevents a written or electronic document from being used in court to prove facts stated in the document. While such a document can still be used to show that the statement was made or that a bargain was struck, it cannot be used to show that it was raining or that one subcontractor was interfering with the progress of another unless the document falls within one of the exceptions to the rule.
One of the most commonly used exceptions to the hearsay rule is the business records exception. Under the exception, a "business record" is one which is created and maintained in the "regular course of business activities." The reason such records are admissible is that they are created and used for general business purposes and not as "ammunition" in a dispute.
Most e-mail would not qualify as a business record, because it is created for impromptu communications rather than as a regularly kept record of activity. However, if employees regularly use e-mail for a business purpose, such as creating and filing timesheets or logs, such e-mails would probably qualify as a business record. Similarly, if a contractor maintains a journal recording significant events or keeps minutes of all construction meetings or telephone conversations, those records will probably qualify as business records.
Conversely, a contractor who only records events, meetings, and conversations when he or she expects to make a claim or when a dispute has already come up may not be able to use such records as evidence, because they were not kept as part of the contractor's "regular" activity.
Pitfall 4-Getting Too Casual With E-Mail.
Another major exception to the hearsay rule arises in the case of admissions against one's interests. Such statements are admitted in evidence because people don't usually make them unless they are true. It isn't always apparent what is in or against one's interest. The terse structure and rapid transmission of e-mail encourages employees to treat it too casually. Attorneys in discrimination and other types of litigation are well aware that employees and even corporate officers will often state things in e-mail which they would never put in a letter. There are specialists available who can recover computer records from erased and damaged disks.
Therefore, even if your business may not need a formal e-mail policy, certain ground rules should be remembered.
- Assume that all e-mail, including instant messages, is permanent and available in any court or administrative proceeding;
- Assume also that any recipient may forward the email to anyone they think might have even a casual interest;
- Never state something as a fact you don't know from first-hand observation. You might later need to contradict things you once believed true and statements in earlier "off-the-cuff" e-mails will then have to be explained;
- Never make any disparaging remarks about employees, competitors, or other contractors;
- Avoid all references to personal characteristics, private matters; and trade secrets;
- Avoid offensive language and remember that what one person considers an innocent remark or even a complement, may deeply offend another;
- Be very cautious of references to race, ethnicity, national origin, legal status, gender, sexual orientation, age, and disabilities;
- Do not use business e-mail accounts for personal communications
This article cannot provide a complete record-keeping guide. Contractors are well-advised to consult with there accountant and attorney with questions on the subject.
This article, ©2006, was written by William C. Last, Jr. and his associate Frederick J. Northrop. Mr. Last is an attorney who has been specializing in Construction Law for over 27 years.. In addition to belonging to a number of construction trade associations, Mr. Last holds a California "A" and "B" license. He can be contacted at 415-764-1990 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.