Employers Face Challenges in a Digital World

These questions — and others relating to discovery of electronic records — were addressed head-on in a recent federal employment discrimination case, Zubulake v. UBS Warburg. There, in five separate written decisions, the District Court for the Southern District of New York enunciated the clearest guidelines to date regarding an employer's obligation to preserve and produce electronic records and data, and spelled out the dangers of failing properly to do so.

In Zubulake, a securities trader for UBS Warburg sued her former employer for sex discrimination and retaliation after she was passed over for a promotion and allegedly subjected to a barrage of sexist comments and conduct. A protracted discovery dispute developed between the parties involving a single document demand by Zubulake asking UBS to produce “all documents concerning any communication by or between UBS employees concerning Plaintiff.” The term “document” was defined in Zubulake's requests to include emails and other electronic data, which, Zubulake argued, contained “key evidence” supporting her claims.

UBS objected to the request, arguing that Plaintiff should bear the cost ($175,000 plus $100,000 in attorney time) of retrieving the electronic data from UBS's active and archived computer media. The District Court disagreed and, in the first of five decisions, established a balancing test to be used in determining which party should pay for retrieving and producing electronic records. Where the data is accessible, eg, maintained in active computer files and e-mail systems, the normal rules of discovery apply and require the responding party to bear the cost of production. Where the data is relatively inaccessible, however, eg, contained on media such as “back-up tapes,” the courts may consider shifting the cost to the requesting party. The court considered eight factors in its cost-shifting analysis, including: 1) the likelihood of finding relevant evidence; 2) the cost of retrieving it compared to the amount in controversy; and 3) the ability of the requesting party to limit its requests.

Based on these factors, the court in Zubulake initially ordered UBS to bear the entire cost of production. When Zubulake later asked for additional back-up data, however, the court ruled that she must bear some of the cost (25%) of retrieving and extracting the emails from backup tapes. The court did so, in large part, because Zubulake could afford it; she earned approximately $650,000 during her last year of employment with the company.

Subsequent Decisions

The parties' discovery dispute did not end there. In a series of subsequent decisions, the District Court went on to address an employer's obligations to preserve electronic and other forms of data. When initially responding to Zubulake's request, UBS had discovered that some of its back-up tapes were missing and other data, or so it claimed, had inadvertently been deleted after the commencement of the action. Zubulake moved the court for sanctions, arguing that UBS had failed to follow a reasonable electronic records retention policy and claiming that it had destroyed evidence by deleting emails and data that were responsive to her requests.

The District Court agreed with Zubulake and found that UBS had an obligation to preserve electronic evidence it knew or should have known would be relevant to her claims. The court recognized that an employer need not “preserve every shred of paper, every email or electronic document, and every back up tape.” Rather, an employer must preserve, by way of a so-called “litigation hold,” any documents or records created by those “key” individuals likely to have relevant information in the case. Such a “hold” on documents must be communicated to all key individuals as soon as litigation is reasonably anticipated; in Zubulake, that date was the filing of her EEOC Charge of Discrimination.

Ultimately, the District Court sanctioned UBS for “negligently and perhaps recklessly” failing to preserve evidence by allowing emails from key individuals to be deleted and other information lost, in violation of accordance with its own records retention policy. The court imposed both monetary and evidentiary sanctions, including its delivery of an “adverse inference” instruction to the jury requiring it consider the missing evidence as unfavorable to UBS, an instruction that even the judge noted was an “insurmountable barrier” for UBS at trial. The jury ultimately awarded Zubulake more than $29 million in compensatory and punitive damages.

The Need for an Effective Electronic Records

Retention Policy

The decisions in Zubulake have become a national “benchmark” of sorts for an employer's obligations in electronic discovery, with numerous other federal and state courts relying on their analysis, and making its author, District Judge Shira Scheindlin, a recognized authority in this area. In light of Zubulake, to avoid accusations of spoliation, employers must give serious consideration to implementation and consistent application of a records retention policy, which must include guidelines governing the specialized issues raised by prospective or pending litigation. Such a policy must be carefully drafted and should consider both business needs and statutory and regulatory obligations.

At a minimum, an effective records retention policy must include:

• All records retention periods required by statute or regulation. This would include document retention requirements for payroll and personnel records, as well as financial and tax information;
• A regular destruction period or periods for all electronic and other records based on business needs and the statutory and regulatory requirements noted above. It is not enough to determine how long is long enough, but the manner in which records are stored. The policy must apply to all possible storage media, including hard drives, network drives, laptops, PDAs and Blackberrys, back-up tapes, disaster recovery, and traditional paper files; and
• A “litigation hold” to suspend the destruction of records and documents made by “key” individuals in the event of actual or threatened litigation. Such a “hold” must be communicated and applied to “key” individuals in the case, as well as to IT and human resources, as soon as litigation is commenced or is likely. In Zubulake, the court found the “key” individuals to be plaintiff's immediate supervisor, as well as his supervisor, two co-workers, and the human resources representative involved in her claims. It may be anticipated that tensions will arise between effectuating these last two points, and the policy adopted must contemplate that rules that call for the regular destruction of documents must be subordinate to the necessity of imposing the “litigation hold.”

Employers should distribute the policy to all employees, in writing, and train managers and supervisors on the policy to ensure that they know what records to retain and how, including when to preserve records for litigation. In addition, employers should consider establishing an internal committee consisting of management, legal, IT and human resources, with the responsibility for monitoring implementation of the policy and identifying any future need to amend or modify it. Finally, employers should work with their IT staff to ensure that electronic data is stored in a way that is easily accessible and that confidential information, such as trade secrets and other confidential information (eg, customer lists, strategic plans and personnel files) are stored in a manner that limits accessibility to those who need or are required to know it.

The goal of such a policy is at least threefold: 1) to limit the storage of unnecessary records, to avoid the costs associated with storage and to avoid the risks attendant to storage of potentially harmful information that is no longer of value to the Company; 2) to allow for retrieval of relevant and necessary information, in the most cost efficient manner possible; and 3) to preclude the destruction of information relevant to anticipated litigation, while allowing the procedures requiring destruction of information to proceed otherwise unabated.

John P. LeCrone, Esq., is a Partner with Davis Wright Tremaine LLP, Los Angeles. He has represented employers and management in wrongful discharge, harassment and discrimination litigation, wage and hour class actions, trade secrets/unfair competition, ERISA, and proceedings before federal and state administrative agencies including the EEOC, DFEH, DLSE, DOL, NLRB, and NASD. LeCrone may be reached at [email protected] or 213-633-6800.

When Gutenberg invented the printing press 560 years ago, he changed society for centuries to come – in ways that could hardly be predicted at the time. His creation of the printing press allowed for an efficient and unprecedented way to produce and disseminate large amounts of information. As a result, knowledge spread quickly and the exchange of ideas began to flourish around the world. The widespread use and development of computers has also revolutionized the way society functions. With little or no incremental cost, companies can now store unfathomable amounts of data and information about their business. Documents, e-mails, and financial data all can be sent and retained indefinitely with the simple click of a mouse.

As remarkable and efficient as these capabilities are, they create dramatic new challenges for individuals and organizations alike. Employers, in particular, are faced with new challenges involving the retention of electronic records and data. What should be saved? How long is long enough? And what obligations do employers have to preserve electronic records when faced with actual or threatened litigation?

Zubulake v. UBS Warburg

These questions — and others relating to discovery of electronic records — were addressed head-on in a recent federal employment discrimination case, Zubulake v. UBS Warburg. There, in five separate written decisions, the District Court for the Southern District of New York enunciated the clearest guidelines to date regarding an employer's obligation to preserve and produce electronic records and data, and spelled out the dangers of failing properly to do so.

In Zubulake, a securities trader for UBS Warburg sued her former employer for sex discrimination and retaliation after she was passed over for a promotion and allegedly subjected to a barrage of sexist comments and conduct. A protracted discovery dispute developed between the parties involving a single document demand by Zubulake asking UBS to produce “all documents concerning any communication by or between UBS employees concerning Plaintiff.” The term “document” was defined in Zubulake's requests to include emails and other electronic data, which, Zubulake argued, contained “key evidence” supporting her claims.

UBS objected to the request, arguing that Plaintiff should bear the cost ($175,000 plus $100,000 in attorney time) of retrieving the electronic data from UBS's active and archived computer media. The District Court disagreed and, in the first of five decisions, established a balancing test to be used in determining which party should pay for retrieving and producing electronic records. Where the data is accessible, eg, maintained in active computer files and e-mail systems, the normal rules of discovery apply and require the responding party to bear the cost of production. Where the data is relatively inaccessible, however, eg, contained on media such as “back-up tapes,” the courts may consider shifting the cost to the requesting party. The court considered eight factors in its cost-shifting analysis, including: 1) the likelihood of finding relevant evidence; 2) the cost of retrieving it compared to the amount in controversy; and 3) the ability of the requesting party to limit its requests.

Based on these factors, the court in Zubulake initially ordered UBS to bear the entire cost of production. When Zubulake later asked for additional back-up data, however, the court ruled that she must bear some of the cost (25%) of retrieving and extracting the emails from backup tapes. The court did so, in large part, because Zubulake could afford it; she earned approximately $650,000 during her last year of employment with the company.

Subsequent Decisions

The parties' discovery dispute did not end there. In a series of subsequent decisions, the District Court went on to address an employer's obligations to preserve electronic and other forms of data. When initially responding to Zubulake's request, UBS had discovered that some of its back-up tapes were missing and other data, or so it claimed, had inadvertently been deleted after the commencement of the action. Zubulake moved the court for sanctions, arguing that UBS had failed to follow a reasonable electronic records retention policy and claiming that it had destroyed evidence by deleting emails and data that were responsive to her requests.

The District Court agreed with Zubulake and found that UBS had an obligation to preserve electronic evidence it knew or should have known would be relevant to her claims. The court recognized that an employer need not “preserve every shred of paper, every email or electronic document, and every back up tape.” Rather, an employer must preserve, by way of a so-called “litigation hold,” any documents or records created by those “key” individuals likely to have relevant information in the case. Such a “hold” on documents must be communicated to all key individuals as soon as litigation is reasonably anticipated; in Zubulake, that date was the filing of her EEOC Charge of Discrimination.

Ultimately, the District Court sanctioned UBS for “negligently and perhaps recklessly” failing to preserve evidence by allowing emails from key individuals to be deleted and other information lost, in violation of accordance with its own records retention policy. The court imposed both monetary and evidentiary sanctions, including its delivery of an “adverse inference” instruction to the jury requiring it consider the missing evidence as unfavorable to UBS, an instruction that even the judge noted was an “insurmountable barrier” for UBS at trial. The jury ultimately awarded Zubulake more than $29 million in compensatory and punitive damages.

The Need for an Effective Electronic Records

Retention Policy

The decisions in Zubulake have become a national “benchmark” of sorts for an employer's obligations in electronic discovery, with numerous other federal and state courts relying on their analysis, and making its author, District Judge Shira Scheindlin, a recognized authority in this area. In light of Zubulake, to avoid accusations of spoliation, employers must give serious consideration to implementation and consistent application of a records retention policy, which must include guidelines governing the specialized issues raised by prospective or pending litigation. Such a policy must be carefully drafted and should consider both business needs and statutory and regulatory obligations.

At a minimum, an effective records retention policy must include:

• All records retention periods required by statute or regulation. This would include document retention requirements for payroll and personnel records, as well as financial and tax information;
• A regular destruction period or periods for all electronic and other records based on business needs and the statutory and regulatory requirements noted above. It is not enough to determine how long is long enough, but the manner in which records are stored. The policy must apply to all possible storage media, including hard drives, network drives, laptops, PDAs and Blackberrys, back-up tapes, disaster recovery, and traditional paper files; and
• A “litigation hold” to suspend the destruction of records and documents made by “key” individuals in the event of actual or threatened litigation. Such a “hold” must be communicated and applied to “key” individuals in the case, as well as to IT and human resources, as soon as litigation is commenced or is likely. In Zubulake, the court found the “key” individuals to be plaintiff's immediate supervisor, as well as his supervisor, two co-workers, and the human resources representative involved in her claims. It may be anticipated that tensions will arise between effectuating these last two points, and the policy adopted must contemplate that rules that call for the regular destruction of documents must be subordinate to the necessity of imposing the “litigation hold.”

Employers should distribute the policy to all employees, in writing, and train managers and supervisors on the policy to ensure that they know what records to retain and how, including when to preserve records for litigation. In addition, employers should consider establishing an internal committee consisting of management, legal, IT and human resources, with the responsibility for monitoring implementation of the policy and identifying any future need to amend or modify it. Finally, employers should work with their IT staff to ensure that electronic data is stored in a way that is easily accessible and that confidential information, such as trade secrets and other confidential information (eg, customer lists, strategic plans and personnel files) are stored in a manner that limits accessibility to those who need or are required to know it.

The goal of such a policy is at least threefold: 1) to limit the storage of unnecessary records, to avoid the costs associated with storage and to avoid the risks attendant to storage of potentially harmful information that is no longer of value to the Company; 2) to allow for retrieval of relevant and necessary information, in the most cost efficient manner possible; and 3) to preclude the destruction of information relevant to anticipated litigation, while allowing the procedures requiring destruction of information to proceed otherwise unabated.

John P. LeCrone, Esq., is a Partner with Davis Wright Tremaine LLP, Los Angeles. He has represented employers and management in wrongful discharge, harassment and discrimination litigation, wage and hour class actions, trade secrets/unfair competition, ERISA, and proceedings before federal and state administrative agencies including the EEOC, DFEH, DLSE, DOL, NLRB, and NASD. LeCrone may be reached at [email protected] or 213-633-6800.