FTC Settles Charges Against Two Companies That Allegedly Failed to Protect Sensitive Employee Data

Two companies that maintain large amounts of sensitive information about the employees of their business customers, including Social Security numbers, have agreed to settle Federal Trade Commission charges that they failed to employ reasonable and appropriate security measures to protect the data, in violation of federal law. Among other things, the settlement orders require the companies to implement comprehensive information security programs and to obtain independent audits of the programs every other year.

The settlements with Ceridian Corporation and Lookout Services, Inc. are part of the FTC’s ongoing efforts to ensure that companies secure the sensitive consumer information they maintain. In complaints filed against the companies, the FTC charged that both Ceridian and Lookout claimed they would take reasonable measures to secure the consumer data they maintained, including Social Security numbers, but failed to do so. These flaws were exposed when security breaches at both companies put the personal information of thousands of consumers at risk. The FTC challenged the companies’ security practices as unfair and deceptive.

According to the FTC’s complaint against Ceridian, a provider to businesses of payroll and other human resource services, the company claimed, among other things, that it maintained “Worry-free Safety and Reliability . . . Our comprehensive security program is designed in accordance with ISO 27000 series standards, industry best practices and federal, state and local regulatory requirements.” However, the complaint alleges that Ceridian’s security was inadequate. Among other things, the company did not adequately protect its network from reasonably foreseeable attacks and stored personal information in clear, readable text indefinitely on its network without a business need. These security lapses enabled an intruder to breach one of Ceridian’s web-based payroll processing applications in December 2009, and compromise the personal information – including Social Security numbers and direct deposit information – of approximately 28,000 employees of Ceridian’s small business customers.

The other company, Lookout Services, Inc., markets a product that allows employers to comply with federal immigration laws. It stores information such as names, addresses, dates of birth and Social Security Numbers. According to the FTC’s complaint against Lookout, despite the company’s claims that its system kept data reasonably secure from unauthorized access, it did not in fact provide adequate security. For example, unauthorized access to sensitive employee information allegedly could be gained without the need to enter a username or password, simply by typing a relatively simple URL into a web browser. In addition, the complaint charged that Lookout failed to require strong user passwords, failed to require periodic changes of such passwords, and failed to provide adequate employee training. As a result of these and other failures, an employee of one of Lookout’s customers was able to access sensitive information maintained in the company’s database, including the Social Security numbers of about 37,000 consumers.

The settlement orders bar misrepresentations, including misleading claims about the privacy, confidentiality, or integrity of any personal information collected from or about consumers. They require the companies to implement a comprehensive information security program and to obtain independent, third party security audits every other year for 20 years.

The FTC will publish a description of the consent agreement packages in the Federal Register shortly. The agreements will be subject to public comment for 30 days, beginning today and continuing through June 2, after which the Commission will decide whether to make them final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments in electronic form should be submitted using the following web links: https://ftcpublic.commentworks.com/ftc/lookout and https://ftcpublic.commentworks.com/ftc/ceridian and following the instructions on the web-based form. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent agreement is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

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