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.

So what can your organization do to protect itself?

1. Be sure that all employees understand their responsibilities to preserve documents and ESI subject to existing legal holds. Tell managers and IT staff to keep all data from departing employees until they receive verification that the data is not subject to legal holds.

Be sure IT staff are not routinely wiping hard drives as part of the redistribution, storage, or destruction of the hard drives. This principle also applies to reformatting servers, and deleting employee server files and e-mail accounts.

The most common mistake involves reformatting and redistribution of computer hard drives. In Padgett v. City of Monte Sereno, 2007 WL 878575 (N.D. Cal. Mar. 20, 2007), the defendant was sanctioned when an employee without knowledge of the pending litigation reformatted the hard drive of a custodian of relevant ESI. The court held that the defendant failed to take adequate precautions to preserve the co-worker's computer equipment.

2. If a significant number of people are leaving, issue a general notice reminding everyone of legal hold policies and procedures. Assign a contact person to answer questions.

3. Compare names of departing employees against the names of employees subject to existing legal holds.

4. During exit interviews, ask questions about compliance and flag documents/ ESI subject to legal holds.

5. Update legal hold tracking records to include new contact information of departing staff. You may need to contact them to verify receipt of the hold, to discuss the investigation or litigation, or for depositions.

6. Modify existing legal holds and issue hold notices to new custodians of inherited files. Data is at risk if these employees are not brought under the umbrella of existing legal holds and/or don't understand the ramifications.

7. Issue amended legal hold notices and partial legal hold releases when departing employees are removed from existing holds.

8. Update contact lists of risk management, records management, and IT employees who are involved with data preservation.

9. Examine legal hold procedures on a regular basis to ensure that they continue to meet the needs of your restructured company.

John Jablonski is a partner with Goldberg Segalla. Jablonski is based in the firm's Buffalo, NY office. E-mail: jjablonski@goldbergsegalla.com.