Cyber Security and Insider Threat Management

Employers continue to incorporate the use of biometric information for several employee management purposes, such as in systems managing time keeping and security access that use fingerprints, handprints, or facial scans.  Recently, Illinois state courts have encountered a substantial increase in the amount of privacy class action complaints under the Illinois Biometric Information Privacy Act (“BIPA”), which requires employers to provide written notice and obtain consent from employees (as well as customers) prior to collecting and storing any biometric data.  Under the BIPA, the employer must also maintain a written policy identifying the “specific purpose and length of term for which a biometric identifier or biometric information is being collected, stored, and used.”  740 ILC 14/15(b)(2).

Although the BIPA was enacted almost 10 years ago, individuals did not start filing lawsuits until 2015.  Since September 2017, there have been over twenty-five new filings in Illinois state courts including class actions against prominent international hotel and restaurant chains.  These lawsuits tend to target employers utilizing finger print recognition machines as part of their time keeping systems.  Where the employer uses a third-party supplier for its time-tracking system, the claims have also included allegations that the employer improperly shared the biometric information with the supplier without obtaining the proper consent.  In these cases, the claims generally allege that the employer failed to provide proper notice.

Though there is no definitive reason for the increase in filings over the past months, the claims may be related to the increased use of biometric information in the workplace since the initial case filings in 2015.  While Texas and Washington also have laws governing employer use of biometric information, Illinois is the only state that currently provides a private right of action, including class actions.  Additionally, potential damages associated with BIPA violations, particularly for class actions, can be extensive, including liquidated damages of $1,000 per negligent violation (or the amount of actual damages, whichever is greater), liquidated damages of $5,000 per intentional or reckless violation (or the actual damages, whichever is greater) and attorney’s fees.

What Can Employers Do?

  • Prior to collecting or storing biometric data, employers in Illinois should: (1) create a written policy regarding the retention and destruction of biometric data; (2) obtain written acknowledgment and release from the employees; and (3) store the biometric information securely, similar to other confidential information, such as personal health information or personally identifiable information.
  • Employers who use a third party to assist with the collection or storage of biometric data should include the third party in the acknowledgement and release, which employees execute.
  • Employers also should be aware that most states, including Illinois, have legislation governing how employers respond to data breaches and the required notifications to employees. If a data breach occurs, employers are advised to immediately contact counsel to devise and implement a response plan.
  • In the event of litigation, employers should remove BIPA cases to federal courts when possible, particularly where the allegations focus on notice and consent issues, as employers can argue that plaintiffs cannot establish the necessary harm to establish standing as required by the Supreme Court case Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (requiring more than a “bare procedural violation” to establish harm). Because employees likely will have difficulty establishing actual harm where the biometric data was stored in a confidential and secure manner, employers may be successful in getting such claims dismissed.

As the laws regulating biometric data continues to evolve, employers should monitor this issue closely and consult with counsel as further developments occur to ensure compliance with any relevant regulations.

It is highly likely that the National Association of Insurance Commissioners (“NAIC”) will adopt a model data cyber security law premised largely on the New York State Department of Financial Services (“NYSDFS”) cyber security regulations.  Recently, we discussed the NYSDFS’ proposed extension of its cyber security regulations to credit reporting agencies in the wake of the Equifax breach.  New York Governor Andrew Cuomo has announced, “The Equifax breach was a wakeup call and with this action New York is raising the bar for consumer protections that we hope will be replicated across the nation.”  Upon adoption by the NAIC, the NYSDFS regulations requiring that NYS financial organizations have in place a written and implemented cyber security program will gain further traction toward setting a nationwide standard for cyber security and breach notification.  Indeed, although there are differences, the NAIC drafters emphasized that any Licensee in compliance with the NYSDFS “Cybersecurity Requirements for Financial Services Companies” will also be in compliance with the model law.

The NAIC Working Committee expressed a preference for a uniform nationwide standard: “This new model, the Insurance Data Security Model Law, will establish standards for data security and investigation and notification of a breach of data security that will apply to insurance companies, producers and other persons licensed or required to be licensed under state law. This model, specific to the insurance industry, is intended to supersede state and federal laws of general applicability that address data security and data breach notification. Regulated entities need clarity on what they are expected to do to protect sensitive data and what is expected if there is a data breach.  This can be accomplished by establishing a national standard and uniform application across the nation.”  Other than small licensees, the only exemption is for Licensees certifying that they have in place an information security program that meets the requirements of the Health Insurance Portability and Accountability Act.  According to the Committee, following adoption, it is likely that state legislatures throughout the nation will move to adopt the model law.

The model law is intended to protect against both data loss negatively impacting individual insureds, policy holders and other consumers, as well as loss that would cause a material adverse impact to the business, operations or security of the Licensee (e.g., trade secrets).  Each Licensee is required to develop, implement and maintain a comprehensive written information security program based on a risk assessment and containing administrative, technical and physical safeguards for the protection of non-public information and the Licensee’s information system.  The formalized risk assessment must identify both internal threats from employees and other trusted insiders, as well as external hacking threats.  Significantly, the model law recognizes the increasing trend toward cloud based services by requiring that the program address the security of non-public information held by the Licensee’s third-party service providers.  The model law permits a scalable approach that may include best practices of access controls, encryption, multi-factor authentication, monitoring, penetration testing, employee training and audit trails.

In the event of unauthorized access to, disruption or misuse of the Licensee’s electronic information system or non-public information stored on such system, notice must be provided to the Licensee’s home State within 72 hours.  Other impacted States must be notified where the non-public information involves at least 250 consumers and there is a reasonable likelihood of material harm.  The notice must specifically and transparently describe, among other items, the event date, the description of the information breached, how the event was discovered, the period during which the information system was compromised, and remediation efforts.  Applicable data breach notification laws requiring notice to the affected individuals must also be complied with.

New York State has issued proposed regulations extending existing regulations requiring banks and other financial institutions to have in place a comprehensive cybersecurity program to credit reporting agencies.  Governor Mario Cuomo announced that “The Equifax breach was a wakeup call and with this action New York is raising the bar for consumer protections that we hope will be replicated across the nation.”

Under the proposed regulations, every consumer reporting agency that assembles, evaluates or maintains a consumer credit report on NYS consumers must register with the State by February 1, 2018 and have in place a written cybersecurity program by April 4, 2018. The program must identify and assess internal and external cybersecurity risks that may threaten non-public information, including personally identifying consumer information. The program must include provisions that address data governance and classification, asset inventory and device management, access control and identity management, systems and network security and monitoring, as well as other mandated areas.

Because the elements required to be addressed in the program are comprehensive, credit reporting agencies should begin the process of developing the program now to meet the April 4, 2018 deadline. Once the program is in place, moreover, the regulations also mandate phase in implementation dates for additional minimum protective standards that must be met.  These include requirements for annual penetration testing, bi-annual vulnerability assessments, limitations on data retention, encryption of non-public information and system generated audit trails to detect and respond to cybersecurity events.

Each agency must conduct a risk assessment of its information systems to include criteria for the evaluation and categorization of identified internal and external threats facing the organization. The risk assessment must describe how identified risks will be mitigated or accepted and how the program will address those risks.  Significantly, the risk assessment must not only address external hacking threats, but also require the identification and mitigation of risks posed by employees and other insiders, such as trusted vendors and independent contractors.  For example, employees who remotely access internal networks must be subject to multi-factor authentication or other “reasonably equivalent or more secure access controls.”

Each organization must also designate a qualified person as a Chief Information Security Officer responsible for implementation and enforcement of the program. The CISO will ultimately be responsible for responding to requests for “examination by the Superintendent of Financial Services as often as the Superintendent may deem it necessary.”  There are also breach notification requirements, as well as a mandate that the Board of Directors or a Senior Officer annually certify compliance with the cybersecurity regulations.  Failure to comply may result in revocation of the agency’s authorization to do business with New York’s regulated financial institutions and consumers.

Stay tuned to whether New York State’s call to action takes hold across the nation. In the meantime, you may find the governor’s press announcement by clicking here.