Employers will be liable for deliberate data breaches by employees

  • Insight

12 November 2018

The potential financial and reputational damage from data breaches has come into sharp focus with the recent Court of Appeal case in England involving the Morrisons supermarket chain. A stark reminder of the data protection issue came in the court’s finding that Morrisons were liable for the unlawful leaking of payroll information of all of its UK employees by an aggrieved employee.

While Morrisons will now appeal the decision of the Court of Appeal to the Supreme Court, it is nonetheless the case that in light of this decision, companies should ensure they have rigorous policies to control sensitive information, as well as put sufficient insurance in place to guard against liability when it comes to personal information and data protection.

Background

An IT worker at the business went through a disciplinary process in July 2013 for misuse of the company’s postal facilities. He received a formal verbal warning and it is understood that this left him with a grudge against his employers.

The company’s auditors, KPMG, requested a number of categories of data in order to complete their annual audit. One of the categories was payroll information. The IT worker in question was given an encrypted memory stick with the payroll data of all Morrisons staff. He then downloaded this information on to his personal laptop and then copied it onto his own personal memory stick.

The IT worker uploaded the data, containing the personal details of 99,998 employees onto a file sharing website. The information remained on the website for two months until he anonymously contacted a number of local newspapers to notify them of the breach. The papers reported the issue to Morrisons who had the information removed on the same day.

The IT worker was subsequently convicted of fraud and offences in terms of the Computer Misuse Act 1990 and the Data Protection Act 1998. He was sentenced to a term of eight years imprisonment.

Group Litigation Order

Following the discovery of the data breach, a Group Litigation Order was made allowing 5,518 of Morrisons employees to pursue a claim for damages against the business for misuse of private information, breach of confidence and breach of statutory duty owed under the Data Protection Act.

In the first of the court hearings, the judge dismissed the claims that Morrisons had primary liability for the leak of the information.  This was on the basis that they did not deliberately misuse or authorise or carelessly permit the misuse of the data.  However, the judge went on to hold Morrisons liable for the misuse of private information and the breach of confidence committed by their employee. Morrisons appealed to the English Court of Appeal.

Vicarious liability, common law and the Data Protection Act

The first issue for the appeal court to deal with was whether or not vicarious liability – that is the liability of an employer for an employee’s unlawful actions - could arise in a case such as this one. It was said on behalf of Morrisons that the Data Protection Act 1998 (the precursor to the 2018 Act) was a specialist piece of legislation which was designed to be comprehensive in the area of law dealing with personal data. It was argued this therefore impliedly excluded the doctrine of ‘vicarious liability’ for the common law wrongs of the misuse of private information and breach of confidence.

The court rejected Morrisons’ argument. The judges held that the test as to whether or not a statutory remedy (such as the one in the Data Protection Act) excluded a common law remedy was that as set out in the earlier case of R (Child Poverty Action Group) v Secretary of State for Work and Pensions.  Applying that to the present case, the Court of Appeal made three key points:

1) If Parliament had intended the common law remedies to be excluded, it would be expected they would do so explicitly. Parliament had not done so.

2) Counsel for Morrisons had accepted that the IT worker could be liable for both a statutory breach in terms of the Data Protection Act and also at common law.

3) The Data Protection Act does not actually deal at all with the issue of an employer’s liability (when not a data controller) for a breach caused by an employee (who is a data controller). On the basis that the statute doesn’t deal with this issue at all, it was difficult to see how a common law remedy was excluded in this scenario.

While the decision was issued in terms of the Data Protection 1998, there is nothing to suggest that the reasoning would not hold true under the new Data Protection Act 2018.

Was Morrisons responsible for its employee’s actions?

Having established that in law an employer could potentially be vicariously liable for common law breaches of duty in this area, the court then had to decide whether or not Morrisons was actually liable in these circumstances.

The court heard that the IT worker had copied the data to a personal device and leaked the data on his own computer, at home, on a Sunday, weeks after he was provided with access to the data. It was argued that this meant his actions were not so closely connected with his employment and it would be unfair to impose liability in such circumstances.

The court rejected this argument.  The court said that from the point at which the breach took place, an employee, if they had known of the breach, would be entitled to at least nominal damages and a court order to prevent dissemination of the data. On that basis, the leaking of data was actually closely linked to the scope of his employment and it was therefore fair to impose vicarious liability on his employers.

The burden on employers

The first instance judge did have some concern that in this case imposing liability on Morrisons was, in a way, aiding the IT worker’s criminal actions in pursuing his aim to damage his employer. 

This argument was put forward by counsel for Morrisons in the course of the appeal.  However, the Court of Appeal dismissed this as a “Doomsday or Armageddon argument”. The court’s view was that many large companies now face the risk of a rogue employee leaking confidential information and the scale of the potential liability was not an argument to limit that liability.

It is therefore clear that employers must take all necessary precautions to limit the possibility of such breaches taking place.

High-risk/classified personal data should be locked down and only available to employees on a need to know basis, with rigorous policies in place on the retention and deletion of that data. Given, that the risk of rogue employees carrying out these breaches cannot totally be excluded, businesses should also have in place sufficient insurance cover to protect against the potentially very large liability which could arise from a leak. Failure to have such systems in place is unlikely to be met with sympathy by the courts, for the moment at least.

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