Most companies when going through the termination/layoff process will do a better-than-adequate job of documenting the process, but the problem is, are you able to capture everything? Can you produce it on demand? Do you know what other documents are on your systems that may hurt your case? For example, did you terminate someone who six months ago received a commendation from the organization or even something as simple as a few e-mails telling the person what a great job he or she was doing? Because if you don't have the data, you can count on the fact that the former employee does.
This is another example of where a strict retention policy that calls for rapid deletion of e-mails won't help you. You can be assured that the person bringing the lawsuit probably forwarded these e-mails to a personal e-mail account. The only thing to do is make sure you retain everything for the correct period of time.
The challenge brought on by the current economy is that you also can't afford to keep everything forever. Keeping e-mail for employees who haven't been with the company for the last five years probably doesn't make sense as it costs too much money to store and time to manage. There's a time and place to delete everything, and you should do so when it's legally possible.
The good news is that the retention solutions available are very mature. Hardware-based archive solutions with retention and lock (WORM) capabilities like those from EMC, Permabit, and Nexsan can help not only provide a reliable chain of custody, they can also provide a mechanism to remove files when they've reached their legal retention requirements. Archive software from Symantec, Mimosa Systems, and others also has become mature and easier to use and implement. You can even outsource the e-mail archive and retention process to companies such as LiveOffice and MessageOne.
For complete retention workflow management, companies like PSS Systems are providing software solutions that can provide end-to-end retention management solutions that improve litigation readiness and drive down litigation waste issues like storing too much data.
Even if your data set is mostly tape-based, companies like Index Engines can provide context-sensitive indexing of data that's stored in proprietary backup formats even if that data is now only on tape.