United Kingdom: The Morrisons Data Breach Judgment

1. Group Litigation: This is one of the first class-action type claims for data protection law breaches in the UK. The rogue employees’ actions impacted almost 100,000 employees, and 5,518 joined together under a ‘group litigation order’ to bring this claim. Whilst it might be one of the first, it won’t be the last. Data breaches are business as usual, and the forthcoming GDPR will raise awareness of data protection rights to another level.
2. Vicarious liability but not primary liability: Morrisons were held vicariously liable for the criminal actions of its rogue employee, who released payroll related data of almost 100k employees. This is perhaps unsurprising given the Supreme Court’s decision in Mohamud v Morrisons, and the approach to assessing the connection between the rogue employee’s employment and his wrongful conduct. The Court did acknowledge that this is a difficult issue, and gave leave to appeal. Importantly though, other than breach of the seventh data protection principle (see below) Morrisons did not have primary liability for breach of the Data Protection Act 1998 (DPA) or breach of confidence – that would only be the case if they authorised or permitted the misconduct.
3. Appropriate technical and organisational security measures including retention: The employees claimed Morrisons were liable for breaches of several of the DPA’s principles. The only principle they were found to have breached was the seventh principle – the requirement to ensure appropriate technical and organisation security measures to protect the data. Retention of the data, and a lack of clear procedure to address data deletion in this case, was a significant issue and Morrisons should have addressed it. On the facts, however, it was found not to have caused the unauthorised disclosure.
4. Damages: This decision dealt with liability only so remedy awaits to another day. But importantly it does not matter if any of the impacted employees have suffered financial loss as a result of the breach. They can be awarded damages for the distress caused by the breach, and the loss of control over their personal data.
5. Litigation strategy for data breach: If your business is subject to a data breach that results in a notification to Information Commissioner’s Office (the ICO), the police, some other authority or regulator, and/or data subjects, you will need to be strategic in how you address your obligations towards those people, whilst protecting your position in the event of litigation by the data subjects themselves. It highlights the needs for a well rehearsed data security breach incident response plan. Morrisons brought a successful claim for damages against the rogue employee – but their evidence in that claim (including the potential distress caused to the affected employees by the breach) is likely to raise its head in the remedies hearing in this current claim.

Take a deeper dive into each of the five points below, but first, here are some of the facts giving rise to the judgment (because they’re relevant, and quite interesting):

Facts

The rogue employee was Andrew Skelton, a Senior IT Auditor at Morrisons. In 2013, he had received a verbal warning for a matter unrelated to the present case. Skelton did not agree with the level of sanction he received and resolved to damage Morrisons. In November 2013, KPMG were carrying out an audit of Morrisons payroll data. Skelton did not normally have access to payroll data, which was limited to a handful of “super-users” and ordinarily stored on a secure internal environment created by proprietary software known as “Peoplesoft”. However, to facilitate KPMG’s work, the IT internal audit team was charged with responsibility for collating all the data requested by KPMG, which was assigned to Skelton. Accordingly, the payroll data was therefore extracted from Peoplesoft and transferred to Skelton’s laptop via a USB drive. Skelton provided KPMG with the information they had requested, but retained a copy.

On 12 January 2014, a file containing personal details of nearly 100,000 Morrisons employees was posted on a file sharing website. Shortly afterwards, links to the website were placed elsewhere on the web. The data consisted of personal data (e.g. names, addresses, dates of birth, salaries, bank details etc.). On 13 March 2014, a CD containing a copy of the data was received by various newspapers in the UK. The newspapers did not publish the data and Morrisons was informed of the data breach. Within a few hours Morrisons had taken steps to ensure the website had been taken down. It also alerted the police.

On 19 March 2014, Skelton was arrested. He was later sentenced to 8 years in prison for offences arising from disclosing Morrisons’ employees’ personal data. At Skelton’s criminal trial, the Recorder of Bradford had no doubt that it was the previous verbal warning that caused Andrew Skelton to act as he did.

Subsequently 5,518 Morrisons’ employees, whose data was disclosed, brought claims for compensation under the DPA, under common law for the misuse of private information and in equity for breach of confidence. These claims were made on the basis that Morrisons was primarily liable for its own acts and omissions, and vicariously liable for the actions of Skelton that harmed his fellow workers.

Five key takeaways from the High Court decision:

1. Group Litigation: the group litigation issue had in fact been dealt with in earlier proceedings. The claimant lawyer, originally representing 2000 claimants, sought permission for time to allow other potential claimants to join the litigation. The court granted a Group Litigation Order (GLO), and set a long stop date by which the impacted employees could join, so that the number of claimants for the liability hearing was 5,518.

Comment: We believe this is one of the first, if not the first, GLO for a data protection / misuse of private information / breach of confidence claim. The future potential impact is significant – as both awareness of data protection law increases (particularly in the run up to May 2018 and the GDPR becoming live) and the frequency of material data breaches rises. As had long been feared, the establishment of liability in respect of a large group of data subjects for a security failure opens the door to potentially enormous liabilities of employers / data controllers, even if each individual loss is low.

2. Vicarious Liability but not primary liability: The claimants alleged breaches of the following of the DPA’s data protection principles (DPPs), and related rules in relation to misuse of private information and breach of confidence:

DPP1 (fair and lawful processing) on the basis that none of the claimants had consented to Skelton processing their data by copying the payroll data, making an extract of that data and then sending that extract to the file sharing website.

DPP2 (purpose limitation) on the basis that the payroll data was processed in a manner incompatible with the purpose for which it was obtained (i.e. it was processed not only for administration, payroll and audit purposes but was also processed for criminal purposes).

DPP3 (the requirement for the personal data to be adequate, relevant and not excessive) and DPP5 (the requirement for personal data not to be kept longer than necessary) which the claimants claimed had been breached but did not elaborate on how it had been breached.

DPP7 (the requirement to have appropriate technical and organisational measures to protect personal data) on the basis of the alleged failures described in point 3 below, which largely relate to the fact Skelton was entrusted with handling the payroll data, and his actions in relation to the data wasn’t monitored, nor was the data promptly deleted.

The court had to decide three things:

A. whether Morrisons itself had breached any of the DPPs

B. whether Morrisons had primary liability for breach of the DPPs in relation to actions which it had not authorised i.e. the actions of Skelton

C. whether it had vicarious liability for Skelton’s actions.

In relation to A (breach of the DPPs by Morrisons themselves), the Court found that Morrisons had not breached DPPs 1, 2, 3 or 5 as Morrisons were not the data controller at the time of these breaches (KPMG, the auditor, and Skelton himself, were) and as Morrisons were not the data controller, they did not owe a duty to the claimants in respect of those breaches.

In relation to DPP7 (requirement to have appropriate technical and organisational measures) the Court found that Morrisons were in breach in one respect by failing to have an organised system for the deletion of data that is temporarily held outside its usual secure repository i.e. the payroll data on Skelton’s work laptop. The Court noted that a practice of checking that employees had performed a process such as deletion may in some circumstances lead to the employee thinking that their employer mistrusted him/her. However, it considered that this could be mitigated by having a clear understanding amongst employees, created from top down, that it would be part of usual routine for managers to check that sensitive data had been deleted. That said, the Court considered that Morrisons’ breach did not cause the unauthorised disclosure, and therefore did not cause the damage to the claimants – (see further at paragraph 3 below).

In relation to B (primary liability for breach of DPPs in relation to the unauthorised acts), Morrisons could not have primary liability for the breaches of DPPs 1, 2, 3 or 5 or the related alleged breaches of confidence or misuse of private information, as Morrisons did not disclose the information or misuse it – it was Skelton, acting without authority and criminally.

In relation to C (vicarious liability), the Court held that Morrisons were vicariously liable for the actions of Skelton. The test, as set out in the Supreme Court’s decision in Mohamud v Morrisons is:

• What is the function or field of activities that had been entrusted to the employee, or in other words, what is the nature of his/her job?
• Is there a sufficient connection between the nature of the employee’s job and the wrongdoing to make it right for the employer to be held vicariously liable?

In Mohamud, the Supreme Court found that an employee’s physical attack on a customer was so closely connected with his employment that Morrisons was vicariously liable for the customer’s injuries. For more information, click here for our client alert on this case.

In this case, the Court relied on the following findings of fact to find that Skelton’s criminal act of disclosing the payroll data was sufficiently closely connected to his employment so as to make Morrisons vicariously liable:

In this case, the Court relied on the following findings of fact to find that Skelton’s criminal act of disclosing the payroll data was sufficiently closely connected to his employment so as to make Morrisons vicariously liable:

i. There was an unbroken thread that linked Skelton’s work to the unauthorised disclosure and what happened was a seamless and continuous sequence of events. Skelton had formed his plan when he knew he was to be the go-between Morrisons and KPMG, even before his first unlawful act of transferring the data from his work laptop to personal USB stick;

ii. Morrisons had deliberately entrusted Skelton with the payroll data – this was not a case where his work merely gave him access to that data but he was chosen as the assigned person to send that data to KPMG. Morrisons therefore bore the risk that their trust may be displaced.

iii. Skelton’s task was to receive the payroll data, store it and then transfer it to KPMG. The fact that he chose to disclose it to others was closely related to the task he had been given, even it if had not been authorised.

iv. Skelton was acting in the course of his employment when he received the payroll data – the chain of events then leading to its disclosure was unbroken and the fact that the disclosures were made some time later, from home, by use of his personal equipment, on a non-working day, did not disengage them from his employment.

The Court also considered that it would be right for Morrisons to be held vicariously liable under the principle of social justice as Morrisons were more likely to have the means to compensate the claimants than Skelton and can be expected to have insurance against such liability.

It was clear, however, that the Court was uncomfortable with the outcome of its decision on vicarious liability as it recognised that its decision might render the Court an accessory in furthering Skelton’s criminal aims. It therefore granted permission to appeal the vicarious liability decision.

Comment

If the ruling on vicarious liability stands, the case shows that for employers, avoiding liability is not simply a case of demonstrating that appropriate measures have been implemented in accordance with data protection legislation. For employee driven “inside jobs”, they will want to consider even stricter measures to limit risk, as they may be liable for employee criminal behaviour regardless.