A federal court sitting in New York recently heard a wage payment case illustrating
the gravity of the risk a company takes when it destroys documents relevant
to ongoing litigation, an act called "spoliation."
What happened. A group of 11 waiters, busboys, and captains at a Chinatown
restaurant sued the restaurant and its owners, claiming violations of state
and federal law in the failure to pay tips, minimum wages, and overtime. The
employees asked for all records concerning tips and wage payment going back
The restaurant handed over some documents, but the employees learned that the
restaurant had kept three additional types of documents containing information
about the tips they never received. The employees asked for those records as
well, but learned that the restaurant had retained them for various amounts
of time, then destroyed themeven after the case was filed. The employees
asked the court to sanction the defendants for the destruction of evidence.
What the court said. Spoliation is the destruction of evidence for use
as evidence in pending litigation. A party seeking sanctions for spoliation
must show that: (1) the party maintaining the evidence had a duty to keep it;
(2) it was destroyed "with a culpable state of mind"; and (3) it was
relevant to the litigation.
In this case, the first factor was satisfied because the filing of the lawsuit
put the restaurant on notice of the obligation to keep related documents. The
second was satisfied because, even though the restaurant may not have destroyed
the documents specifically to thwart the case, the failure to preserve them
was grossly negligent and sufficient to show a culpable state of mind. The third
factor was satisfied because the court inferred the relevance of the documents.
The restaurant and its owners could have stopped creating some of the requested
documents, but instead, they continued to create and destroy them, the court
said, noting that such actions are the essence of spoliation. The judge recommended
allowing the jury to draw an adverse inference against the restaurant that the
evidence it destroyed since the litigation began would have been favorable to
the employees. Heng Chan et al. v. 88 Palace, U.S. District Court for
the Southern District of New York, No. 03CIV6048(GEL)(JCF) (8/11/05).
Point to remember: Not only must employers maintain relevant evidence
once a lawsuit is filed, but federal regulations also require them to preserve
the following records for at least 3 years: the total dollar volume of sales
or business, as well as the total volume of goods purchased or received.