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Temporary exemptions under CCPA/CPRA for human resource and business-to-business data set to expire January 1, 2023
The California legislative session ended on August 31, foreclosing any chance of the legislature extending temporary exemptions under the California Consumer Privacy Act (CCPA)/California Privacy Rights Act (CPRA) related to human resource and business-to-business data, set to expire January 1, 2023. The legislature proposed several bills throughout the legislative session that would have extend the exemptions, but all of them stalled. In a last-ditch effort, a California assembly member proposed amendments to AB 1102 that would have extended the exemptions to January 1, 2025 if adopted during the August 31 floor session.
According to the amendments, the CPRA recognized that various rights afforded to consumers under the CCPA and CPRA are not suited to the employment context, and as such, clarified that the CPRA “does not apply to personal information collected by a business about a natural person in the course of the natural person acting within the employment context, including emergency contact information, information necessary to administer benefits, or information collected in the course of business to business communications or transactions.” The amendments attempted to extend the exemption for “personal information that is collected and used by a business solely within the context of having an emergency contact on file, administering specified benefits, or a person’s role or former role as a job applicant to, an employee of, owner of, director of, officer of, medical staff member of, or an independent contractor of that business.” The amendments also proposed extending certain exemptions related to “personal information reflecting a communication or a transaction between a business and a company, partnership, sole proprietorship, nonprofit, or government agency that occurs solely within the context of the business conducting due diligence or providing or receiving a product or service.” Although the amendments did not address the reason for the extension for the business exemption, they stated that while the legislature and advocates continue to engage in discussions concerning the enactment of “robust and implementable privacy protections tailored to the employment context,” extending the exemptions would provide temporary protections around worker monitoring while giving businesses more time to enact these protections. However, the amendments were not adopted, and the exemptions will expire as originally intended on January 1, 2023.
As previously covered by InfoBytes, the CPRA (largely effective January 1, 2023, with enforcement delayed until July 1, 2023) was approved by ballot measure in November 2020 to amend and build on the CCPA. In July, the California Privacy Protection Agency initiated formal rulemaking procedures to adopt proposed regulations implementing the CPRA (covered by InfoBytes here). CPPA Executive Director Ashkan Soltani said he expects the rulemaking process to extend into the second half of the year.
On August 24, the California attorney general announced that following an investigative sweep into online retailers, it entered into a $1.2 million settlement with a cosmetics chain for its alleged failure to disclose to consumers that it was selling their personal information, failure to process user requests to opt-out of such sale via user-enabled global privacy controls, and failure to cure such violations within the 30-day period allowed by the California Consumer Privacy Act (CCPA). The action reaffirms the state’s commitment to enforcing the law and protecting consumers’ rights to fight commercial surveillance, AG Bonata said, emphasizing that “today’s settlement sends a strong message to businesses that are still failing to comply with California’s consumer privacy law. My office is watching, and we will hold you accountable. It’s been more than two years since the CCPA went into effect, and businesses’ right to avoid liability by curing their CCPA violations after they are caught is expiring. There are no more excuses. Follow the law, do right by consumers, and process opt-out requests made via user-enabled global privacy controls.”
According to a complaint filed in California Superior Court, third parties monitored consumers’ purchases and created profiles to more effectively target potential customers. The company’s arrangement with these third parties constituted a sale of consumer personal information under the CCPA, therefore triggering certain basic obligations, including telling consumers that it is selling their information and allowing consumers to easily opt-out of the sale of their information. According to the complaint, the company failed to take any of these measures.
Under the terms of the settlement, the company is required to pay a $1.2 million penalty and must disclose to California customers that it sells their personal data and provide a mechanism for consumers to opt out of a sale of their information, including through user-enabled global privacy controls like the Global Privacy Control (GPC). Additionally, the company must ensure its service provider agreements meet CCPA requirements and provide reports to the AG related to its sale of personal information, the status of its service provider relationships, and its efforts to honor the GPC.
The press release also announced that notices were sent to several businesses alleging non-compliance concerning their failure to process consumer opt-out requests made via user-enabled global privacy controls. The AG reiterated that under the CCPA, “businesses must treat opt-out requests made by user-enabled global privacy controls the same as requests made by users who have clicked the “Do Not Sell My Personal Information” link. Businesses that received letters today have 30 days to cure the alleged violations or face enforcement action from the Attorney General.”
On July 8, the California Privacy Protection Agency (CPPA) initiated formal rulemaking procedures to adopt proposed regulations implementing the Consumer Privacy Rights Act of 2020 (CPRA), a law amending and building on the California Consumer Privacy Act (CCPA). As previously covered by InfoBytes, the CPRA (largely effective January 1, 2023, with enforcement delayed until July 1, 2023) was approved by ballot measure in November 2020. Earlier this year, the CPPA provided an update on the CPRA rulemaking process, announcing its intention to finalize rulemaking in the third or fourth quarter of 2022 (covered by InfoBytes here). While the CPRA established a July 1, 2022 deadline for rulemaking, CPPA Executive Director Ashkan Soltani stated during a February meeting that the rulemaking process will extend into the second half of the year.
The July proposed regulations modify definitions in the CCPA regulations; outline restrictions on the collection and use of personal information; provide disclosure and communications requirements; describe requirements for submitting CCPA requests and obtaining consumer consent; amend required privacy notices; provide instructions for the Notice of Right to Limit Use of Sensitive Personal Information; amend methods for handling consumer requests to delete, correct, and know; set forth requirements for opt-out preference signals; and address consumer requests for limiting the use and disclosure of sensitive personal information. Comprehensive details of the modified provisions and proposed regulations are available in previous InfoBytes coverage here.
The CPPA stated in its notice of proposed rulemaking that the proposed regulations serve three primary purposes: to (i) “update existing CCPA regulations to harmonize them with CPRA amendments to the CCPA”; (ii) “operationalize new rights and concepts introduced by the CPRA to provide clarity and specificity to implement the law”; and (iii) “reorganize and consolidate requirements set forth in the law to make the regulations easier to follow and understand.” The CPPA emphasized that the proposed regulations are designed to factor in privacy laws in other jurisdictions and “implement compliance with the CCPA in such a way that it would not contravene a business’s compliance with other privacy laws, such as the General Data Protection Regulation (GDPR) in Europe and consumer privacy laws recently passed in Colorado, Virginia, Connecticut, and Utah.” This design, the CPPA said, will simplify compliance for businesses operating across jurisdictions and avoid unnecessary confusion for consumers who may not understand which laws apply to them.
A hearing on the proposed regulations is scheduled for August 24 and 25. Comments are due August 23.
Recently, in advance of its June 8 board meeting, the California Privacy Protection Agency (CPPA) Board posted draft regulations to implement the California Privacy Rights Act (CPRA). As previously covered by InfoBytes, the CPRA (largely effective January 1, 2023, with enforcement delayed until July 1, 2023) was approved by ballot measure in November 2020. Earlier this year, the CPPA provided an update on the CPRA rulemaking process, announcing its intention to finalize rulemaking in the third or fourth quarter of 2022 (covered by InfoBytes here). While the CPRA established a July 1, 2022 deadline for rulemaking, CPPA Executive Director Ashkan Soltani stated during the February meeting that the rulemaking process will extend into the second half of the year. An updated formal rulemaking timeline may be released during the June 8 meeting.
The draft regulations, which were introduced outside of the rulemaking process, set forth a working draft of the regulations to implement the CPRA and modify certain provisions and propose new regulations, including:
- Adding, amending, and striking certain definitions. The CPRA draft regulations modify the definitions in the CCPA regulations. Specifically, the amendments strike “affirmative authorization” and “household” from its list of definitions, but adds new terms such as “disproportionate effect,” “first party,” “frictionless manner,” “notice of right to limit,” “opt-out preference signal,” as well as terms related to a consumer’s right to request to correct, opt-in to sale/sharing, delete, know, or limit.
- Outlining restrictions on the collection and use of personal information. The draft regulations state that a business’s collection, use, retention, and/or sharing of a consumer’s personal information must be “reasonably necessary and proportionate,” and “must be consistent with what an average consumer would expect when the personal information was collected.” Businesses also must obtain a consumer’s explicit consent prior to collecting, using, retaining, and/or sharing the personal information for any purpose that is unrelated or incompatible with the original purpose for which the personal information was collected or processed.
- Providing disclosure and communications requirements. Disclosures and communications are required to be easy to read and understandable to consumers, be available in languages in which the business ordinarily provides information, and be reasonably accessible to consumers with disabilities. The draft regulations also stipulate requirements for website and mobile application links.
- Describing requirements for submitting CCPA requests and obtaining consumer consent. The draft regulations set forth methods for submitting CCPA requests and obtaining consumer consent, including requirements regarding the manner in which such requests and consents may be obtained. For example, the requests and consents must be easy to understand, must include symmetry in choice, and avoid confusing and manipulative language. Methods that do not comply with these requirements may be considered a “dark pattern” and will not constitute consumer consent.
- Amending requirements related to a business’s privacy notice. The draft regulations would amend the requirements related to the information that must be included in a privacy notice related to a business’s online and offline practices regarding the collection, use, sale, sharing, and retention of personal information; and an explanation of CPRA rights conferred on consumers regarding their personal information, how they can exercise their rights, and what they can expect from this process.
- Amending notices required by the CCPA. The draft regulations set forth additional requirements related to the notice at collection, the notice of right to opt-out of sale/sharing, and the “Do Not Sell or Share My Personal Information” link, such as updates to the content of the notices, location of the notices/links, and the effects of certain requests (e.g. “clicking the business’s ‘Do Not Sell or Share My Personal Information’ link will either have the immediate effect of opting the consumer out of the sale or sharing of personal information or lead the consumer to a webpage where the consumer can learn about and make that choice”). The draft regulations would also amend the notice of financial incentive.
- Providing instructions for the Notice of Right to Limit Use of Sensitive Personal Information. The draft regulations outline requirements for businesses to comply with a consumer’s rights to limit the use of sensitive personal information. They also provide businesses the option to use an alternative opt-out link to allow “consumers to easily exercise both their right to opt-out of sale/sharing and right to limit, instead of posting the two separate…links.”
- Amending methods for handling consumer requests to delete, correct, and know. The draft regulations outline additional documentation requirements, as well as guidance on responding to consumer requests, including explanations for denying a request. Notably, in response to a request to know, “a business shall provide all the personal information it has collected and maintains about the consumer on or after January 1, 2022, including beyond the 12-month period preceding the business’s receipt of the request, unless doing so proves impossible or would involve disproportionate effort.” Additionally, a company that intends to collect additional categories of information that are “incompatible” with the originally disclosed purpose must provide a new notice at collection and obtain new consent.
- Opt-out preference signals. The draft regulations set forth requirements for opt-out preference signals and how businesses should respond to such preferences. Specifically, the draft regulations provide that processing an opt-out preference must be done in a “frictionless manner” and includes examples.
- Addressing consumer requests for limiting the use and disclosure of sensitive personal information. Businesses will be required to provide two or more designated methods for submitting requests to limit and must, among other things, comply with a request to limit “as soon as feasibly possible, but no later than 15 business days from the date the business receives the request.” All service providers, contractors, and third parties must comply as well. The regulations set forth exceptions to the limitations for using and disclosing sensitive personal information.
The draft regulations also amend provisions related to contract requirements for service providers/contractors/third parties, verification of requests, authorized agents, minor consumers, discriminatory practices, requirements for businesses collecting large amounts of personal information, and investigations and enforcement.
On May 4, the U.S. District Court for the Central District of California partially dismissed the majority of a putative class action accusing several large retailers and a data analytics company (collectively, “defendants”) of illegally sharing their consumer transaction data, allowing only an invasion of privacy claim to proceed. In 2020, plaintiffs’ claimed the retail defendants shared consumer data without authorization or consent, including “all unique identification information contained on or within a consumer’s driver’s license, government-issued ID card, or passport, e.g., the consumer’s name, date of birth, race, sex, photograph, complete street address, and zip code,” with the data analytics company who used the information to create “risk scores” that purportedly calculated a consumer’s likelihood of retail fraud or other criminal activity. The court permanently dismissed the plaintiffs’ California Consumer Privacy Act claims, finding that the state law was not in effect when some of the plaintiffs allegedly attempted returns or exchanges and that the law does not contain an express retroactivity provision. Additionally, while plaintiffs argued that the retail defendants engaged in “a pattern or practice of data sharing,” the court concluded that plaintiffs failed “to allege that they are continuing to return or exchange merchandise at these retailers such that their data is disclosed” to the data analytics company. The court also dismissed the FCRA claims, ruling that the data analytics company’s risk report is not a “consumer report” subject to the FCRA because it does not “bear on Plaintiff’s eligibility for credit.” Plaintiffs’ claims for unjust enrichment and violations of California's Unfair Competition Law were also dismissed. However, the court concluded that the plaintiffs had plausibly alleged a reasonable expectation of privacy against the defendants, pointing to “the wide discrepancy between Plaintiffs’ alleged expectations for Retail Defendants’ use of their data and its actual alleged use.”
“The court finds dismissing this claim at the pleading stage particularly inappropriate where, as is the case here, defendants are the only party privy to the true extent of the intrusion on Plaintiffs’ privacy,” the court stated. “Reading the Complaint in a light most favorable to Plaintiffs, Plaintiffs sufficiently allege that  defendants’ intrusion into Plaintiffs’ privacy was highly offensive.”
District Court allows state claims concerning the use of individuals’ likenesses in online ads to proceed
On April 19, the U.S. District Court for the Northern District of California denied a motion to dismiss in a putative class action alleging a California-based website operator violated various Ohio, Indiana, and California state laws by appropriating individuals’ names and likenesses and using this information in online teaser profile advertisements. Plaintiffs contended that the “teasers” violated their rights of publicity, and that memberships give users access to data including location history, family members, court records, employment information, and more. Plaintiffs further stated that “they ‘did not consent to the commercial use of their personal information and personas to promote subscriptions to a website with which they have no relationship.’” Defendant moved to dismiss on numerous grounds, including lack of standing.
In denying the motion to dismiss, the court ruled that plaintiffs have Article III standing to sue and that plaintiffs sufficiently pleaded a cognizable injury in “that their names, likenesses, and related information have commercial value and were being used for a commercial purpose.” The court also reviewed the adequacy of pleadings with respect to the alleged state violations and concluded, among other things, that the defendant’s teasers “are not subject to statutory exceptions for newsworthiness or public interest information.” As to the defendant’s alleged violations of California’s Unfair Competition Law (UCL), the court considered whether the California Consumer Privacy Act (CCPA) “immunizes [defendant’s] behavior from UCL liability.” According to the defendant, the CCPA generally obligates businesses to notify California residents when personal information is being used, it also “contains an express exemption for the use of publicly available data.” Because this conduct is allegedly permitted by the CCPA, the defendant argued, it cannot violate the UCL. The court disagreed, writing that “all that these provisions of the CCPA do are exempt publicly available data from special notification and disclosure rules that the statute itself imposes on companies that collect Californians’ data. . . . They do not expressly or impliedly set aside privacy-based tort claims or related UCL claims.”
On March 15, the U.S. District Court for the Northern District of Illinois granted final approval of a class settlement to resolve claims alleging two defendant insurance companies failed to protect over six million employee/customers’ personal and private identifying information, including names, addresses, Social Security numbers, and driver’s license numbers, from two data breach and scraping incidents. According to the memorandum of law in support of the plaintiffs’ unopposed motion for final approval, plaintiffs separately filed complaints after learning the defendants were exposed to two separate data breaches in December 2020 and March 2021. The cases were consolidated, and parties engaged in settlement negotiations. Under the terms of the settlement agreement, the defendants will provide settling class members with at least $17.1 million in relief. Class members will also have automatic access to certain financial fraud services and may submit claims to receive compensation for out-of-pocket losses (capped at $10,000 per person) and lost-time losses (up to six hours of lost-time reimbursements at $18 per hour), in addition to receiving $50 per hour if they missed work to address the breaches. Additionally, a California subclass will also be able to file claims for $50 in statutory relief. Under the California Consumer Privacy Act, consumers may seek statutory damages of up to $750 per violation. Defendants are also responsible for a portion of attorneys’ fees and costs.
On March 10, the California Office of the Attorney General (OAG) issued an opinion on the question of whether, under the California Consumer Privacy Act (CCPA), a consumer’s right to know the specific pieces of personal information collected by a covered business about that consumer applies to internally generated inferences that the business holds about the consumer from either internal or external information sources. According to the OAG, the answer is yes—consumers have the right to know internally generated inferences about themselves, and a business must provide such information upon request, unless a business can demonstrate an applicable CCPA statutory exception. The CCPA, which was enacted in June 2018 and became effective January 1, 2020 (covered by a Buckley Special Alert), provides California consumers with new rights of control over the personal information held about them (with certain exceptions), including the right to know what information is being collected and how a business uses and shares that information, the right to delete personal information, and the right to opt out of certain transfers and sales of their personal information. The OAG noted that while the Consumer Privacy Rights Act of 2020 will become fully operative January 1, 2023, none of the act’s amendments to the CCPA will change the conclusions presented in the opinion.
The OAG’s opinion defines “inference” under the CCPA to mean “the derivation of information, data, assumptions, or conclusions from facts, evidence, or another source of information or data.” Example inferences such as “married,” “homeowner,” “online shopper,” or “likely voter,” the OAG explained, are derived from information collected by businesses such as online transactions, social network posts, or public records. OAG noted that some businesses also use proprietary methods to create inferences and “then sell or transfer the inferences to others for commercial purposes,” thus allowing, according to studies, “seemingly innocuous data points” to be combined with other data points “to deduce startlingly personal characteristics.” According to the OAG’s interpretation of the plain language of the CCPA, as well as legislative history, businesses are generally required “to disclose internally generated inferences to consumers” “regardless of whether the inferences were generated internally by the responding business or obtained by the responding business from another source.”
The OAG further explained that, inferences are “personal information” for purposes of the CCPA, and therefore must be disclosed provided two conditions exist: (i) “the inference is drawn ‘from any of the information identified”’ in subdivision (o) of Civil Code section 1798.140, which includes, among other things, personal identifiers such as names, addresses, account numbers, or identification numbers, customer records, age, gender, race, or religion, as well as inferences obtained from any of the provided items; and (ii) “the inference is used to ‘create a profile about a consumer,’ or in other words to predict a salient consumer characteristic.” For the purposes of responding to a consumer’s request to know, the OAG stated that “it does not matter whether the business gathered the information from the consumer, found the information in public repositories, bought the information from a broker, inferred the information through some proprietary process of the business’s own invention, or any combination thereof.” The business is required to disclose the personal information it holds to the consumer upon request. The OAG noted, however, that the CCPA does not require businesses to disclose protected trade secrets used to derive its inferences, provided the business demonstrates “that such inferences are indeed trade secrets under the applicable law.”
District Court: Employees are not “customers” under California Customer Records Act in breach lawsuit
On February 24, the U.S. District Court for the Southern District of New York granted a waste management company’s motion to dismiss putative class action data breach claims after determining, in part, that the plaintiffs failed to allege how the company breached any duty of care. Plaintiffs, comprised of current and former employees, sued the company, claiming a 2021 data breach exposed their personal identifiable information (PII) to an unauthorized actor. Several plaintiffs were victims of apparent identity theft, the complaint stated, which alleged negligence, breach of contract and implied contract, breach of confidence, breach of fiduciary duty, unjust enrichment, and breach of the California Consumer Privacy Act, the state’s Unfair Competition Law, and the California Customer Records Act (CCRA). In dismissing the case, the court concluded, among other things, that the plaintiffs failed to plead facts showing specific measures that the company did or did not take, such as data encryption, to protect employee data. Additionally, the complaint did not “contain any allegations regarding the manner in which their systems were breached.” Moreover, the court determined that the complaint did not plausibly allege that the employees qualify as “customers” under the CCRA (a “customer” under the law is defined as “an individual who provides personal information to a business for the purpose of purchasing or leasing a product or obtaining a service from the business,” but in this matter, the court stated the plaintiffs did not allege that they provided their PII to the company in exchange for a product or service; rather, they were required to give their PII as part of their employment). The court also ruled that the plaintiffs did not plausibly allege that the company unreasonably delayed notifying them of the data breach by waiting 24 days after the breach to provide notice.
Last month, the U.S. District Court for the Central District of California granted plaintiffs’ motion to compel defendants’ responses to a request for production of documents after determining that defendants may not rely on the California Consumer Protection Act (CCPA) or other state laws to avoid discovery obligations in federal litigation. In 2020, the plaintiffs brought numerous claims, including violations of the Computer Fraud and Abuse Act and several related state law claims, alleging the defendants took the plaintiffs’ client database, marketing software, and computer to start their own business. After being served with a request for production of documents, the defendants asserted that producing the information would violate various California privacy laws, including the CCPA, the California Information Privacy Act, the California Privacy Rights Act, and Article 1, Section 1 of the California Constitution. The plaintiffs countered that the defendants’ objection should be overruled, as they had failed to establish “that there exists a reasonable right of privacy to the information sought to be disclosed,” arguing, among other things, that the defendants’ privacy concern “is undermined by their failure to enter into, or otherwise seek, a protective order.”
The court agreed with the plaintiffs, concluding that the defendants’ privacy objection is without merit. According to the court, the California privacy rights asserted by the defendants were not applicable in this discovery proceeding because “even to the extent the California constitution and these California statutes create a privilege—which this Court does not decide here—only federal law on privilege applies in cases, such as this one, involving federal question jurisdiction.” Although the court noted that a federal law counterpart to California’s privacy laws does not exist, it affirmed that “federal courts recognize a right of privacy implicit in Rule 26.” Nevertheless, the court stated that, “to the extent such a privacy interest exists, ‘corporations have a lesser right to privacy than human beings and are not entitled to claim a right to privacy in terms of a fundamental right, [although] some right to privacy exists.” Moreover, “[c]ourts routinely have found that a corporation’s privacy rights may give way where the information requested is material, not available from another source, and protected from disclosure by a protective order.” The court ultimately found that “a proper balancing of the competing interests weighs in favor of granting” the plaintiff’s discovery requests, adding that the defendants did not offer or suggest any alternative means by which the plaintiff could obtain the information and that a protective order would mitigate any risk of harm.
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