An Employer's Guide to the NYS SHIELD Act
The act is meant to improve employee and consumer protections against data leaks and cyberattacks by increasing legal requirements placed on employers and corporate entities. The act takes effect on March 21, 2020.
On July 26, 2019, New York State Governor Andrew M. Cuomo signed into law the Stop Hacks and Improve Electronic Data Security (SHIELD) Act. The act is meant to improve employee and consumer protections against data leaks and cyberattacks by increasing legal requirements placed on employers and corporate entities.
These requirements involve data security management and detection programs as well as corporate responsibility to notify consumers in the event of a data breach.
The act will take effect on March 21, 2020. Consumers and employees will not have a private right of action in the event of a compliance breach, but penalties will be enforced by the attorney general’s office.
Who the Act Impacts
The NYS SHIELD Act imposes requirements and demands on any employer that:
- Operates in the state of New York.
- Has at least one employee in the state of New York.
- Operates outside the state of New York but maintains the private information of New York residents.
In this case, the definition of “private information” includes Social Security numbers, driver’s license numbers, debit and credit card numbers, financial and bank account numbers (with or without pin and security codes as long as access to an account could be gained), biometric information, usernames, email addresses, and passwords.
The act will largely impact human resource and information technology departments.
The NYS SHIELD ACT requires employers and businesses that handle the private information of New York residents to implement safeguards—and while it doesn’t mandate specific safeguards, it does provide that a business will be “deemed in compliance with” the act after instituting a “data security program” with certain key elements. Key elements include:
- Designate an employee or employees to coordinate the data security program.
- Train and manage employees in security program practice procedures.
- Asses internal and external risks and implement controls to reduce those risks.
- Vet service providers and bind them contractually to safeguard private information.
- Securely destroy private information within a reasonable amount of time after it is no longer needed for business purposes.
The SHIELD act allows two types of businesses to complete the “reasonable safeguard” requirement without a data security program. Instead, these companies must only assure their safeguards are appropriate for the size and scope of their business needs and the sensitivity of the information they handle. Those business types are:
- Small businesses with less than 50 employees.
- Small businesses with less than $3 million in gross annual revenue.
Other Acts that Put Businesses in Compliance
Some businesses may already be compliant with the NYS SHIELD Act if they already have complied with other cybersecurity regulatory acts. The following acts fulfill NYS SHIELD act regulatory compliance requirements:
- The Gramm-Leach Billey Act
- The Health Insurance Portability and Accountability Act Security Rule
- New York State Department of Financial Services Cybersecurity Requirements for Financial Services Companies
Expanded Breach Notification Requirements and Penalties
While the majority of the NYS SHIELD Act takes effect in May 2020, special expansions to existing breach notification requirements went into effect on Oct. 23, 2019. Human-resource departments should take special note of these new requirements and obligations.
The Definition of “Private Information”
The SHIELD Act expands the definition of “private information” (which, when compromised, activates the requirement that employees and consumers be notified). Information now defined as private includes:
- Biometric information (which many employers use on time clocks).
- Email addresses and their associated passwords, security questions, and answers.
- Financial account numbers without a required security code, as long as someone could still access the account.
- Unsecured protected health information covered under HIPPA.
The Definition of “Breach”
The SHIELD Act expands the definition of “breach” to include not only the unauthorized acquisition of information but also unauthorized access to information. This is important because it is often difficult to ascertain what information was stolen when a hacked account was accessed.
Notification of Inadvertent Disclosure
The SHIELD Act adds an exception that allows human-resource departments to skip breach notifications if the breach is unlikely to result in the misuse of the information (for instance, if the information was accidentally posted on a private company message board but never viewed before it was deleted). There are specific rules that must be followed, however:
- The employer must document the determination and reasoning for the determination.
- The documentation must be filed and kept for at least five years.
- If the breach involves the private information of more than 500 New York residents, the employer must submit documentation to the attorney general in 10 days or less.
The SHIELD Act also sets the attorney general’s recoverable penalty at $20 per the failed notification, with a maximum of $250,000. The original penalty was $10 per failed notification with a maximum of $100,000.
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