Where is the Line on Email Privacy?

A Conflicted Hosting Admin asks: "Imagine you're a webmaster running your own server. You provide email accounts to a third party as a 'service' in addition to hosting a web site for the third party. Now, suppose that one of the companies that you are hosting a site and email addresses for decides they need access to an email account for a previously disassociated employee. Does that company now have access to the email even though there is no written contract nor technology use policy? Where does the independent hoster look for guidance on something such as this?"

"It could be interpreted that the company is looking for evidence of impropriety or dishonesty on the part of the prior employee, but there was never a question before the sudden termination to suggest anything out of the ordinary was ongoing. I am such an admin. I am ready to allow access to the company requesting it. Several details are bugging me though. First, I have never been asked for access to any other terminated employees' email. Second, I recently inquired about preserving email for a different employee and got the short answer that all company ties had to be completely terminated. Third, the server is not owned by the company in question. I'm completely (other than the following item) independent of the company. Fourth, it's my relative's account.
I've simply not responded so far, but how far do I go? I'm not an ISP and I don't have agreements with the users. I'm also not the IT dept. Has anyone else had anything remotely similar, and if so; how did you respond?"