Let’s not forget the third option: proper security practices and principle of least privilege. No one should have been able to do this in the first place. Why were they able to get plaintext passwords with a simple query? Why did they have delete permissions on production db tables? Why were they able to modify system logs and delete backups?

> Of course the safest (first) option is the correct option from a liability standpoint, which is all a company should operate on since it's first responsibility is to protect the company for those that are still there.

Isn't this an unrealistically black-and-white mode of thinking? Humans are complicated and have many values and perceived responsibilities. It's not healthy for them to throw them all out and act as if they only have one responsibility that needs to be maximally upheld at all costs. They should balance their actions thoughtfully.

I'd argue that failing to segregate things so that there's a switch for the sensitive stuff and a separate switch for the not-sensitive stuff is an operational failure. A rank and file employee having access to his email account should never pose a serious liability to the business.