When Does a Business Have to Issue a Litigation Hold?

A business has to issue a litigation hold as soon as it reasonably anticipates a lawsuit or government investigation, not when the complaint arrives. That trigger often comes earlier than people expect: a demand letter, a credible threat from a customer or former employee, an agency subpoena, or an internal discovery that makes a claim likely. From that point, the company must take reasonable steps to preserve relevant documents and data, and a written litigation hold notice is the standard way to show that it did.

The stakes are real. Under Federal Rule of Civil Procedure 37(e), if electronically stored information that should have been preserved is lost because a party failed to take reasonable steps, a court can order measures to cure the prejudice to the other side. If the court finds the party acted with intent to deprive the other side of the information, it can instruct the jury to presume the lost information was unfavorable, or even enter judgment. State courts have their own spoliation rules with similar consequences. Preservation is one of the first things our commercial litigation team addresses when a client calls about a dispute.

What triggers the duty to preserve

The question is whether litigation is reasonably foreseeable, judged by what the company knew at the time. Common triggers include:

• A demand letter or a lawyer’s letter threatening a claim.
• A formal internal complaint about discrimination, harassment, or wages, especially one that mentions a lawyer or an agency.
• A subpoena, civil investigative demand, or agency inquiry.
• A serious accident, product failure, or data breach.
• The company’s own decision to sue someone. A plaintiff’s duty to preserve can begin before the defendant knows anything.

When in doubt, preserve. Keeping data costs far less than explaining to a judge why it is gone.

What a litigation hold notice must cover

A hold notice goes to the custodians, meaning the people likely to have relevant information. It should describe the dispute in plain terms without unnecessary commentary that creates new evidence, define the relevant time period and subject matter, and list the kinds of material to keep. Be specific about data sources, because that is where holds fail.

Email and shared drives

Usually the easy part, if IT suspends auto-delete rules for the custodians.

Chat and collaboration tools

Slack, Teams, and similar platforms often have retention settings that delete messages automatically. Those settings need to change for the relevant channels and users.

Phones and text messages

Business conversations by text, WhatsApp, or Signal are discoverable when relevant, including on personal phones. Disappearing message features are a frequent problem. Tell custodians to turn them off and to keep their devices.

Paper and third-party records

Notebooks, printed drafts, and physical files count too, as do records that vendors hold on your behalf.

Steps to issue and manage a hold

1. Decide the scope with counsel: custodians, date range, topics, and data sources.
2. Have IT suspend automatic deletion for the affected accounts and systems, and document when it did so.
3. Send the written notice and require each custodian to confirm in writing that they received and understand it.
4. Interview key custodians about where they keep information, since people often store relevant data in places IT does not know about.
5. Handle departures carefully. When a custodian leaves, preserve their mailbox, files, and devices before routine offboarding wipes them.
6. Send periodic reminders, and update the hold if new claims, people, or time periods enter the dispute.
7. Release the hold in writing once the matter is fully resolved, including any appeals, so normal retention can resume.

Common litigation hold mistakes

The biggest mistake is sending the notice and assuming the job is done. Courts look at whether the company took reasonable steps, and a notice nobody followed, while auto-delete kept running, rarely meets that standard. Other frequent errors include waiting for the complaint to be served, leaving out executives or IT staff because they seem peripheral, forgetting about text messages, and letting a key employee’s laptop be reimaged after they resign.

A litigation hold is also not a reason to save everything forever. A clear record retention policy, applied consistently before any dispute arises, lets you delete routine data with confidence. The hold suspends that policy only for what is relevant.

Where preservation fits in the larger dispute

Preservation runs alongside reviewing the contract and assessing the claim. If you are the party sending the demand, issue your own hold first; our post on what a breach of contract demand letter should include covers the letter itself. If the dispute grew out of an internal problem, see what to do after you discover a compliance violation, because the duty to preserve can attach during the internal review. Companies that want a standing retention policy and hold procedure can build one through our risk management and legal compliance practice.

If your company has received a demand, subpoena, or threat of suit and needs a litigation hold in place quickly, Capitol Law Partners can scope it and guide your team through it. Schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by this communication.

Attorney Sena Sahin. Clear advice for individuals, families, and business owners.

Need help with this topic? See our commercial litigation and evidence preservation page or schedule a consultation.