Workplace Privacy, Data Management & Security Report : Privacy Lawyers & Attorneys : Jackson Lewis Law Firm : Data Security, HIPAA & Confidentiality Issues

Federal contractors are subject to numerous requirements under federal law and, as we have previously highlighted here, need to keep pace with changes in law and regulation. 

Under the Federal Information Security Management Act of 2002 (FISMA) each federal agency is required to develop, document, and implement an agency-wide program to provide information security for the information and information systems that support the operations and assets of the agency, including those provided or managed by another agency, contractor, or other source. Accordingly, FISMA provides authority for the imposition of requirements on those companies which qualify as federal contractors. 

By way of example, the Centers for Medicare and Medicaid Services (CMS), as well as the Department of Veterans Affairs impose specific requirements on their contractors.   

Adding new data protection requirements for federal contractors who use or handle U.S. Department of Defense (DOD) information, the DOD earlier this year issued an advanced notice of proposed rulemaking regarding amendments, 75 F.R. 9563, to the Defense Federal Acquisition Regulation Supplement (DFARS). 

The proposed amendments require “adequate security,” defined as “protection measures … commensurate with the risks of loss, misuse, or unauthorized access to or modification of information,” and have three main subparts; basic safeguarding, enhanced safeguarding, and cyber intrusion reporting. 

Basic safeguards, required for any unclassified DOD information, include:

• Designating  the level of access and dissemination of informationProtecting DOD information on public computer or Web sites
• Transmitting electronic information using technology and processes that provide the best level of security and privacy
• Transmitting voice and fax information on with reasonable assurances that access is limited
• Protect information by at least one physical or electronic barrier
• Sanitize media in accordance with the National Institute of Standards and Technology (NIST) before external release or disposal
• Provide protection against computer intrusions and the unauthorized release of data. 

In addition to the basic safeguards outlined above, contractors are required to implement enhanced safeguards to certain types of data. The enhanced safeguards include:

• Encryption/Storage controls
• Network intrusion protection
• Implement information security controls

Additionally, a reporting requirement has now been proposed, requiring contractors to report to the DOD within 72 hours of any cyber intrusion event that affects DOD information resident on or transiting the contractor’s unclassified information systems.

The new proposed DOD amendments, along with the various other federal contractor requirements, including those imposed by CMS and the Department of Veterans Affairs, highlight the necessity for companies that qualify as federal contractors to be up to date on their legal obligations or risk loss of their federal contractor status. 

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In another favorable decision for companies, the Maine Supreme Court ruled on September 21, 2010 that consumers affected by a data breach could not claim damages from the company unless they suffered uncompensated financial losses or some other tangible injury. 

The Maine Supreme Court addressed the following:

In the absence of physical harm or economic loss or identity

theft, do time and effort alone, spent in a reasonable effort to

avoid or remediate reasonably foreseeable harm, constitute a

cognizable injury for which damages may be recovered under

Maine law of negligence and/or implied contract?

The Court ruled they do not. Additionally, the Court went on to state that "[t]he tort of negligence does not compensate individuals for the typical annoyances or inconveniences that are a part of everyday life….An individual's time alone, is not legally protected from the negligence of others."

The underlying suits were filed following a breach, and fraudulent use, which resulted when card holder data of nearly 4.2 million people was stolen. The lawsuits alleged the company was negligent in protecting card holder data and failed to notify of the breach in a timely fashion.  The above holding was issued when the District Court Judge who heard the underlying case, agreed to let the state Supreme Court decide whether the plaintiffs could sue the company for the time and effort put into avoiding or mitigating harm from fraudulent charges on their cards.

Two other cases are similarly instructive. In 2003 the Minnesota Supreme Court found that an invasion of privacy cause of action requires that the dissemination resulted in “publicity” of private facts. Because the disclosure was internal to other employees, and not to the public at large, the Court held the dissemination was insufficient publicity to support an invasion of privacy claim against the employer. Further, in Guin v. Brazos Higher Educ. Serv. Corp. Inc., 2006 U.S.Dist. LEXIS 4846(D. Minn. Feb. 2, 2006), the District Court dismissed plaintiff’s negligence claim holding that the threat of future harm not yet realized will not support a claim for negligence which requires a showing of an injury.

Companies and employers must be on notice of these decisions when faced with individual lawsuits following data breaches. 

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