Unfortunately, many employers have learned the hard way that failing to properly preserve emails and other files after receiving notice of a potential employee claim can result in severe sanctions against the company. One well known example is Zubulake v. USB Warburg. Although Zubulake started out as a fairly “vanilla” gender discrimination case, the employer made a series of mistakes which ultimately cost the company in excess of twenty million dollars in damages and sanctions. Among those mistakes was failing to properly instruct the people involved not to delete emails relating to the case—an obligation which federal law now imposes on both individuals and companies who are involved in federal lawsuits.

To reduce these exposures, proactive employers have begun implementing written policies and training programs to educate employees about their obligation to preserve evidence. This new trend follows recommendations by The Sedona Conference, which is generally regarded as a leading authority on e-discovery preservation issues. Among other things, Sedona has announced its official position that “adoption and consistent implementation of a policy defining a document retention decision-making process” and “[t]he use of established procedures for the reporting of information relating to a potential threat of litigation to a responsible decision maker” are among the factors Courts should consider in determining whether to impose sanctions when information is lost. See The Sedona Conference Commentary on Litigation Holds, The Trigger & the Process (Aug. 2007)

With those factors in mind, many companies are now implementing written legal hold policies as part of their Employee Handbooks. Those policies often have the following features:

  • A statement concerning the company’s policy of complying with all laws requiring the preservation of evidence
  • An explanation of what employees should do if they receive notice of a claim, such as (1) promptly reporting the claim to HR/the Legal Department; and (2) preserving all potentially relevant files as soon as reasonably possible
  • An outline of potential disciplinary measures that may result from noncompliance with the policy (and an organized method for reporting non-compliance)
  • A method of confirming all employees’ acknowledgement of the policy

While a company-wide legal hold policy is not a substitute for a case-specific legal hold notice (which is now mandatory under federal law), many employers have implemented such policies to help raise employee awareness, avoid data loss issues before they become a problem, and ensure that legal issues are promptly reported up the chain of command. Moreover, if mistakes do occur, the existence of an organized legal hold policy should help establish that the company acted in good faith—a factor Courts should consider prior to imposing sanctions pursuant to Sedona.

As is the case with the company’s anti-discrimination and other policies, this is yet another area of exposure where an ounce of prevention is worth a pound of cure.