United States: "Reasonable" Data Security: The FTC's Guideposts For Employers

Last Updated: June 10 2014
Article by Philip L. Gordon and Zoe M. Argento

The recent ruling by an administrative judge that the Federal Trade Commission (FTC) must testify about the data security standards it uses to pursue an enforcement action against LabMD, Inc. (LabMD) generated intense interest among data security professionals. Although human resources professionals and in-house employment counsel typically are not close followers of the FTC's activities, they should take note, too. The FTC's standards for "reasonable" data security offer employers valuable guidance in navigating their obligations to safeguard employee data. 

The FTC has asserted, and one federal district court recently held, that the standard for fair data security practices under the FTC Act is reasonableness, which is also the standard that employers generally must meet when safeguarding sensitive personnel information.  For example, the Health Insurance Portability and Accountability Act (HIPAA) requires that employers implement "reasonable and appropriate" safeguards for protected health information.  As another example, California businesses are required to "implement and maintain reasonable security procedures and practices" for personal information.  A majority of states require companies to take reasonable steps to destroy personal information when disposing of records. 

The challenge for employers, like that for businesses responsible for safeguarding customers' data, is how to translate "reasonable" security requirements into actual practices. Data security professionals have followed the LabMD case closely because they hope it will shed light on this question.   

Before shutting down operations earlier this year, LabMD conducted clinical laboratory tests on specimen samples from consumers and sent the results to the consumers' health care providers. The FTC alleges that, in 2008, LabMD made insurance billing information available on a peer-to-peer network installed on an office computer, thereby exposing the personal information of more than 9,000 consumers. In 2013, the FTC filed its complaint against LabMD, alleging that the company had failed to provide "reasonable and appropriate" security for consumers in violation of the FTC Act. 

Instead of promptly settling with the FTC, like most other companies have done in similar situations, LabMD fought back. The company filed a motion to dismiss that asserted, in part, that the FTC could not penalize LabMD for allegedly failing to provide adequate security for consumer information because the FTC had not issued any regulations to put LabMD on notice of what that standard entails. The administrative court denied the motion to dismiss. But on May 1, 2014, the judge granted LabMD's motion to compel testimony regarding the data security standards the FTC intends to use to prove that LabMD's data security was inadequate. 

In a deposition held on May 12 and recently entered into the court record, Bureau of Consumer Protection Deputy Director Daniel Kaufman sidestepped questions about specific data security practices that would fail the reasonableness standard. Instead, he asserted that the FTC's consent orders, guidance brochures, and other statements create a body of guidance from which companies can derive reasonable practices. Mr. Kaufman emphasized that reasonableness must be determined on a case-by-case basis.

Nevertheless, the FTC has repeatedly identified certain practices as unreasonable in the types of documents mentioned by Deputy Director Kaufman in his deposition testimony. Employers can use the following summary as a checklist of practices (albeit not necessarily all inclusive) that should be avoided when evaluating existing safeguards for sensitive personnel information: 

Access Controls

  • Failure to properly encrypt data as needed;
  • Poor username/password protocol, including the following missteps:
    • Failure to require complex passwords to access the computer system;
    • Use of common or known passwords;
    • Failure to require users to change passwords;
    • Failure to suspend users after repeated failed login attempts;
    • Allowing username and password sharing;
    • Permitting users to store passwords in unsafe cookies;
    • Failure to require user information, such as passwords to be encrypted in transit; and
    • Allowing new user credentials to be created without checking them against previously obtained legitimate credentials. 

Data Minimization

  • Failure to minimize the processing of personal information (e.g., by collecting no more information than is needed to accomplish the purpose of the collection or by keeping data after it is needed). 


  • Failure to train employees in proper data security. 


  • Failure to require by contract that third parties protect personal information;
  • Failure to manage third-party access to data; and
  • Failure to verify and authenticate the identity of third-party recipients. 

Document Destruction

  • Failure to securely dispose of data. 

Network Safeguards

  • Failure to adequately inventory computers connected to the company's network;
  • Failure to employ adequate firewalls;
  • Failure to limit computer connectivity to company's intranet/network;
  • Failure to test the security of processes;
  • Failure to remedy known security vulnerabilities (e.g., by failing to apply security patches);
  • Failure to protect against common attacks, such as Structured Query Language (SQL), injection attacks and Cross-Site Scripting (XSS) attacks;
  • Failure to set up a system of public feedback for vulnerabilities; and
  • Failure to implement procedures to detect unauthorized access.1

This summary of unreasonable practices is also useful because employers could find themselves in the crosshairs of an FTC enforcement action. Although the FTC focuses its attention primarily on consumer injury, the FTC has pursued enforcement actions for security breaches involving employee data in at least two cases. In one case, a provider of payroll services settled an FTC complaint that it had exposed the personal information of its customers' employees. This case is not a pure employee data case because the employees worked for the defendant's customers, not the defendant itself. Nevertheless, the case indicates that the FTC considers employee data to be within its purview. 

In the other case involving an enforcement action against a large drugstore chain, the FTC alleged that the company exposed the personal information of both its customers and employees by discarding confidential information in publicly accessible garbage bins without first shredding it. What seems to have emerged then is a "shoulder jurisdiction" in which the FTC may pursue breaches of employee data as long as consumer data has also been compromised. Because many employers manage some consumer data, a breach exposes them to enforcement risk under this approach. 

Recommendations for Employers

To reduce enforcement risk, employers should consider taking the following steps: 

  • Establish an information security program that follows industry data security standards and avoids the pitfalls listed above;
  • Implement information security throughout the organization; and
  • Seek counsel immediately upon becoming aware of a security incident. 


1 Professors Daniel Solove and Woodrow Hartzog include a useful discussion of these guidelines in their article The FTC and the New Common Law of Privacy, 114 Colum. L. Rev. 583 (2014)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions