Dick Grote recommended in his best-selling book Discipline Without
Punishment (AMACOM, 1995) that removing discipline from an em
ployee’s file after a year has positive, motivational effect on employee morale. After all, he reasons, all employees make mistakes
and errors in judgment. If disciplinary warnings are the appropriate
company response to such indiscretions, then companies can also
minimize the sting of disciplinary intervention by removing those
documents after some predetermined time (such as a year), provided
the employee has remained free of any infractions.

Such an action is purely voluntary on your company’s part. There’s no law that mandates that employers in any state must remove such records. You’ll typically see this concept of record removal in the collective bargaining process as unions argue that their members are entitled to such a benefit. Nonunion employers are under no obligation to provide this benefit.

You’ve got to balance the motivational benefit of allowing employees
to ‘‘clean’’ their records with the downside of liability should that behavior repeat itself. Certain workplace issues have a tendency to repeat themselves over time and to become ‘‘systemic.’’ For example, sexual harassment, discrimination, and incidents of workplace violence should never be removed from an employee’s
personnel file. The law has a long memory, and your deliberate erasure of historical records that codify prejudice or intolerance could
later be interpreted as irresponsible or incriminating. Therefore, in
order to wipe out institutional discrimination and to protect the
safety of all your workers, discard this one-year removal clause for
infractions related to harassment, discrimination, or violence.

Tell Me More
What about other kinds of infractions? Would the removal of written
warnings after one year free from job performance problems benefit your company? Ultimately, that’s up to you to decide. Think of it this way, however. If one of your employees received a glowing letter of recommendation from a customer, and that letter was placed in the individual’s personnel file, you probably wouldn’t remove it after a year. In essence, it becomes a historical record of what occurred at some point in time. If you were later to discipline that individual for substandard customer service, the progressive disciplinary document would supersede that historical letter of recommendation.

Taken From : The Hiring and Firing Quention and Answer Book