Nonprofits and New Cybersecurity and Privacy Laws in New York and California

Pillsbury Winthrop Shaw Pittman LLP

  • Regardless of their location or size, nonprofit organizations that receive, collect or otherwise possess private information about New York residents must comply with the New York SHIELD Act.
  • Nonprofits with such data must adopt cybersecurity data safeguards that comply with the provisions of the SHIELD Act and are subject to notification requirements in the event of a data breach.
  • Nonprofits that control or are controlled by a for-profit business or that share common branding with covered business are covered by the California Consumer Protection Act, which grants consumers new rights including data transparency and data deletion rights.

1. New York

The Stop Hacks and Improve Electronic Data Security Act (the SHIELD Act, S.5575B/A.5635) goes into effect on October 23, 2019, and broadens the scope of existing New York breach notification and data protection laws. The law has two components: covered entities must adopt a comprehensive cybersecurity data protection program to safeguard “private information,” and covered entities must comply with data breach notification requirements.

Expanded Definition of Protected Private Information

Under existing law, “private information” was defined as (i) “personal information” (i.e., information about a person that, “because of name, number, personal mark, or other identifier, can be used to identify such natural person”) plus (ii) specific 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.” Existing law listed two “data elements”:

  • social security number, or
  • driver’s license number or non-driver identification card number.

The SHIELD law expands that definition to include more data elements:

  • biometric information, including fingerprints, voice prints or iris images, or
  • bank account or credit or debit card numbers, regardless of the inclusion of the password or security code, if the numbers could be used to access accounts.

In addition, a “user name or email address in combination with a password or security question and answer that would enable access to an online account” are now also defined as protected “private information,” even where such information is not held in combination with personal information or other data elements.

“Private information” does not include, however, publicly available information from government records.

Cybersecurity Program Requirements

The SHIELD law requires “any person or business that owns or licenses computerized data which includes private information of a resident of New York” to “develop, implement and maintain reasonable safeguards to protect the security, confidentiality and integrity of the private information, including, but not limited to, disposal of data.” The safeguards can be tailored based on the size and complexity of the institutions but must at a minimum include:

  • designation and training of employees to coordinate cybersecurity compliance;
  • the use of third-party service providers capable of maintaining appropriate cybersecurity practices, with safeguards required by contract;
  • risk assessment of the company’s cybersecurity program, including both the network and software design and the information processing, transmission and storage;
  • processes and physical safeguards to detect, prevent and respond to attacks or system failures;
  • monitoring and testing of the effectiveness of the cybersecurity program;
  • processes to safely, securely and permanently dispose of data within a reasonable amount of time after it is no longer needed for business purposes; and
  • updates to the program periodically to address changes in the business or circumstances that would require the program to be changed.

Data Breach Notification Requirements

The SHIELD Act expands the definition of data breach to cover any situation involving unauthorized “access” to “private information,” regardless of whether such data is “acquired.” In the event of a data breach, the Act requires prompt notice to affected individuals and to government authorities. The SHIELD Act contains an exception, however, to the requirement to notify affected individuals if the exposure of private information was “inadvertent,” by persons authorized to access the information, and the 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.”

The New York Attorney General is charged with enforcing the SHIELD Act. While the SHIELD Act does not create a private right of action, the Attorney General may bring an action for civil penalties or to enjoin unlawful practices. The statute also expands the time period within which the Attorney General may bring an action from two to three years. Penalties for failing to provide notice in the event of a data breach can amount to the greater of $5,000 or up to $20 per instance of a failed notification, up to $250,000 per breach. Penalties for failing to adopt reasonable safeguards can be imposed up to $5,000 per violation.

Coverage of Nonprofits

Nonprofit organizations are covered by the SHIELD Act. The SHIELD Act extends the reach of New York law breach notification requirements to any person or entity with private information of a New York resident, regardless of the company’s size or where it conducts business. The Act provides flexibility in meeting data security requirements for “small businesses,” however. A “small business” is defined as one with (i) fewer than 50 employees; (ii) less than $3 million in gross annual revenue in each of the last three fiscal years; or (iii) less than $5 million in year-end total assets. A small business will be deemed compliant with the SHIELD law’s data privacy requirements if it has adopted “reasonable administrative, technical and physical safeguards 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.”

Although the law takes effect on October 23, 2019, it provides until March 21, 2020 (240 days after enactment) for the establishment of the required data protection program. Nonprofit organizations that have not previously been subject to cybersecurity regulatory requirements will need to promptly evaluate the sufficiency of both their internal programs and the third-party service providers they use to ensure compliance with the comprehensive cybersecurity requirements of the SHIELD Act. Those that already have cybersecurity programs will need to update them in light of the new requirements.

2. California

The California Consumer Protection Act (CCPA) goes into effect on January 1, 2020, and grants new rights to consumers regarding the protection of personal information. In its haste to draft the legislation, the California legislature did not clarify whether nonprofit entities could be subject to the new law. Dozens of nonprofits have requested additional guidance on this issue from the California legislature and Attorney General, but to date, there has been no official response. As the law is written now, however, it appears likely that nonprofits will be subject to the statute’s requirements only in certain discrete circumstances, though nonprofits remain subject to California’s longstanding privacy laws and must remain vigilant to protect confidential information.

Circumstances in which the CCPA Applies to Nonprofits

The CCPA directly affects for-profit “businesses” that sell goods or services in or into California and that either have $25 million in annual gross revenues or meet specific thresholds for collecting or selling the personal data of anyone residing in California (e.g., processing personal information of at least 50,000 Californians, or earning at least 50 percent of annual revenue from selling Californians’ information). While nothing in this language or the legislative history of the statute suggests that the CCPA’s requirements extend to nonprofit organizations, there are circumstances in which certain nonprofits will be required to comply with the statute based on their structure or operations.

A nonprofit organization that controls or is controlled by a for-profit business covered under the CCPA will be subject to the CCPA. The CCPA defines “control” as the “ownership of, or the power to vote, more than 50 percent of the outstanding shares of any class of voting security of a business; control in any manner over the election of a majority of the directors, or of individuals exercising similar functions; or the power to exercise a controlling influence over the management of a company.”

Thus, where a nonprofit is controlled by or controls a covered business it will be subject to the CCPA if it shares common branding with a business covered under the CCPA. The statute defines “common branding” simply as a “shared name, servicemark, or trademark.” Thus, the co-branded foundation of a covered business would be subject to the CCPA.

Steps Nonprofits Should Take to Ensure Compliance

All nonprofits should consider whether they are subject to the CCPA, though most will likely not be affected by the statute. For those that determine CCPA compliance is necessary, the new rights granted by the law create numerous obligations for businesses to expand and annually update privacy policy disclosures; provide on-demand disclosures to verified consumers within 45 days of receiving a request; delete personal information upon request; and refrain from selling personal information upon request. Serious fines could result from non-compliance.

It should be noted that while most nonprofits will not be affected by the CCPA, they will still need to comply with other California privacy and data breach laws that predate the new law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Pillsbury Winthrop Shaw Pittman LLP

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