Are you ready for the "personnel file" challenge? How well can you answer these questions: 

• If an employee on his last day says he wants to be paid for his unused vacation, how long would it take you to show he'd already taken that time off?

• If an employee filed a harassment suit, could you provide evidence that not only was he aware of the company's anti- harassment policy, but that he attended a training session on the subject at the shop?

• How easy would it be for an administrative assistant in your shop office to get hold of another employee's drug testing report, I-9 employment eligibility form or performance appraisal?

Your answers to these questions aren't just an indication of how well organized your shop office is. They also indicate how well you are complying with strict state and federal guidelines related to personnel files. Perhaps most importantly, they could actually make the key difference in your ability to defend yourself against a devastating lawsuit.

Two things to know

King

Cory King said there are two primary things shop owners need to know about personnel files: what needs to be in them and what should not be in them.

King is an attorney with the firm of Fine, Boggs, Cope & Perkins LLP, in Carlsbad, California, and a frequent trainer at automotive industry events. He said that while state regulations on personnel files vary somewhat, there are some general guidelines that can help employers comply with the law and better protect themselves in the event of a lawsuit.

"There may be more restrictive rules in your state that require you to have or not have certain documents in the personnel file," he cautioned. The information presented here is not a replacement for seeking legal advice about regulations in your state.

But first and foremost, King said, it's important that personnel files be stored properly.

"I can't express strongly enough: Personnel files should be kept in an office, locked up, so that only certain people have access to them," King said. "Part of the reason is legal: They contain private information that you don't want everybody having access to. However, from a much more practical perspective, you don't want somebody to be able to get their hands on their own personnel file."

King said he's seen instances where a disgruntled employee has removed - or had another employee remove - key documents from personnel files in an effort to keep the employer from having those records to support their side in a dispute.

One business, for example, had called King's office prior to firing an employee. Among the items that the business confirmed was in the employee's personnel file was the arbitration agreement the employee signed when he was hired. But when that dismissed employee later filed suit against the business, that form - which would have required the dispute be resolved through arbitration rather than the courts - was no longer in the file, indicating the business hadn't done enough to safeguard the files.

What doesn't belong

Before looking at what should be in your company's personnel files, there are some important restrictions on what should not be in the files - including some items that are definitely "personnel-related." It seems intuitive that they should be stored with other documents related to that worker's employment. But federal regulations, for example, prohibit employers from keeping I-9 records - the forms used to confirm that new hires are authorized to work in the United States - in personnel files.

"They must be kept in a separate file and locked," King said. "They're a private record you're not supposed to allow anybody access to. If you get audited by the Department of Labor and they find those in a personnel file or mixed in with other papers, you will be fined. Create a separate I-9 file and keep it in a separate locked file away from personnel files."