Form W-2: Understanding Your W-2 FormIn recent years, there has been an uptick of W-2 phishing scams, and their consequences for an employer extend well beyond leaked data, including potential employee class action litigation.   Just last week, a federal court in Illinois rejected a motion for class certification in a data breach case alleging disclosure of employees’ sensitive tax information and additional personal information, in McGlenn v. Driveline Retail Merch.

A W-2 phishing scam, is a simple cyberattack, but can be highly successful.  It consists of a phishing e-mail sent to an employee, generally in the Human Resources or Accounting department, and designed to appear to come from an executive within the organization. The e-mail requests that the recipient forward the company’s W-2 forms, or related data, to the sender. This request aligns with the job responsibilities of both parties to the email. Despite appearances, the e-mail is a fraud. The scammer is “spoofing” the executive’s identity. The recipient relies on the accuracy of the sender’s e-mail address, coupled with the sender’s job title and responsibilities, and forwards the confidential W-2 information.

In McGlenn v. Driveline Retail Merch., an unknown person sent a phishing email to a Driveline employee in the payroll department. The email falsely identified the sender as the company’s Chief Financial Officer (CFO), and requested the employee send a copy of W-2 information for all Driveline employees.  According to the allegations, the employee provided the unknown person with W-2 information for nearly 16,000 employees including names, addresses, Social Security Numbers, and other personal identifying information (PII).

The plaintiff filed a putative class action against her employer, on behalf of other employees of the company, asserting several torts and state consumer protection violations.  The plaintiff claimed as a result of the data breach the class suffered damages due to: unauthorized use and misuse of their PII; the loss of opportunity to control how their PII is used; the diminution in value of their PII, the compromise/publication/theft of their PII; out of pocket costs associated with prevention, detection, recovery and remediation from identity theft or fraud; lost opportunity costs and wages associated with efforts expended and loss of productivity attempting to mitigate consequence of the breach; the “imminent and certain” impending injury flowing from potential fraud/theft; continued risk to their PII and more.

Standing in data breach class action litigation is a highly contested issue, as courts differ on whether a data breach victim must suffer actual financial harm to recover damages, or the mere threat of future harm is enough.  Federal circuit courts over the past few years have struggled with this issue, in large part due to lack of clarity following the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins which held that even if a statute has been violated, plaintiffs must demonstrate that an “injury-in-fact” has occurred that is both concrete and particularized, but which failed to clarify whether a “risk of future harm” qualifies as such an injury. For example, the 3rd6th, 7th,  9th  and D.C. circuits have generally found standing, while the 1st2nd4th and 8th circuits have generally found no standing where a plaintiff only alleges a heightened “risk of future harm”.

Here, in McGlenn, the court denied class certification for several independent reasons, among which, the court emphasized doubts of whether the class suffered an injury that was compensable. Moreover, the court was unsure whether the employer (Driveline) even owed the potential class members a duty to protect their PII, as Illinois does not have a common law duty for employers to safeguard employee PI.

While such a holding is considered a win for employers, it still is an indication of how far the consequences of a phishing scam can extend.  Even a case dismissed at an early stage will result in significant time and legal fees for the employer, not to mention damaging employee relations. Also, the result might have been different in another state, such as California. Under the California Consumer Privacy Act, California residents have a private right of action when their personal information is involved in a data breach due to the business’s failure to maintain reasonable safeguards. If successful, plaintiffs could each recover between $100 and $750, or actual damages whichever is greater.

An organization can use firewalls, web filters, malware scans or other security software to hinder phishing scams, however experts agree the best defense is employee awareness. This includes ongoing security awareness training for all levels of employees, simulated phishing exercises, internal procedures for verifying transfers of sensitive information, and reduced posting of personal information on-line.

For more information on W-2 phishing scams, check out some past blog posts:

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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.