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The New York SHIELD Act — What You Need to Know

At the end of July, New York Governor Andrew Cuomo signed into law the Stop Hack and Improve Electronic Data Security Act (SHIELD Act). The SHIELD Act amends and expands New York’s current data breach notification law, which may affect persons or companies that do not even conduct business in New York. Here’s what you need to know ahead of the March 21, 2020, effective date:

Who must comply?
Any person or business that owns or licenses computerized data, which includes private information of New York residents, must comply with the SHIELD Act, regardless of whether that person or business even conducts business in New York.

An expanded definition of "private information."

New York’s data breach notification law has always varied from similar laws in other states in that it includes definitions for both “personal information” and “private information.” Under the SHIELD Act, “personal information” remains “any information concerning a natural person which, because of name, number, personal mark, or other identifier, can be used to identify such natural person.” “Private information” captures the information that, if breached, could trigger a notification requirement. The SHIELD Act expands “private information” to include:

  •  Personal information consisting of any information in combination with one or more of the following data elements, when either the data element or the combination of personal information plus the data element is not encrypted, or is encrypted with an encryption key that has also been accessed or acquired:
    • Social security number,
    • Driver’s license number or non-driver identification card number,
    • Financial account numbers with required security codes or access codes, or
    • Biometric information.
  • A user name or e-mail address in combination with a password or security question and answer that would permit access to an online account.

Access alone constitutes a "breach of the security of the system."

The SHIELD Act broadens the phrase “breach of the security of the system,” which consequently broadens the circumstances under which notification is required. Notably, the SHIELD Act includes in the definition of “breach of the security of the system” incidents that involve “access” to private information, regardless of whether the access led to “acquisition” of the information. Under the original New York data breach notification law, data must have been acquired to constitute a breach. The SHIELD Act keeps intact certain exceptions to the definition of “breach” including the “good faith employee” exception and provides factors for determining whether there has been unauthorized access to private information.

Notably, companies that are already subject to the data breach notification requirements under certain applicable state or federal laws, including HIPAA, GLBA, and the NYS DFS Regulation 500, are not required to further notify affected individuals. However, notifications to the New York Attorney General, the New York State Department of Consumer Protection, and the New York State Police are still required.

A risk assessment is now permitted.

The SHIELD Act does not require notification of the breach if “exposure of private information” was an “inadvertent disclosure and the individual or business reasonably determines such exposure will not likely result in misuse of such information, or financial harm to the affected persons or emotional harm in the case of unknown disclosure of online credentials.” This risk assessment should be memorialized in writing.

Reasonable data security requirements are imposed.

The SHIELD Act also imposes data security requirements on any person or business that owns or licenses computerized data that includes private information of New York residents. These security requirements must be designed to protect the security, confidentiality, and integrity of the private information. The SHIELD Act provides examples of practices that are considered reasonable, including: (i) risk assessments, (ii) employee training, (iii) due diligence for vendor selection, and (iv) data retention and disposal policies.

Companies subject to HIPAA and the GLBA are already deemed to be in compliance with these requirements. While this requirement applies to businesses of all sizes, data security safeguards may be implemented and maintained that are “appropriate for the size and complexity of the small business, the nature and scope of the small business’s activities, and the sensitivity of the personal information the small business collects from or about consumers.” For purposes of the SHIELD Act, a small business is any business with fewer than 50 employees, less than $3 million in gross annual revenue in each of the last three years, or less than $5 million in year-end total assets.

There are potential penalties.

While the SHIELD Act does not provide for a private right of action, the attorney general may bring an action to enjoin violations of the law and obtain civil penalties. For data breach notification violations that are not reckless or knowing, the court may award damages for actual costs or losses incurred by a person entitled to notice. For data breach notification violations that are knowing and reckless, the court may impose penalties of the greater of $5,000 or up to $20 per instance with a cap of $250,000. For violations of the reasonable security measures, the court may impose penalties of not more than $5,000 per violation.

If you have further questions about the SHIELD Act and how it may impact your business, employees, or consumers, please contact a member of our team.




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