A recent employment termination turned litigation offers important lessons for employers and employees when it comes to preserving computer information maintained on company issued laptops and related equipment.
In Larkin v. Trinity Lighting, Inc. (PDF) (S.D. Miss. Apr. 20, 2011), Larkin was employed by Trinity as a salesperson and provided a company laptop, desktop computer, and an external hard-drive.
He was terminated and Trinity directed Larkin to return all of these devices. Larkin complied … sort of. He returned the devices, but not before deleting all of the files (approximately 111,384 files).
Larkin then filed suit against Trinity alleging it failed to make bonus payments. Trinity filed a counterclaim asserting, among other claims, that Larkin breached his fiduciary duty and engaged in fraudulent activity during the course of his employment, including fraudulently altering a bonus structure.
Trinity sought to compel Larkin to pay the costs associated with the restoration of the deleted computer evidence, which was estimated to cost between $8,000 and $10,000 to restore a portion of these files (the retrievable user-created files deleted after Larkin’s termination).
Trinity argued that Larkin had actual knowledge that he was not to delete these files and that he did so in anticipation of the impending law suit because the files contained evidence of Larkin’s breach of fiduciary duty and fraudulent activity. In further support, Trinity pointed to the fact that Larkin consulted with an attorney prior to the deletion of the files.
Larkin admitted that he deleted the files. But he contended that he did not anticipate that litigation would be filed and he only consulted counsel solely for the purpose of negotiating severance pay. Thus, Larkin contended that he had no duty to preserve the computer files.
In deciding the issue, the Court accepted that Larkin committed spoliation (destroyed evidence that should have been preserved due to the litigation), but declined to impose sanctions. In assessing sanctions, the Court focused on the following factors: (1) The degree of fault of the party who altered or destroyed the evidence; (2) The degree of prejudice suffered by the opposing party; and (3) Whether there is a lesser sanction that will avoid substantial unfairness to the opposing party.
While factors one and three seemed to clearly weigh in favor of Trinity, the Court, in a conclusory fashion, noted that Trinity had not ultimately been deprived of any information as the the information was “apparently retrievable” and Trinity could retrieve it at its cost.
The Take Away for Employers and Employees
The Duty to Preserve Evidence and When this Duty Arises
Larkin obtained a good result – he avoided paying a $10,000 computer forensic bill – but that does not necessarily mean he made a good decision. In fact, I’m surprised the Court did not impose sanctions against Larkin in light of the undisputed facts: A former employee admitting to deleting all files – company and personal – from the company owned computers after being advised to return all such property – computers and files – against the backdrop of a dispute over a lot of money (court filings indicate over $200,000).
The right decision would have been to understand the duty to preserve evidence: A legal duty exists to preserve information under the control of a party who reasonably knows or can reasonably foresee such information being material to a potential or pending legal dispute. This duty may arise under statutory authority, case law, court procedural rules, or the inherent authority of the court.
The threshold for preserving evidence is “reasonable anticipation,” which most frequently arises after a lawsuit has been filed, and a party receives service of the complaint or counterclaim. For non-parties, the duty often arises upon being served a subpoena or deposition notice, which provides express notice of pending litigation. But courts also have concluded that a duty to preserve evidence may arise prior to litigation, when a defendant or non-party receives pre-litigation communications or once it becomes reasonably certain that an action will be filed.
Computer/Technology Use Policy
Providing company issued laptops and computers to remote employees like Larkin is commonplace. Consider that eighty-two employers in Fortune’s 2011 list of “100 Best Companies to Work For” offer telecommuting opportunities to employees. Further, a survey by the Society for Human Resource Management found that 84% of organizations offering telecommuting provide company laptops and desktop computers to their employees (page 18).
Regardless of whether your company offers a formal telecommuting program, it should have a computer/technology policy restricting the deletion of any company files and the personal use of employer provided computers, including the saving and storing of non-work, personal information.
Trinity, however, made no reference to such a computer/technology use policy to eliminate or undercut Larkin’s stated reason for his mass deletion: He did not have enough time to delete only personal files and information. My assumption is that Trinity did not have such a policy in place. Whether such a policy would have changed the outcome is uncertain. But it is certain not having a policy did not help Trinity’s position.