“Cloud computing” takes many forms, but, fundamentally, it is a computer network system that allows consumers, businesses, and other entities to store data off-site and manage it with third-party-owned software accessed through the Internet. Files and software are stored centrally on a network to which end users can connect to access their files using computers that are less powerful and sophisticated than those we use today.  This technology reduces the need for expensive multiple servers and PCs with enough capacity to store massive data and application files. Some believe the PC of the future will need simply the capacity to connect to a web browser for the user to access his or her applications and files.

For more information on how cloud computing works, click here. For information on the FTC investigation of cloud computing, click here.

If you are not already computing in a cloud, you likely will be hearing more about “cloud computing” soon. Last month, for example, the City Council for the City of Los Angeles voted to move city employee e-mail and other applications from city computer networks to a cloud service provider – in this case, Google Inc. City officials cite significant cost savings (which they estimate to be in the millions) as one of the reasons for the switch. They acknowledged that concerns over data privacy, security and management remain.

We’ll agree that significant cost savings can be achieved through, among other things, reduced infrastructure. Questions and concerns many have with cloud computing, however, relate to the privacy, security and management of the information in the cloud. These include:

  • What if the cloud starts to rain – a cloud computing data breach – who is responsible for notifying affected persons (and bearing the costs)?
  • Which company owns the data placed in the cloud?
  • If the data in the cloud is employee e-mail, is the employer still permitted to access and monitor email communications? Will new policies/notices be needed?
  • Will company proprietary information be safe?
  • Who has access to the data? Who should have access?
  • Is the cloud service provider a business associate under HIPAA, prepared to comply with the HITECH Act? What other legal compliance requirements are there?
  • Do we still need to maintain a back-up of data in the cloud?
  • Where is the data stored? Is it in the United States, or in a foreign country subject to different data security standards? Does one location as opposed to another provide better access or security? What if data is stored in multiple places, will we be able to locate what we need when we need it?
  • How big is the cloud? How much can we store?
  • What if the cloud goes down? How do we get our data and access the applications needed to run our business?
  • How do we move between clouds? Can our data be held captive when contract negotiations fall through?
  • Can we put our clients’ data in the cloud? Do we have to tell them where it is?
  • What happens to the data if the cloud service provider or the cloud customer goes out of business?
  • Will applications in the cloud work the same way, be as flexible, and respond with the same speed as those on current PCs?

Organizations such as the Cloud Security Alliance have been formed to grapple with some of these issues. Indeed, the City of Los Angeles has had to respond to some of these concerns. So, while cloud computing may yield substantial cost savings and appear tempting, these and other questions and concerns should be addressed before moving in that direction.

Massachusetts Seal

The Massachusetts Office of Consumer Affairs and Business Regulations (OCABR) announced on November 4, 2009, the filing of final regulations (pdf) with the Secretary of State’s office, the final step before the regulations take effect March 1, 2010.

The final regulations differ slightly from the version of the regulations issued in August 2009, which made significant revisions to the earlier version of the rules.

OCABR clarified in the final regulations that:

  • those who store personal information must comply, and
  • until March 1, 2012, contracts with service providers will be deemed to satisfy the contract requirement, even if the contract does not require the service provider to maintain appropriate safeguards, as long as the contract was entered into no later than March 1, 2010. However, it is recommended that contracts with service providers be amended as soon as possible to require appropriate safeguards, as there may be similar requirements under federal or applicable state law (such as HIPAA or data security laws in Maryland, Oregon or Nevada). 

While the regulations have had a number of changes, the written information security program requirement remains, along with a number of other safeguards for personal information that require immediate attention. 

A checklist for the final regulations can be found here (pdf). 

The Baltimore Sun reports that Baltimore police are investigating a security breach at Mercy Medical Center that left certain patient records open to possible identity theft. According to the article, affected former patients were sent a letter informing them that their personal patient records may have been accessed by a former employee in order to apply for credit cards and loans. A Maryland state law that became effective in 2008 would require Mercy Medical Center to notify these individuals promptly in the event of such a breach. 

This case is yet another example of personal information being accessed for improper purposes by hospital staff and demonstrates the need for hospitals to establish strict privacy controls and notification procedures.

Today, Connecticut Attorney General Richard Blumenthal announced his office will investigate a data breach that occurred in late August that affected approximately 18,817 Connecticut health care professionals. The American Medical Association reported earlier that this breach involved the personal information, including Social Security numbers, of an estimated 850,000 physicians nationwide. What is most troubling about this breach is that it probably was avoidable.

Like many data breaches, this one involved a stolen laptop, in this case from the employee’s car. However, as NewsTimes.com reported, despite the employer’s encryption policy, the employee downloaded the file to a laptop, without the required encryption, in order to work from home.

Even the best firewalls and other technology-based information system protections cannot save us from ourselves. It was possible here that not only did the employee violate the company’s encryption policy, but he or she also may have exercised poor judgment in leaving the laptop in a car. The ease with which employees acquire, handle and transport massive amounts of sensitive personal information make it critical that businesses ensure their employees have greater awareness of the sensitivity of this information and receive regular training about how to be more cautious handling it. This should be a part of any written information security plan. 

Joining the growing number of states which have enacted laws regulating the destruction of records to prevent possible identity theft, the Rhode Island Legislature passed H. 5092 on October 29, 2009. The bill requires businesses and government agencies to completely destroy records containing personal information, or render the personal information unusable, before disposing of records whether in electronic and paper form. Not surprisingly, H. 5092 comes on the heels of Texas’s Attorney General settling related violations for nearly $1,000,000 with Select Medical, and over $600,000 with Radio Shack.

As with most legislation of this nature, including the FTC’s data disposal rule, the law provides two means by which covered entities may destroy records: either by modifying the personal data to make it entirely unreadable or indecipherable through any means, or by taking reasonable steps to shred, erase, or otherwise destroy records. The bill also exempts certain covered entities whose destruction practices are covered by federal law or who contract with data disposal firms (who would be subject to the data disposal law). The need for such measures is further underlined by the overzealous office workers who used documents containing personal information as “confetti” during the New York Yankees World Series parade. 

Underlying the consequential nature of proper destruction, this bill permits individuals to sue to recover actual damages, and permits the state attorney general to seek fines or sue on behalf of individuals, with each record not properly disposed of being counted as a separate violation.

In another recent example of a law firm running afoul of privacy requirements in litigation (See also the discussion of Kim v. St. Elizabeth’s), U.S. District Judge Michael Davis recently assessed a $5,000 sanction against the law firm for electronically filing an affidavit that contained the Social Security numbers and dates of births of 179 people. Engeseth v. County of Isanti, No. 06-CV-2410 (D. Minn.), Oct. 20, 2009. The court’s order was premised on Rule 5.2(a) of the Federal Rules of Civil Procedure which states that filings in federal court may only include the last four digits of an individual’s social security number or taxpayer identification number. Judge Davis noted that: 

The Court is deeply concerned with the harmful and widespread ramifications associated with negligent and inattentive electronic filing of court documents. Although electronic filing significantly improves the efficiency and accessibility of our court system, it also elevates the likelihood of identity theft and damage to personal privacy when lawyers fail to follow the federal and local rules. 
(emphasis added)

In addition to the $5,000 sanction, Judge Davis required the plaintiff’s law firm to pay the costs associated with preventing identity theft for the 179 harmed individuals including informing the individuals and paying the costs of FICO standard services consisting of a credit report and a 12-month subscription to FICO Quarterly Monitoring.

As shown by a recent Illinois appellate court decision, Kim v. St. Elizabeth’s Hosp., Ill. App. Ct., No. 5-08-0571, (Oct. 23, 2009), the patchwork of federal and state protections for certain types of information has made the process of responding to subpoenas more difficult. This is particularly the case with medical records.

Based on an Illinois law providing special protections for mental health records known as the Illinois Mental Health and Developmental Disabilities Confidentiality Act, the plaintiff in this case sued the hospital and her former husband’s law firm alleging the impermissible release of her mental health records in connection with a prior divorce action.

Absent an authorization from the individual, the Illinois Act prohibits any third party, including medical providers, from responding to a subpoena for mental health records unless the subpoena is accompanied by a written court order authorizing the disclosure. This requirement may be surprising to some, who assume that a subpoena is, itself, a request from the court. The law also prohibits the use of mental health records in litigation unless a judge makes certain findings after a review of the records.

In this case, the husband’s law firm served a subpoena on the health care provider seeking “any and all records regarding the care and treatment of” the plaintiff. While the appellate court wrestled with some procedural issues involving the lower court’s rulings, it held that the matter had not been fully considered and there could very well have been a violation of the Illinois law restricting the disclosure of certain mental health records.

This decision highlights the complicated tensions that arise in every state and federal court when medical records or other private information is requested during discovery. It also should be a reminder for hospitals and all other entities receiving requests for information to exercise the appropriate due diligence before responding.

Yesterday, the U.S. Senate Judiciary Committee again approved two pieces of legislation that would require certain entities to safeguard personal information and notify individuals of breaches of that information. Over the last few years, similar legislation made it out of various Committees, but failed to go any further. Could this time be different?

The Committee voted in favor of the Personal Data Privacy and Security Act of 2009 (S.1490) and the Data Breach Notification Act (S.139), sponsored by Senators Patrick Leahy and Dianne Feinstein, respectively.  In its current form, S. 1490 would require that covered entities, among other things, perform risk assessments, limit access to sensitive information, train their work force, and require vendors by contract to implement appropriate safeguards. The Data Breach Notification Act would establish a national standard for federal agencies and businesses engaged in interstate commerce to report data breaches.

There are a number of circumstances that suggest this legislation is more likely to move forward than in years past:

  • The Judiciary Committee approved both measures by significant majorities.
  • The number of data breaches and complaints about them continue to mount.
  • Congress recently had its own data breach (reported here), affecting personal information not likely to lead to identity theft, but which could hurt some members’ reelection efforts.
  • The change in administration which arguably is more focused on privacy concerns given the push for electronic health records.

Stay tuned. . . 

In good and not-so-good economic times, the on-boarding process – recruiting, application, hiring and orientation – is critical for employers to attract and welcome new talent. In recent years, technology has enabled employers to perform all or a part of this process on-line, significantly increasing efficiency and reducing costs. Moving to a web-based on-boarding system, however, raises many workplace challenges and considerations, including the privacy, security and management of personal data collected in the process.

Following are some of the key challenges and considerations employers should think about when moving to electronic on-boarding:

  • Can the on-line process be the exclusive method for applying and on-boarding? Consider, for example, applicants who cannot access or view the site because of a disability.
  • Are there laws limiting the personal information that may be collected from applicants? See, for example, Utah Employment Selection Procedures Act discussed in our article and the Utah law. 
  • How must personal information collected during the process be safeguarded, retained, preserved, and ultimately destroyed? A recent class action was filed alleging failure to safeguard on-line job application information. 
  • Is the process subject to collective bargaining?
  • Are there special rules for government contractors? See Office of Federal Contract Compliance Programs (OFCCP) guidance. 
  • Are on-line consents for fitness-for-duty examinations, background checks, and drug testing valid? Can non-compete agreements be executed electronically?
  • Are there any specific issues/disclosures for public sector employees/applicants?
  • Can the I-9 verification/e-verify process be completed on-line?
  • Do the rules change for applicants from other countries?
  • If an applicant is hired, how does collected information about the person transfer accurately and securely for benefit plan enrollment, payroll, personnel, and other purposes?
  • Has the on-boarding vendor been vetted and shown capable of safeguarding personal data and preserving the integrity of that data? Where is data stored by the vendor? Are appropriate contract provisions in place?
  • Can benefit plan enrollment forms be completed on-line?
  • Can handbooks and benefit plan documents be provided on-line as part of the on-boarding process? See ERISA electronic disclosure regulations.

Employers implementing an electronic on-boarding process will certainly realize significant savings of time and money. However, those savings can be short-lived if the on-line process is not designed to address the risks inherent in the new medium.