First CCPA Enforcement Action Settlement and Sunsetting of Employee Data Exemptions Signal Significant Compliance Challenges Ahead
In a busy couple of weeks for California privacy, regulatory priorities came into sharp focus when California Attorney General Rob Bonta (“Attorney General”) announced the first settlement of a California Consumer Privacy Act (“CCPA”) enforcement case with Sephora, Inc. (“Sephora”) relating to its purported failure to comply with CCPA requirements regarding “sales” of personal information. The Attorney General also provided additional summaries of other enforcement case examples where violations had been cured prior to further enforcement action. Additionally, the California Legislature failed to pass bills extending the partial exemptions for employee personal information under the CCPA, creating additional compliance burdens for businesses with employees in California.
First CCPA Settlement
On August 24, 2022, the Attorney General announced the first-ever settlement of a CCPA enforcement action. The Attorney General entered into a settlement with Sephora to resolve allegations that the company violated the CCPA. The Attorney General alleged that Sephora made certain consumer personal information it collected through its website and mobile app available to third parties, including third-party advertising networks and data analytics providers, without appropriate opt-out mechanisms in place. This allegedly included information about the products that consumers view and purchase, consumers’ geolocation data, cookies and other user identifiers, and technical information about consumers’ operating systems and browser types, which Sephora purportedly shared by installing, or allowing the installation of, cookies, pixels, and other technologies.
According to the Attorney General, Sephora’s provision of information to such third parties in exchange for services from those entities was a “sale” under the CCPA in part because Sephora did not have valid “service provider” contracts in place with these third parties which, as the Attorney General noted in the settlement, is one exception to the definition of “sale” under the CCPA.
Sephora purportedly failed to cure the violations within the CCPA’s 30-day cure period following receipt of notice of the violations from the Attorney General. In addition to CCPA violations, the Attorney General went a step further and alleged that Sephora’s failure to process opt-out requests via user-enabled privacy controls and its statements that it did not sell personal information constituted unfair and deceptive practices under California’s Unfair Competition Law.
As part of the settlement, Sephora will pay a penalty of $1.2 million and maintain a two-year compliance monitoring program addressing CCPA and California Privacy Rights Act (“CPRA”) compliance, including assessing and monitoring sales of personal information and processing of requests received via the GPC, and conforming its service provider agreements to CCPA’s requirements.
Updated Enforcement Summaries
At the same time as the release of the Sephora settlement, the Attorney General also announced that a number of notices were sent to businesses alleging non-compliance relating to their failure to process consumer opt-out requests made via user-enabled global privacy controls, like the GPC, and updated the enforcement case examples posted on the Attorney General website.
Failure to Extend Employee Exemption
With the end of the California legislative session on August 31, 2022, two bills proposing to extend the CCPA exemption for information collected in the employment context failed to pass. Bill sponsors had tried two strategies: one extending the exemption indefinitely and the other until January 1, 2026. The failure of these bills results in employees, job applicants, and independent contractors being able to exercise the rights afforded to other consumers under the CCPA and CPRA as of January 1, 2023. While these bills are presumed “dead,” they may be re-introduced with when the California Legislature reconvenes on December 5, 2022, for the 2022-2023 legislative session. By applying the privacy protections of its comprehensive privacy law to the employment context, California becomes more of an outlier among the five states that have passed comprehensive privacy legislation to date.
While companies are busy reviewing current privacy programs to evaluate adjustments that may be required to prepare for the CPRA and other state comprehensive privacy laws, especially those effective at the start of 2023, companies should bear in mind the lessons from the enforcement activities of the Attorney General and the implications of an expansion of the CPRA to employees, job applicants, and independent contractors.
- Ensure appropriate contracts are in place with all service providers. The Sephora settlement confirms that “sales” under the CCPA encompass an incredibly broad array of data transfers. As the Attorney General stated, providing personal information to third parties in part of an exchange for services will come within the definition. Sephora was alleged to have transferred personal information such as geolocation data and other electronic network information to third-party web analytics and digital advertising vendors, but every transfer of personal information to a third party should be analyzed to determine if it is appropriate to categorize the third party as a “service provider” under the CCPA.
If the third party is a service provider, the business must validate that appropriate contract terms are in place as required by the CCPA. To complicate matters, the CPRA will add new contracting requirements for “service providers” and a new category of vendor, “contractors.” Businesses should be assessing their contracts now and engaging with vendors to ensure that terms are updated appropriately in the lead up to CPRA’s effective date of January 1, 2023.
- Understand HR data flows and enhance privacy practices for employee data. With the CCPA’s partial exemption for employee, independent contractor, and applicant data now sunsetting January 1, 2023, businesses with California employees will need to extend certain privacy program processes to cover human resources data. For example, employees, independent contractors, and applicants will now be entitled to receive a full CCPA/CPRA privacy notice rather than the short form notice currently required to be provided under the partial exemption. Human resources service provider contracts will need to be reviewed and updated to include statutorily-mandated terms to avoid “sales” of human resources data. Additionally, businesses will need to prepare to receive rights requests from employees, independent contractors, and applicants relating to rights to know, delete, correct, and other rights. Businesses should review different human resources-related rights requests scenarios to test how the organization expects to respond.
- Implement tools and processes to detect and honor global privacy controls. While the CCPA did not include a specific requirement that GPC signals be honored as valid requests to opt-out of the sale of personal information, CCPA regulations promulgated by the Attorney General did require such capability. The Sephora settlement is the latest evidence that California regulators are likely to continue to take this requirement seriously. GPC signals allow consumers to tell every website they visit what their cookie preferences are. Businesses should assess the technical capabilities of their online points of presence to ensure they are able to honor requests sent by GPC signals. Businesses should also stay up to date with new regulations being developed by the California Privacy Protection Agency, which could provide additional technical specifications and requirements that businesses will need to implement.
- Review privacy notices for comprehensiveness and readability. The latest case enforcement summaries published by the Attorney General still frequently cite non-compliant privacy policies as a reason for why a business received a notice of non-compliance. Privacy policies are low hanging fruit for the Attorney General to review and assess compliance. Businesses should ensure that their public facing privacy disclosures are accurate, contain all mandated disclosures, and are understandable and not confusing.
Although precise requirements for privacy notices may further evolve as the California Privacy Protection Agency continues to develop CPRA regulations, businesses should also be evaluating their current CCPA notices to determine what uplift needs to be done to make them CPRA compliant.
- Review financial incentive programs. Financial incentives are another area where the Attorney General has focused significant regulatory attention, including announcing an “enforcement sweep” where a number of businesses operating loyalty programs were alleged to be out of compliance with notice and opt-out requirements. The absence of a proper notice of financial incentive or the failure to provide that notice to consumers before they join the program or to obtain opt-in consent are all shortcomings that are easy to spot. Companies that operate loyalty programs or offer other financial incentives should review their notices and consumer workflows, such as how a consumer opts-in or opts-out of the program, against the Attorney General’s enforcement case examples to avoid similar issues.
For further information on these developments, CCPA, and CPRA, contact Alex C. Nisenbaum, Sharon R. Klein, Ana Tagvoryan, Karen H. Shin, or another member of Blank Rome’s Privacy, Security & Data Protection practice group.