Workplace Privacy Counsel : San Francisco Employment Privacy Law Lawyer & Attorney : Littler Mendelson Law Firm : Employment Related Privacy Issues

Last week, Oregon joined a growing national trend, apparently in response to the recession and the foreclosure crisis, that restricts the ability of employers to use credit history in employment decisions. Under the Oregon law, it is an unlawful employment practice, except in limited circumstances, for an Oregon employer to use credit history in making hiring decisions or any decision affecting current employees. The law confers on Oregon employees the right to file an administrative complaint or a private lawsuit claiming that the law has been violated. Employees who prevail may recover lost wages and attorney fees. The law becomes effective July 1, 2010.

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Touted as the most stringent information security regulations to date, Massachusetts’ requirements—applicable to both customer and employee personal information—mandate the implementation of a comprehensive written information security program. As explained in previous blog posts, the regulations require “cradle-to-grave” protections for the following categories of information about Massachusetts residents when combined with first name or initial and last name: Social Security number, driver’s license and other government-issued identification number, debit or credit card number, and financial account number. One critical question for organizations, particularly those grappling with tightened budges, is where to focus limited resources in light of the enforcement risk. Recent statements by Massachusetts regulators provide a view towards the answer.

In an interview published on February 27 in BNA’s Privacy and Security Law Report, the director of the agency that promulgated the regulations, Massachusetts’ Office of Consumer Affairs and Business Regulation (OCABR), made three statements that could have an important bearing on enforcement. First, OCABR takes the position that the regulations apply even when the personal information of Massachusetts employees is stored in a centralized human resources database located at a corporate headquarters outside of Massachusetts. Second, in the director’s view, employers have virtually no excuse for failing to encrypt personal information stored on laptops. Third, although current technology does not permit encryption of personal information stored on a hand-held device, such as a Blackberry® or a Smartphone®, employers should consider other steps that will limit the risk to Massachusetts personal information if the hand-held device is lost or stolen.

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This past week, Facebook asked each of its 350 million users whether they wanted to change their privacy settings to new settings offered by Facebook. The request ignited a firestorm among privacy advocates who believed that the changes meant less privacy for users. At the same time, the request forced users to consider their old settings and whether to change them to the new ones. The Financial Times reported that, according to Facebook, before this week’s rollout of the new settings, only 15% to 20% of users had changed their default privacy settings, but in response to the inquiry about changing their privacy settings, 50% of users — approximately 175 million users — had made changes.

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Identity theft is a booming business. Each year, millions of Americans fall victim to identity theft or have their personal privacy otherwise compromised through unlawful means. Whether it comes in the form of a lost or stolen credit card, or computer hackers accessing social security numbers from employment records, financial institutions, medical records, or government agencies, the costs are staggering. Studies demonstrate that victims spend anywhere from a few hours to, in some cases, literally thousands of hours working to repair damage done by identity theft. Investigations related to identity theft often take months – or sometimes years – to resolve. Reports have estimated that hundreds of billions of dollars per year are lost by businesses worldwide due to identity theft. Individual victims sometimes lose thousands of dollars in wages resolving their cases, and can spend several hundred (sometimes thousands) of dollars in various expenses related to their case.

In an effort to combat ID theft, more than thirty states (including California, New York, Illinois, and Pennsylvania) have enacted laws restricting certain uses and disclosure of social security numbers. The federal judiciary has taken note – and is following suit. Recent revisions to the Federal Rules of Civil Procedure (FRCP) now require attorneys to redact certain personal identifying information of individuals involved in litigation when filing documents in federal court – either electronically or in traditional paper format. 

Revised FRCP 5.2(a) reads:

Unless the court orders otherwise, in an electronic or paper filing with the court that contains an individual’s social-security number, taxpayer-identification number, or birth date, the name of an individual known to be a minor, or a financial-account number, a party or nonparty making the filing may include only:
(1) the last four digits of the social-security number and taxpayer identification number;
(2) the year of the individual’s birth;
(3) the minor’s initials; and
(4) last four digits of the financial-account number.

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On Wednesday, July 1, 2009, the recently enacted Alaska and South Carolina notice of security breach laws will take effect. Alaska and South Carolina join forty-three other jurisdictions with notice of security breach laws. Some of the key provisions of these laws are described below.

The “Trigger Event”

Both laws require businesses to provide notice of security breaches when an unauthorized person acquires unencrypted computerized “personal information.” Alaska is one of six states that also requires notice in response to the unauthorized acquisition of paper records containing personal information. Under both laws, personal information includes the affected individual’s first name or initial and last name, plus social security number, driver’s license number, or credit or debit card or financial account number in combination with any required security code.

The “Harm Requirement”

In Alaska, notice is not required, if, after an investigation and notice to the Attorney General, the business determines that there is not a reasonable likelihood of harm to the consumer. Likewise, the South Carolina law does not require businesses to notify residents if illegal use of the information has not occurred, or is not reasonably likely to occur, or if use of the information does not create a material risk of harm to the resident.

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Nevada has joined Massachusetts as the only two states currently mandating encryption of sensitive human resources information.* The Nevada law — which, like the Massachusetts regulations, takes effect January 1, 2010 — applies to any organization doing business in Nevada that collects an individual’s first name or initial and last name plus Social Security number, employee identification number, driver’s license number, or credit or debit card number or financial account number with any required security code (collectively “Personal Information”). Every employer collects employees’ SSNs in the ordinary course of business, and many employers assign employee identification numbers and collect driver’s license numbers. Consequently, the new law applies to all employers.

The statute requires encryption in two circumstances. First, electronic transmissions of Personal Information must be encrypted unless the transmission (a) passes within a secure network, or (b) is sent by fax machine. This means that intracorporate e-mail will not need to be encrypted as long as e-mails do not pass over the public Internet (which usually is the case). However, all e-mail to third parties, i.e., e-mails that do pass over the public Internet containing Personal Information, will need to be encrypted.

Second, no “data storage device” which contains Personal Information may be taken off-site unless the Personal Information is encrypted. The new law’s broad definition of “data storage device” includes laptops, iPhones, BlackBerrys, back-up tapes and disk drives, as well as virtually any other electronic device that can store Personal Information.

Employers who fail to comply with the law will be easily discovered. Because Nevada’s security breach notification law provides a safe harbor from notification for Personal Information that is encrypted, any notice of a security breach that discloses the loss or theft of a laptop, portable digital assistant, back-up tape or other electronic storage medium effectively would constitute an admission that the employer failed to comply with Nevada’s encryption requirement. Because that failure would violate a statutory standard, the absence of encryption most likely would be deemed negligent. For this reason, employers with operations in Nevada should begin now to develop plans for complying with the new Nevada encryption standard.

*For comprehensive coverage of the Massachusetts data security regulations, see Littler ASAP "New Massachusetts Regulations Impose Substantial Obligations on Corporate Human Resources Departments to Safeguard Employees' Personal Information" by Philip Gordon.

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Today — January 28, 2009 — is National Data Privacy Day, which, according to a January 2009 Resolution of the House of Representatives, “constitutes an international collaboration and a nationwide and statewide effort to raise awareness about data privacy and the protection of personal information on the Internet.” This reference to “international collaboration” is not precatory. Canada and the 27 Member States of the European Union also are seeking to focus attention on data privacy today by celebrating their own National Data Privacy Day. In light of two recent events that preceded National Data Privacy Day by only one week, HR departments should take note.

On January 22, 2009, Barack Obama’s first full day as President, he outlined, on the Whitehouse.gov website, his plan to enhance the nation’s cybersecurity. Two central planks of that plan will have a direct impact on employers. First, the plan calls on private industry to “secure personal data stored . . . on private systems” and to institute a “common standard for securing such data.” Second, the plan would create national standards for corporate security breach notification. Put simply, federal data protection and security breach notification legislation is on the way; it is just a matter of time. Such legislation most likely would have the beneficial effect of relieving multi-state employers from the burdens of complying with a patchwork of state data protection and security breach notification laws. Federal legislation, however, also would bring the substantial resources and enforcement power of the federal government to an area of the law that has, to date, seen only fledgling enforcement by the states.
 

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New Massachusetts regulations, effective January 1, 2009, are a clarion call for corporate human resources departments to join the war on identity theft. The regulations mandate the development and implementation of a "written, comprehensive information security program" to safeguard the information of Massachusetts employees and consumers. Such a program rarely will be fully effective without the involvement of human resources professionals and in-house employment counsel.

While these regulations apply only to organizations with Massachusetts employees, even employers without a Massachusetts presence should consider implementing a similar program. These regulations likely will be a model for other jurisdictions and could become the standard against which all information security programs are measured. Continue reading. . .

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Joseph Braun, the owner of a New Jersey label manufacturer, hired the wrong bookkeeper and paid a hefty price. Before Braun hired the bookkeeper, referred to only as “M.A.” in a New Jersey appellate court opinion published on August 29, 2008, M.A. had completed twelve months in a pretrial intervention program after being charged with forgery and theft. One month after completing the intervention program, M.A. was charged with fourteen counts of forgery and the theft of more than $220,000 from his employer; he served 364 days in jail after a guilty plea. While still on probation, M.A. landed his bookkeeping job with Braun’s company.

Apparently not having conducted a background check, Braun gave M.A. ever-increasing responsibilities to the point where M.A. was responsible for order entries, payroll, bank records and the company’s computer system. M.A. repaid Braun’s trust by giving himself an $85,000 raise — without Braun’s authorization. The raise was just the tip of the iceberg, as M.A. defalcated more than $650,000 from Braun’s business. M.A. was prosecuted for his crimes, convicted and sentenced to seven years in prison.

On appeal, M.A. argued that the trial court had improperly denied his motion to suppress personal information stored on a laptop as well as a desktop computer found at Braun’s place of business. The New Jersey appellate court, following several frequently cited federal appellate court decisions, held that M.A. had no reasonable expectation of privacy in his workplace computer and affirmed the conviction. In reaching this conclusion, the court relied on the following facts:

(a) Braun’s business owned the computers;

(b) the computers were kept at Braun’s business;

(c) Braun told M.A. when he was hired that the business owned the computers;

(d) the desktop was connected to the corporate network;

(e) co-workers had access to both computers; and

(f) M.A.’s private office was never closed or locked.

The facts were weighed so heavily against M.A. that this case provides guidance in only the most limited circumstances.

A few minor changes of the facts show why: M.A. marked all of his personal files as “private” when saving them to the company’s document management system. It was well known within the company that system administrators respected the “private” designation. M.A. did not permit any other employees to log into his computer; nor did he share his username or password with any co-workers. When M.A. left his private office, he shut and locked his office door using a combination that was unknown to anyone else in the company. On fairly similar facts, the Florida Court of Appeals recently held that a church pastor had a reasonable expectation of privacy in child pornography stored on his office computer.

The point is that corporate ownership of computers and notice to employees of that ownership will not always open the door to searches with impunity of personal information stored on a business computer. Instead, employers should look more deeply into who, in fact, has or could have access to the information at issue and whether workplace computer use policies actually are put into practice.

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With the State of Connecticut reeling from a series of massive security breaches that have exposed the personal information of hundreds of thousands of state residents, Connecticut's Governor and General Assembly joined forces in mid-June to make Connecticut only the second state (after Michigan) to mandate that private employers publish a policy on the protection of employee Social Security numbers (SSNs). The new Connecticut law — entitled, "An Act Concerning the Confidentiality of Social Security Numbers" (the "Act"), and effective October 1, 2008 — also imposes on private employers a statutory duty to safeguard, and properly dispose of, personal information more broadly defined. Continue reading. . .

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An Oregon law, signed by Governor Ted Kulongoski in mid-July and effective January 1, 2008, establishes the strictest information security requirements imposed by any state law to date. This new law is especially significant for multi-state employers, as the statute applies to any business which maintains the “personal information” of an Oregon resident regardless of the size of the company’s presence in Oregon. Personal information is defined to include precisely the type of information which all employers maintain about every employee, i.e., first name or initial and last name plus social security number, driver’s license number, or financial account number.

The Oregon law requires employers who maintain personal information on Oregon residents to do the following:

• Designate a security officer
• Conduct a risk assessment
• Assess the safeguards in place to manage the risks
• Train employees in security policies and procedures
• Require by contract that service providers maintain adequate security (note the connection to the trend discussed above)
• Adjust the security program over time to meet changing circumstances
• Implement adequate physical and technical safeguards
• Properly dispose of personal information

While Oregon may be one of the less populous states, state legislators appear to be engaging in “one-upmanship” as they enact new data protection statutes. Employers can expect other states to attempt to match or exceed Oregon’s legislation. Consequently, employers can expect that, in the near future, they will need to take a closer look at their information security practices for employee data and take steps to better safeguard that information not as some extra effort but simply to be in compliance with newly enacted state data protection legislation.

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