Privacy and cybersecurity risks continue to emerge for organizations large and small. While by no means exhaustive, we briefly discuss some key issues that organizations may need to focus on in 2019 and beyond.
Business Email Compromise (BEC)/Email Account Compromise (EAC) – BEC and EAC attacks are widespread and show no sign of slowing in the coming year. An FBI Report from July 2018 stated that BEC attacks have resulted in a 136% increase in identified global losses between December 2016 and May 2018, totaling $12.5 billion. BEC also known as a cyber-enabled financial fraud, often targets employees with access to company finances, enticing them through a variety of methods, including social engineering and computer intrusions, to conduct unauthorized transfers of funds. The harm may not end there as in many of these cases the attacks may also result in the access to and/or acquisition of some or all of the emails in the compromised email account(s) putting personal and other information at risk. Such attacks however, are not always associated with a request for a transfer of funds. Other variations of these attacks involve compromising legitimate business e-mail accounts and requesting personal information or wage and tax statement (W-2) forms for employees. The BEC/EAC scam continues to evolve and grow, targeting small, medium, and large business and personal transactions.
GDPR – If you’ve been following the headlines you know that in May 2018 the European Union’s General Data Protection Regulation (GDPR) took effect, marking the most significant change to European data privacy and security law in over 20 years. The GDPR can reach U.S.-based companies processing EU citizen personal data, including employee data. A main concern for companies is the significant fines the GDPR may impose for failure to comply – up to €20 million or up to 4 percent of annual global revenues – whichever is greater. 2019 will likely provide greater insight into the extent to which EU data protection authorities (DPAs) will enforce such fines. Max Schrems, founder of the European Centre for Digital Rights, anticipates that although uniformity of enforcement is supposed to be ensured, the level of GDPR enforcement may vary across the EU as approach and culture will play a role in how aggressively GDPR violations are pursued by nation state DPAs.
California Consumer Privacy Act – In June 2018 the California legislature enacted the California Consumer Privacy Act (CCPA), with several amendments passed in September (SB 1121). Although the language of the CCPA specifically refers to consumers, the definition of “Consumer” was drafted broadly enough to include employees, and lobbying efforts to exclude employees from the definition have, to date, been unsuccessful. Key consumer rights include: a consumer’s right to request deletion of personal information, a consumer’s right to request that a business disclose the categories of information and the identity of any 3rd parties to which the information was sold or disclosed, and a consumer’s right to opt-out of sale of personal information. The CCPA, which is set to take effect January 1, 2020, will require significant preparation in 2019 for entities to ensure compliance. The CCPA will apply to any entity that does business in California and satisfies one of the following: (i) annual gross revenue in excess of $25 million, (ii) alone or in combination, annually buys, receives for the business’ commercial purposes, sells, or shares for commercial purposes, alone or in combination, the personal information of 50,000 or more consumers, households, or devices, or (iii) derives 50 percent or more of its annual revenues from selling consumers’ personal information.
State Law Developments – During 2018, states across the U.S. continued reassessing and amending their data privacy and security regulations. In May, Vermont passed a first of its kind law, H.764, requiring data brokers (businesses that collect and sell or license to third parties personal information of consumers with whom such businesses do not have a direct relationship) to implement a written information security program, disclose to individuals what data is being collected, and permit individuals to opt-out of the collection. In September, Colorado strengthened its consumer data protection law with a groundbreaking new bill requiring “reasonable security procedures and practices” for protecting personal identifying information, limiting the time frame to notify affected Colorado residents and the Attorney General of a data breach, and imposing data disposal rules, HB 1128. In November, the Ohio Data Protection Act (2018 SB 220) took effect, as part of a broader CyberOhio Initiative intended to help Ohio businesses defend against cybersecurity threats. The Ohio law provides a safe harbor for businesses implementing and maintaining “reasonable” cybersecurity controls. In 2019, we expect similar state data privacy and security initiatives to continue to be proposed and enacted.
Biometric Privacy Laws – Companies collecting fingerprints, face scans, or other biometric identifiers/information from consumers and employees (e.g.to help manage employee time, permitting access to POS systems, or perimeter security) take note! Since 2015, there has been a marked increase of putative class actions based on Illinois’s Biometric Information Privacy Act (BIPA)that shows no sign of slowing. In 2019, the Illinois Supreme Court will be considering key questions concerning an individual’s right to sue. See our commentary on these issues in a recent issue of The Cybersecurity Law Report. The Illinois law prohibits private entities from obtaining a person’s biometric identifier or biometric information unless the person is informed in writing and signs a release. While this may impact consumer relationships, this is of particular import to the workplace where many employers have implemented biometric tools to validate time entries. Although some consider Illinois the leader in biometric data protection, other states, including Washington and Texas, have enacted laws similar to the BIPA, and still others are considering such legislation. For more information on the BIPA and biometric information related concerns checkout our FAQs.
Do employers have an affirmative duty to protect employee data? – While several states mandate data security measures by statute (e.g. Massachusetts, California, Oregon, Maryland, etc.), in late November, the Pennsylvania Supreme Court issued a landmark decision, recognizing for the first time an employer’s affirmative, common law duty to “exercise reasonable care to safeguard their employees’ sensitive personal information by the employer on an internet accessible system.” The Pennsylvania Court also clarified that the “economic loss doctrine” does not preclude recovery of monetary damages, under a negligence theory, “provided that the plaintiff can establish the [employer’s] breach of a legal duty arising under common law that is independent of any duty assumed pursuant to contract”. In the coming year(s), other courts across the U.S. may address the issue of whether employers have an affirmative common law duty to protect employee data. This should prompt employers to assess their existing data and cybersecurity systems and protections, as well as what employee personal information is collected and maintained on company systems.
Telephone Consumer Protection Act (TCPA) – On November 13, the Supreme Court agreed to decide whether the Hobbs Act (also known as the Administrative Orders Review Act) requires the district court to accept the Federal Communications Commission (FCC) interpretation of the TCPA, in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc.,No. 17-1705. The case could affect judicial deference to agency rules more generally. A split Fourth Circuit panel held that the Hobbs Act required the district court to defer to the FCC interpretation of the TCPA. The district court lacked authority to apply the two-step Chevron analysis in determining whether to adopt such rules, the Fourth circuit held. In other TCPA news, in March the U.S. Court of Appeals for the District of Columbia set aside the FCC’s expansive interpretation of what constitutes an ATDS and its approach to consent of reassigned wireless numbers. The court, however upheld the FCC’s approach to revocation of consent by “reasonable means” expressing a desire to receive no further messages from the caller and the scope of the FCC’s exemption for certain healthcare calls. Since that decision, a circuit court split has developed with the Third Circuit ruling that a dialer is not an ATDS unless it has the present ability to randomly or sequentially generatenumbers and to dial them and the Ninth Circuit adopting a broader reading holding that the definition of ATDS includes any equipment that has the capacity to store random numbers and dial them, even if it cannot generate numbers randomly or sequentially. Further, Congress recently proposed the TRACED Act, to combat the increasing number of robocall scams and other intentional violations of telemarketing laws. The TRACED Act, if passed, broadens FCC authority to levy civil penalties and extends the time period for the FCC to catch and take civil enforcement action against intentional violations. Needless to say, 2019 should be an interesting year for the TCPA.
HIPAA Enforcement on the Rise – Federal and state enforcement activity near the end of 2018 may suggest greater enforcement in 2019. For example, in December 2018, State Attorneys General from a dozen states, including Arizona, Indiana, North Carolina and Wisconsin, joined forces to file suit against a medical software provider in the first ever multistate data breach suit alleging violations of the Health Insurance Portability and Accountability Act. The suit alleges that Medical Informatics Engineering Inc. and a subsidiary did not implement basic industry-standard security measures to protect electronic personal health information, leading to a 2015 data breach that exposed the sensitive personal information of almost 4 million people, including names, email addresses, dates of birth, Social Security numbers, lab results, health insurance policy information, diagnoses and medical conditions.
At the federal level, the Office for Civil Rights (OCR) announced resolutions in three HIPAA enforcement action. On November 26th, the OCR announced the resolution of an investigation into alleged HIPAA violations by a health practice specializing in allergies resulting from a doctor’s disclosure of patient information to a reporter. The provider agreed to pay $125,000 and adopt a two-year corrective action plan. On December 4th, the OCR announced that it had reached a settlement with the physician group over alleged HIPAA violations resulting from the sharing of protected health information (PHI) with a vendor but without having a business associate agreement in place. The provider agreed to pay $500,000 and adopt a robust corrective action plan including a complete enterprise-wide risk analysis and comprehensive policies and procedures. Finally, on December 11th, the OCR announced a settlement with a critical access hospital in Colorado, in response to a complaint that a former employee continued to have remote access to the hospital’s scheduling calendar which included patients’ electronic protected health information (ePHI). The hospital agreed to pay $111,400 and adopt a two-year corrective action plan.