Recently, courts have served monetary sanctions ranging from $25,000 to $1 million to companies that failed to prevent the destruction of electronic evidence. These sanction amounts reveal that the failure to implement a litigation hold and preserve evidence when required can have serious consequences for your business.

Many business owners, managers and human resources professionals believe that a company’s duty to preserve information related to a potential litigation matter only arises once a lawsuit has been filed. This is not the case.

When your duty to preserve information arises

The duty to preserve material evidence arises when there is a reasonable likelihood of litigation. This standard is easily understood and applied in the context of being served with a complaint or commencing an action yourself. However, it is more valuable to consider scenarios in which the duty to preserve evidence is triggered because litigation could be reasonably anticipated.

The use of litigation hold notices to preserve information

Once the duty to preserve information arises, it is imperative to take appropriate action. An effective tool many companies use to preserve information in a potential litigation situation is a litigation hold notice. A litigation hold notice is a means to quickly suspend the current document destruction policies of your company and inform potential custodians that they must preserve relevant information. Such a notice is also helpful in describing the information to be preserved and identifying possible evidence locations.

Implications for failing to preserve information

If you fail to meet your duty, a claim for spoliation of evidence may be brought against you. Potential consequences of a finding of spoliation include: monetary sanctions, awards of attorney fees, costs for litigating document destruction, and adverse litigation results such as default judgments, dismissals or detrimental jury instructions regarding the destroyed evidence. These negative consequences underscore the importance of preserving relevant evidence.

It can be difficult to know whether it is necessary to preserve information or, once the duty applies, whether you are meeting it. There are also costs and effort associated with implementing a litigation hold that must be weighed. Your legal counsel can assist you in determining the appropriate approach the next time you face a potential litigation scenario and need to preserve relevant information.