United States: Massachusetts Law Regarding Security Breaches - How It Will Affect Your Business

Now is the time for businesses to focus on their data security measures to ensure compliance with the law and regulations and to develop an action plan in the event of a breach

Almost daily, the news headlines include security breaches at major companies. The issue of secure data protection should be a top priority for companies in every industry. Businesses regularly receive and store personal information about their employees and customers, and an inadvertent breach in the security of this personal information can lead to significant liability under one or more of the state laws designed to deal with this exact problem.

Massachusetts became the 39th state to enact comprehensive legislation targeted at protecting its residents' personal information from identity fraud when Governor Patrick signed into law "An Act Relative to Security Freezes and Notification of Data Breaches" on August 2, 2007. For more information, visit http://www.mass.gov/legis/laws/seslaw07/sl070082.htm. Final regulations promulgated under the act were released this month and will go into effect on January 1, 2009. In the 10 months since the act took effect, the Office of Consumer Affairs and Business Regulation reports that there have been 320 security breaches affecting more than 600,000 residents of the Commonwealth. The majority involved criminal acts, with thefts of laptops and hard drives topping the list. Now is the time for businesses to focus on their data security measures to ensure compliance with the law and regulations and to develop an action plan in the event of a breach.

Massachusetts Law

The Massachusetts law focuses on three main areas: (1) consumer rights and procedures for placing a "security freeze" on a credit report, (2) mandatory notice requirements following a security breach and (3) data disposal requirements. This article focuses on the latter two components and their impact on business operations. In brief, the law requires that businesses owning or storing personal information follow certain procedures for the storage and disposal of this information and provide notice of any potential breach of the security of this information.

To Whom Does the Act Apply?

The act applies to any person or business that owns, licenses, stores or maintains "personal information about a resident of the Commonwealth." This covers virtually every workplace, because even the smallest of businesses likely maintains personnel records with "personal information" pertaining to one or more residents of the Commonwealth. The act's effect is not limited to Massachusetts-based businesses—it provides that any business storing personal information about one or more Massachusetts residents must abide by the new legal requirements. In other words, even wholly out-of-state businesses are potentially subject to this law if they store or maintain personal information about Massachusetts residents, such as customers or employees who live and work in the Commonwealth.

What Is "Personal Information"?

The Massachusetts law uses a slightly more inclusive definition of "personal information" than found in other states. Under the act, "personal information" includes a person's first and last name or first initial and last name in combination with one or more of the following:

  • Social security number
  • Driver's license number or state-issued identification card number
  • Bank or other financial account number, including a credit or debit card number, with or without any required security code or password

The law covers data stored in either paper or electronic format. With such a liberal definition of personal information, the law affects a broad spectrum of public and private businesses. Businesses regularly keep this type of information about their employees (for example, in I-9 documentation or direct deposit systems), and companies doing business with consumers handle their customers' credit or debit card information every day.

What Does the Law Require?

The purpose of the act is to safeguard the security and confidentiality of personal information and to protect against unauthorized use of this information through identity fraud or theft. The obligations imposed by the act are designed to achieve that purpose.

Notice

First and foremost, the act requires that owners or holders of a resident's personal information must provide timely notice any time they know or have reason to know of a security breach. A security breach is any unauthorized access to or use of the personal information, and would encompass such situations as the theft of an employee's laptop that contains personal information or a hacker's infiltration of a company's computer files containing personal information. The specific content and procedures for the notice vary for holders of data versus owners or licensors of the data. Generally, the entity must provide notice to the Attorney General and the Director of Consumer Affairs and Business Regulation that describes the nature of the breach, the number of Massachusetts residents affected, and any steps planned or taken relating to the incident. Additionally, the company must provide all residents who are affected by the breach with notice of the existence of a possible breach, the right to obtain a police report, directions as to how to request a security freeze and any fees to be paid for the security freeze. The notice to residents should not include the nature of the breach or the number of residents affected by the breach. Notice should be made as soon as possible, but may be delayed if it might impede an ongoing criminal investigation. Alternate notice provisions are available in the event the cost of providing written notice will exceed $250,000, the number of Massachusetts residents affected exceeds 500,000 or the organization lacks sufficient information to provide notice.

Disposal

Additionally, the law details minimum standards for the proper disposal of paper documents and electronic media containing personal information. Fundamentally, the documents or media should be destroyed in such a way that personal data cannot be read or reconstructed prior to disposal. Generally, this means shredding or burning paper documents and completely erasing or otherwise destroying electronic media so that the information cannot be reconstructed.

Security Program

The Office of Consumer Affairs and Business Regulation proposed "Standards for the Protection of Personal Information of Residents of the Commonwealth," which were approved on September 22, 2008, and will take effect on January 1, 2009. The regulations impose significant additional obligations on persons or businesses holding or owning personal information.

Under these new standards, businesses are required to develop and implement a "comprehensive, written information security program" applicable to any records that contain personal information. This written program should contain administrative, technical and physical safeguards to ensure the security and confidentiality of such records. The standards delineate 12 features that must be included in every information security program. Among others, some of the key features include: (1) upgrading information systems; (2) implementing regular training programs for employees; (3) developing security policies and written procedures that account for employee access to records; (4) imposing discipline for violation of the security program rules; (5) monitoring and auditing employee access to personal information, including foreclosing access to records by terminated employees by deactivating their passwords; and (6) conducting annual reviews of data security measures. Furthermore, for computer systems that store or transmit personal information, the standards establish certain minimum requirements, including secure user authentication protocols, secure access controls, encryption of data containing personal information, firewall and virus protections, monitoring programs and employee training.

What Are the Penalties for Non-Compliance?

The penalties for non-compliance with this law can be significant. The Attorney General is authorized to pursue violations of its provisions under Chapter 93A, the Massachusetts Unfair and Deceptive Acts and Practices statute. In certain circumstances, Chapter 93A authorizes consumers to seek up to three times the amount of actual damages, plus costs and attorneys' fees. In addition, under the portion of the law concerning data disposal, businesses can be subject to a fine of up to $50,000 for each instance of improper disposal.

Conclusion

In short, the act and associated standards impose a multitude of new data security obligations upon businesses and individuals alike. In light of this legislation, companies must establish programs before a breach occurs in order to be ready to act quickly in the event of a data breach. Companies can prepare by taking inventory of the personal information they currently store and evaluating how best to maintain, protect and dispose of the information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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