Legal Holds: Watch the Door

Due to the economy, many corporate legal and risk management departments -- when not coping with their own layoffs -- are focusing on issues relating to workforce reductions. Restructured companies are redistributing workloads and collecting documents, computers, PDAs and electronic files from departing employees.

Unfortunately, these actions may contribute to a perfect storm of risk, leading to the destruction of evidence pertinent to an existing legal hold (or a duty to preserve evidence).

When it's gone, it's gone. Arguing that a key piece of evidence is lost because an employee was let go will garner little sympathy from the bench. Now, more than ever, companies must effectively manage legal hold procedures.

WHAT IS A LEGAL HOLD?

A legal hold is an affirmative act by a company to prevent the destruction of documents -- including physical documents and electronically stored information -- relevant to a lawsuit or government investigation. While a company is free to preserve documents however it sees fit, some cases have held that companies must initiate legal holds to meet their duty to preserve documents and ESI.

Failure to preserve data subject to a legal hold can result in sanctions including adverse inference jury instructions, fines (sometimes millions of dollars) and other costs associated with uncovering the destruction of evidence. Some courts have issued sanctions even when the destruction appeared inadvertent.

WHY FOCUS NOW?

With the disruptions of restructuring and layoffs, your organization may be experiencing personnel changes in critical positions. These can include people in charge of legal hold protocols -- or who help preserve ESI -- in your IT, records management and legal departments.

For example, human resources staff who process exits may not be aware that data received from departing employees may be subject to legal holds. And it's a safe bet that the folks who were recently pink-slipped aren't exactly focused on legal holds.

Adding to the risk, many companies have the mistaken impression that duty to preserve is discharged by merely issuing notices when the legal hold begins. This can contribute to the equally mistaken belief that existing holds will take care of themselves during restructuring -- and that the company can return to actively managing procedures after the dust settles.

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Source: Law.com
By: John Jablonski