LABOR & EMPLOYMENT NEWSLETTER - What You Don't Know About Your Information Systems Can Hurt You

Not too long ago, an employer could establish a simple document destruction policy based solely upon statutory periods an employer was required to keep certain documents, such as employment applications, I-9s, OSHA testing, and the like. The world has changed. An employer who follows the statutory time periods, without analyzing the effect of computer storage on the analysis of what may be destroyed and when, puts an employer in the position of playing a form of Russian roulette.

Employers big and small rely extensively on computers for everything from accounting or bookkeeping systems to advanced inventory management systems. Electronic communications have become the norm as Blackberries, other PDAs, and cell phones to send and receive text messages have grown truly ubiquitous. Moreover, technological developments, such as voice over IP and digital voicemail, are creating a wealth of information on company systems which was not previously there. This poses a problem for employers who do not dig into their information systems as part of a proactive approach to managing the data on their systems.

Electronically stored information ("ESI") has become an increasingly ripe source of litigation disputes, but in no area has ESI become a more fertile landscape to litigants than in employment claims. Theoretically, both parties are equally obligated to retain information which is relevant or which might lead to the discovery of admissible evidence. But in reality, employers typically have a variety of systems which may have information relating to the plaintiff, whether directly or indirectly, which must be considered in evaluating what steps the employer must take and when to preserve the information. Conversely, an employee plaintiff rarely maintains computer or personal email systems, often choosing to use the company system for both personal and work related matters, despite company policies to the contrary.

This disparity has enormous consequence. First, an employer should constantly review and adapt its policies, particularly document retention, to reflect changes in the employer's information systems. For example, not long ago, most companies asked applicants to submit employment applications in person or via mail. It has become common for employment inquiries to be made electronically, or even for applications to be submitted electronically. This simple technological change may increase a hundred-fold the number of applications an employer is obligated to retain. In a discrimination case, a savvy plaintiff may find these additional applications a fertile area for exploration. Second, an employer may become besieged with extensive document requests for ESI contained on its systems which is often expensive and time-consuming to retrieve. Both the Federal and Texas Rules of Civil Procedure permit the court to consider shifting the cost of production to the employee in appropriate circumstances, but typically the employer must bear the initial cost of extracting the information and production, and seek to shift those some or all of those costs. The ability to impose the initial cost burden upon the employer to search its systems is a powerful tool for employees in litigation.

Third , an employer who fails to take effective measures to halt automatic document or ESI destruction policies once a dispute may reasonably be anticipated may face dire consequences. For example, it is not uncommon for companies to establish document retention policies under which all emails older than 30 or 60 days are automatically deleted from the system. Should an employer receive information from which a dispute may reasonably be anticipated, the employer is obligated to stop the automatic destruction procedures. Employers who fail to take the proper precautions to preserve electronically stored information run the risk of sanctions, or even a spoliation instruction which allows a jury to infer that the missing documents would have been helpful to the opposing party's case. The cases on the subject are eye-opening. In what has come to be known as the Zubulake opinions, Laura Zubulake brought claims against UBS Warburg for gender discrimination, failure to promote, and retaliatory discharge. After several years of litigation, involving at least several appeals¹, the jury was instructed that it could draw an adverse inference from e-mail deleted or lost by UBS employees which led to a $29.2 million verdict against UBS Warburg, over $20 million of which was a punitive damage award.

Zubulake is not an isolated case. Another noteworthy case was the Philip Morris USA, Inc.² case decided by a District of Columbia Court which illustrates the importance of taking all reasonable steps to stop document destruction. In that case, upon anticipation of litigation, Philip Morris chose to implement a manual policy whereby its employees were instructed to print and save e-mail which might be relevant to the lawsuit. Unfortunately, Phillip Morris did not deactivate its automatic deletion policy; it relied on the employees to follow the instructions to print and save. During the litigation it was discovered that at least 11 senior executives failed to print and retain all potentially damaging emails. As a sanction, the court barred any testimony from these executives, and fined Phillip Morris $2.75 million.

Likewise, a Maryland district court held that an employee's complaint on the day he was terminated that he believed his termination was in part retaliation for his complaints about harassment, was sufficient to trigger the employer's obligation to preserve ESI. Echostar's failure to preserve email and other ESI from that date forward permitted an adverse inference spoliation jury instruction. Under the Broccoli decision³, an employer who wishes to play it safe and avoid a potential spoliation instruction could be responsible for suspending its automatic deletion policies when it receives an employee complaint, if a court later determines that the employer should have reasonably anticipated that litigation would result. Dealing with these concerns while adhering to a document destruction policy becomes a risky juggling act. Federal Rule of Civil Procedure 37(f) provides a safe harbor for companies who in good faith comply with an established document destruction policy. But as these cases illustrate, what an employer should have reasonably anticipated in good faith is a fact question open to much interpretation.

You may have heard that the federal rules permit an employer to rely on an established document destruction policy. Only to a point. While Federal Rule Civil Procedure 37(f) provides a safe harbor for employers who inadvertently destroy documents as part of the employer's data retention and/or automatic destruction policies, the safe harbor is quite limited. The Committee Notes to Rule 37(f) clearly state, "a party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve." Once an employer should have reasonably anticipated litigation, its duties begin. This means that the obligation to preserve relevant evidence, including ESI, may often be long before a charge or grievance, much less litigation; is filed. It begins the moment legal action is "reasonably foreseeable."

So, what is an employer to do? In order to ensure that the employer is taking all reasonable, effective steps required as part of its good faith effort, an employer should:

identify the location and general content of all potentially relevant ESI (e.g., computer servers, disks, CDs, hard drives, zip drives, flash drives, desktop computers, laptop computers, home computers, Blackberries or other PDAs, office telephones, cellular or mobile telephones, voicemail systems, e-mail accounts, etc.);

identify automatic destruction policies, planned system updates, equipment replacements and implement procedures to preserve relevant information, including deactivating automatic document destruction policies;

identify persons with relevant electronic or paper data and provide initial and updated notices instructing those persons how they should comply with preservation requirements;

ensure that the proper persons within the employer's IT department are aware of the preservation requirements and understand the consequences of failing to comply; and

establish written litigation hold processes.

¹ Zubulake v. UBS Warburg, LLC, (S.D.N.Y. 2003-2005). Ms. Zubulake requested the production "[a]ll documents concerning any communication by or between UBS employees concerning the plaintiff." UBS Warburg initially produced 350 pages of documents, about 100 of which were email. Ms. Zubulake asserted that additional email should have been produced, perhaps from archival tapes, because she had produced approximately 450 pages of email correspondence. UBS Warburg objected claiming undue burden and expense, and asked the court to shift the cost of production to the plaintiff. Ultimately, the court ordered UBS Warburg to produce, at its own expense, all responsive email existing on its optical disks, active servers, and five backup tapes. After the tapes were reviewed and materials produced (and costs known), then the court will conduct the appropriate cost-shifting analysis.

Unfortunately, the Zubulake saga did not stop there. In their efforts to comply with the production requirements outlined by the court, the parties discovered that certain backup tapes were missing and that emails had been deleted. The plaintiff moved for sanctions for failure to preserve the missing tapes and emails. The court found that UBS Warburg had a duty to preserve the missing evidence, since it should have known that the emails might be relevant to future litigation. Ms. Zubulake did not file her charges with the EEOC until August 2001, however, the court asserted that by April 2001, "almost everyone associated with Zubulake recognized the possibility that she might sue." The court found that UBS Warburg failed to comply with its own retention policy, which would have preserved the missing evidence. However, the judge found that although the defendant had a duty to preserve all of the backup tapes at issue, and destroyed them with the requisite culpability, the plaintiff could not demonstrate that the lost evidence would have supported her claims. Therefore, the court held that it was inappropriate to give an adverse inference instruction to the jury. Plaintiff was given the opportunity to reopen depositions.

Finally, Ms. Zubulake moved for sanctions asserting that UBS Warburg prejudiced her case by its conduct in discovery. The court granted the motion for sanctions, including a spoliation jury instruction and ordered the employer to pay costs after determining that relevant emails were willfully deleted from company systems. The court went further and chastised defense counsel, noting that "[c]ounsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched." Specifically, the court concluded that attorneys are obligated to ensure all relevant documents are discovered, retained, and produced. Additionally, the court declared that litigators must guarantee that identified relevant documents are preserved by placing a "litigation hold" on the documents, communicating the need to preserve them, and arranging for safeguarding of relevant archival media.
²United States of America v. Philip Morris USA, Inc., (D. D.C. Cir. July 2004).
³Broccoli v. Echostar, 229 F.R.D 506 (D. Md. 2005).