Promising a company that you will safeguard its employees’ information and then failing to do it according to Federal Trade Commission (FTC) standards likely will be viewed by the FTC as an unfair and deceptive business practice and trigger an enforcement action.

This was the case for Lookout Services, Inc., a company that maintains large amounts of sensitive information about the employees of its business customers, including Social Security numbers. According to an FTC announcement on May 3, 2011, Lookout claimed it would take reasonable measures to secure the consumer data it maintained, including Social Security numbers, but failed to do so.

Lookout markets a product that allows employers to comply with federal immigration laws. It stores information such as names, addresses, dates of birth and Social Security Numbers. According to the FTC’s complaint, despite the company’s claims that its system kept data reasonably secure from unauthorized access, it did not in fact provide adequate security. (Note that an FTC complaint is not a finding or ruling that a respondent, such as Lookout , actually has violated the law.) For example, unauthorized access to sensitive employee information allegedly could be gained without the need to enter a username or password, simply by typing a relatively simple URL into a web browser, the complaint asserted. In addition, the complaint charged that Lookout failed to require strong user passwords, failed to require periodic changes of such passwords, and failed to provide adequate employee training. As a result of these and other failures, it was claimed, an employee of one of Lookout’s customers was able to access sensitive information maintained in the company’s database, including the Social Security numbers of about 37,000 consumers.

The settlement agreed to by Lookout to resolve these charges is comprehensive. Among other things, the settlement order requires Lookout (i) to conduct a risk assessment, (ii) to implement a comprehensive, written information security program, (iii) to cease making misrepresentations, including misleading claims about the privacy, confidentiality, or integrity of any personal information collected from or about consumers, (iv) to obtain independent third party security audits of the program every other year for 20 years, and (v) to make the settlement order available to its current and future employees having responsibilities relating to safeguarding customer data.

For companies that maintain personal information on other businesses’ employees in the course of providing services to those businesses, this development is an important reminder: Promises made to those businesses concerning the safeguarding of personal information must be supported by comprehensive policies and procedures. In addition to this kind of enforcement exposure, which also could arise at the state level from the states’ attorneys general, the employers that these businesses serve also could have causes of action for negligence and/or breach of contract. Increasingly, state laws require businesses to contractually obligate vendors to have appropriate safeguards to protect personal information provided to the vendor to perform its services. States having such laws include California, Maryland, Massachusetts, and Texas.

Tags: Data Security, FTC, Information Management, information risk, Lookout Services, Written Information Security Program
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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.

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