[Federal Register Volume 69, Number 155 (Thursday, August 12, 2004)]
[Proposed Rules]
[Pages 50022-50040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18333]



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Part III





Department of Labor





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Employment and Training Administration



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20 CFR Part 603



Federal-State Unemployment Compensation Program (UC); Confidentiality 
and Disclosure of State UC Information; Proposed Rule

  Federal Register / Vol. 69, No. 155 / Thursday, August 12, 2004 / 
Proposed Rules  

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DEPARTMENT OF LABOR

Employment and Training Administration

20 CFR Part 603

RIN 1205-AB18


Federal-State Unemployment Compensation Program (UC); 
Confidentiality and Disclosure of State UC Information

AGENCY: Employment and Training Administration, Labor.

ACTION: Notice of Proposed Rulemaking (NPRM); request for comments.

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SUMMARY: This proposed rule would set forth statutory confidentiality 
and disclosure requirements of Title III of the Social Security Act 
(SSA) and the Federal Unemployment Tax Act (FUTA) concerning 
unemployment compensation (UC) information. It would also amend the 
Income and Eligibility Verification System (IEVS) regulations, a system 
of required information sharing primarily among state and local 
agencies administering several federally assisted programs.

DATES: Written comments must be submitted on or before October 12, 
2004.

ADDRESSES: Comments may be mailed or delivered to Cheryl Atkinson, 
Administrator, Office of Workforce Security, Employment and Training 
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Room S-4231, Washington, DC 20210. Comments may be submitted 
electronically to the Office of Workforce Security at the e-mail 
address: [email protected]. Receipt of submissions, whether 
by U.S. mail, other delivery, or e-mail, will not be acknowledged.
    All comments will be available for public inspection and copying 
during normal business hours at the Office of Workforce Security, 
Employment and Training Administration, U.S. Department of Labor, 200 
Constitution Avenue, NW., Room S-4231, Washington, DC 20210. Copies of 
the proposed rule are available in alternate formats of large print and 
electronic file on computer disk, which may be obtained at the above-
stated address. The proposed rule is also available at the Web address 
http://www.workforcesecurity.doleta.gov.

FOR FURTHER INFORMATION CONTACT: Gerard Hildebrand, Chief, Division of 
Legislation, Office of Workforce Security, Employment and Training 
Administration, (202) 693-3038 (this is not a toll-free number) or 1-
877-889-5627 (TTY), or by e-mail at [email protected].

SUPPLEMENTARY INFORMATION:

Background

    On March 23, 1992, the Employment and Training Administration (ETA) 
published a proposed rule (57 FR 10063) concerning the confidentiality 
and disclosure of state UC information. The proposed rule was never 
finalized. Commenters expressed different views over how restrictive 
the rule should be, and some found the proposed rule unnecessarily 
lengthy and complex. Given the lapse of time, ETA has decided to 
publish a new proposed rule, described below.

Discussion of Proposed Rule

    As explained below, ETA believes that confidentiality protections 
for UC information (meaning information in the records of a state or 
state UC agency that pertains to the administration of state UC law) 
are still necessary. Comments on the 1992 proposal will become part of 
the new rulemaking record and were considered in developing this 
proposed rule. This proposed rule sets forth requirements very similar 
to those in the 1992 proposal, but it would allow more optional state 
disclosures. It would also now permit the Department to waive 
safeguards and agreement requirements for disclosures to Federal 
agencies which have in place adequate alternative safeguards for 
protecting the confidentiality of information and an appropriate method 
of paying or reimbursing the state UC agency for costs involved in such 
disclosures. In addition, this proposed rule is streamlined. Whereas 
the text of the 1992 proposal contained 12 subparts and 77 sections, 
this proposal is condensed into three subparts and 16 sections. 
Further, it uses plain language and a user-friendly question-and-answer 
format.
    This proposed rule would implement Federal UC law provisions 
concerning confidentiality and disclosure of UC information and 
establish uniform minimum requirements for the payment of costs, 
safeguards, and data-sharing agreements to ensure responsible use when 
UC information is disclosed. The confidentiality requirement 
implemented by this rule is derived from Section 303(a)(1), SSA. The 
disclosure requirements are from Sections 303(a)(7), (c)(1), (d), (e), 
(f), (h), and (i) of the SSA and Section 3304(a)(16), FUTA. This 
proposed rule would revise the regulations at 20 CFR Part 603, which 
currently implement only Section 303(f) (concerning IEVS) of the SSA, 
to implement all of these statutory provisions. (Section 303(f) 
requires that each state UC agency provide for information to be 
requested and exchanged with state and local agencies administering 
several federally assisted programs for purposes of income and 
eligibility verification, in accordance with a state system which meets 
the requirements of Section 1137 of the SSA.) The disclosure provisions 
that this rule would implement all require disclosure to government 
entities, but they vary with respect to the specific information to be 
disclosed and the terms and conditions of disclosure.
    This rule does not address the scope of the Secretary of Labor's 
authority under Section 303(a)(6) of the SSA to require reports from 
the states. We note this because the preamble to the 1992 proposed rule 
asked for comments concerning the scope of this provision. We have 
decided not to address this matter in this proposed rule.
    The confidentiality and disclosure requirements in Title III of the 
SSA relating to UC information are conditions for receipt of grants by 
the states for UC administration. The disclosure requirements in the 
FUTA are conditions required of a state in order for employers in that 
state to receive credit against the Federal unemployment tax under 26 
U.S.C. 3302.
    Other Federal laws may require use or disclosure of confidential UC 
information. For example, the Workforce Investment Act (WIA) of 1998, 
Pub. L. 105-220, requires states to measure their progress in providing 
services funded under Title I of the WIA against state and local 
performance measures using ``quarterly wage records, consistent with 
State law.'' 29 U.S.C. 2871(f)(2); 20 CFR 666.150(a). Because these 
laws do not condition receipt of UC grants under the SSA or 
certification for employer tax credits under FUTA on such use or 
disclosure, this proposed rule would not implement these laws. However, 
the disclosure of confidential UC information in compliance with the 
WIA and other Federal laws would be permitted under the general 
exceptions to confidentiality in Sec.  603.5 of this proposed rule. 
(For more information on the requirement to use wage records under the 
WIA, see 20 CFR 666.150.) ETA strongly encourages states whose laws do 
not permit disclosure for WIA purposes to amend their laws.
    We believe that these proposed regulations are necessary and 
important for several reasons. The Federal Privacy Act does not protect 
the confidentiality

[[Page 50023]]

of UC information even though it is the same type of information, wage 
and employment information, that is highly protected when collected for 
the administration of other Federal programs, such as Social Security 
and the Federal income tax. Except for its provisions governing the 
collection of Social Security numbers, the Privacy Act does not apply 
to state records containing UC information because they are not Federal 
records. Although state laws address the privacy of such records, they 
do so to varying degrees. At the same time, as mentioned, a number of 
provisions of Federal law now require use or disclosure of confidential 
UC information. States have repeatedly sought guidance from the 
Department of Labor on confidentiality and disclosure issues. Further, 
several of the provisions in Title III, SSA, instruct the Secretary of 
Labor to establish safeguards to protect the confidentiality of UC 
information when disclosed.
    The proposed rule is based on several ``fair information'' 
principles that are fundamental to any confidentiality policy and are 
reflected in a number of sections throughout. The principles include 
notice, choice, access and amendment, security safeguards, and 
accountability.
    Notice. Subjects of an information collection (persons or 
organizations from or about whom information is collected) should be 
notified what information is collected and of the possible uses of that 
information. Under this proposed rule, state UC agencies would be 
required to inform claimants and employers of the uses of UC 
information collected, including possible non-UC uses. Specifically, 
Section 603.11 of this proposed rule would require states to provide 
individualized notice to claimants at the time of filing an initial 
claim and periodically thereafter, and to employers on their quarterly 
wage report form or reimbursement billing, that confidential UC 
information may be requested and disclosed. A requirement for notice to 
claimants exists in current part 603. This proposed rule would extend a 
notice requirement to employers.
    Choice. To the extent possible, subjects of an information 
collection should have choices about how information about them is 
used. Proposed Sec.  603.5(c) and (d) would allow states to disclose 
information to an individual, employer, their agent or attorney, or to 
another third party, on the basis of informed consent. In the case of 
disclosure to a third party other than an agent or attorney, the 
proposed rule would require consent to be in writing and contain 
features, such as specific identification of the information to be 
disclosed and the specific purposes for the disclosure, ensuring the 
consent is truly informed.
    Access and amendment. Subjects of an information collection should 
have the right to access and amend information about them. This is 
important to ensure the accuracy of information that will be used to 
make decisions about individuals (such as eligibility for government 
benefits or services). UC information is used to determine whether an 
individual is eligible for benefits or an employer is liable for UC 
taxes. The opportunity to access and amend UC information usually 
occurs during the claims determination process or when tax coverage 
decisions are made, because individuals and employers participate and 
provide input into these processes. Section 603.5(c) would also permit 
states to provide individuals or employers access to UC information 
about themselves for non-UC purposes.
    Security safeguards. Security controls are important to protect the 
confidentiality and integrity of data, including data shared with other 
government agencies or recipients. Section 603.4(b) of this proposed 
rule would require states to maintain the ``confidentiality of any UC 
information which reveals the name or any identifying particular about 
any individual or any past or present employer or employing unit, or 
which could foreseeably be combined with other publicly available 
information to reveal any such particulars'' except as provided in this 
regulation. This would require that state agencies employ effective 
methods to protect confidentiality of UC information. These methods may 
include management, operational, and technical security controls.
    Section 603.9 would set forth minimum security safeguards that 
state agencies must require of recipients of disclosed data to ensure 
continued data confidentiality and integrity. For example, Sec.  
603.9(b)(1)(ii) and (iii) would require that information be stored in a 
place physically secure from access by unauthorized persons and 
maintained in a way that unauthorized persons cannot obtain the 
information by any means. Section 603.9(b)(1)(v) would also require 
instruction of personnel about confidentiality requirements and signed 
acknowledgments that the instruction occurred. Section 603.9(b)(1)(vi) 
would require the return or destruction of disclosed UC information 
once the purpose for which the information was disclosed has been 
served. Section 603.9(b)(1)(vii) would require states to maintain a 
tracking system sufficient to allow an audit of compliance with this 
regulation's requirements. Section 603.10(b)(1)(vi) would require data-
sharing agreements to include provision for state on-site inspection of 
recipients to assure compliance with the security safeguards.
    Accountability. Mechanisms should exist to ensure the 
accountability of individuals and entities handling confidential data. 
Section 603.4(c) of this proposed rule would require state law to 
provide penalties for any unauthorized disclosure of confidential UC 
information. Section 603.9(b)(1)(v) would require state agencies to 
inform employees of the applicable sanctions for unauthorized 
disclosures. Section 603.9(a) would further require states or state 
agencies to subject recipients of confidential UC information under 
data-sharing agreements to penalties provided by state law for 
unauthorized disclosure. Section 603.10(c) would require suspension and 
ultimately termination of any data-sharing agreement or contract if a 
recipient fails to follow the specified safeguards. This provision 
would also require states to take other action against an entity 
violating a data-sharing agreement.

Section-by-Section Description of Proposed Rule

Subpart A--Confidentiality and Disclosure Requirements in General

    Subpart A sets forth the purpose and scope of the proposed rule, as 
well as definitions that would apply to subparts B and C.
Section 603.1, Purpose and Scope
    This section describes the purposes and scope of proposed new part 
603, which differ materially from the purposes and scope of the present 
part 603. While the present part 603 addresses only the requirements 
concerning a state UC agency's participation in the IEVS under Section 
303(f) of the SSA, new part 603 would address additional disclosure 
requirements in Federal UC law and the basic requirement of 
confidentiality derived from Section 303(a)(1) of the SSA. New part 603 
would apply to states and state UC agencies, as defined in Sec.  
603.2(f) and (g).
Section 603.2, Definitions
    This section defines the terms that would apply to new part 603.
    Paragraph (a) defines ``claim information'' as information about:

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     Whether an individual is receiving, has received, or has 
applied for UC;
     The amount of compensation the individual is receiving or 
is entitled to receive;
     The individual's current (or most recent) home address; 
and, for purposes of subpart C (concerning disclosure to an IEVS),
     Whether the individual has refused an offer of work and, 
if so, a description of the job offered including the terms, 
conditions, and rate of pay; and
     Any other information contained in the records of the 
state UC agency that is needed by the requesting agency to verify 
eligibility for, and the amount of, benefits.
    Paragraph (b) defines ``confidential UC information'' and 
``confidential information'' as any UC information required to be kept 
confidential under Sec.  603.4.
    Paragraph (c) defines ``public domain information'' as:
     Information about the organization of the state and the 
state UC agency and appellate authorities, including the names and 
positions of officials and employees thereof;
     Information about the state UC law (and applicable Federal 
law) provisions, rules, regulations, and interpretations thereof, 
including statements of general policy and interpretations of general 
applicability, appeals records and decisions, and precedential 
determinations on coverage of employers, employment, and wages; and
     Any agreement of whatever kind or nature, including 
interstate arrangements and reciprocal agreements and any agreement 
with the Department of Labor or the Secretary, relating to the 
administration of the state UC law.
    Paragraph (d) defines ``public official'' as an official, agency, 
or public entity within the executive branch of Federal, state, or 
local government who (or which) has responsibility for administering or 
enforcing a law, or a legislator in the Federal, state, or local 
government with oversight responsibility for the UC program.
    Paragraph (e) defines ``Secretary'' and ``Secretary of Labor'' to 
mean the cabinet officer heading the United States Department of Labor, 
or his or her designee.
    Paragraph (f) defines ``state'' to mean one of the ``states'' 
included in the federal-state UC program, including Puerto Rico, the 
United States Virgin Islands, and the District of Columbia.
    Paragraph (g) defines ``state UC agency'' to mean an agency charged 
with administration of a state's UC law. The proposed definition does 
not include Employment Service offices or state revenue departments 
except when administering a state's UC law. However, officials of such 
agencies may be able to obtain access to UC information under the 
exception to confidentiality for public officials, under Sec.  
603.5(e).
    Paragraph (h) defines ``state UC law'' to mean the UC law of a 
state, approved under the FUTA, 26 U.S.C. Sec.  3304(a). Any law of a 
state (including official interpretations thereof) that may affect 
state eligibility for Title III, SSA, administrative grants or 
certification under the FUTA is part of the ``state UC law'' as defined 
in this proposed rule. This definition is not intended to cover Wagner-
Peyser Act-funded programs or programs funded under the WIA.
    Paragraph (i) defines ``unemployment compensation (UC)'' as cash 
benefits to individuals with respect to their unemployment.
    Paragraph (j) defines ``UC information'' and ``state UC 
information'' as information in the records of a state or state UC 
agency that pertains to the administration of the state UC law. This 
definition includes information pertaining to the administration of the 
state UC law regardless of whether that information is housed by the 
state UC agency. For example, the definition includes employer UC tax 
rates, UC tax identification numbers, and claimant weekly benefit 
amounts, even when those records are housed by a tax agency.
    The definition also includes state wage reports, collected under 
the IEVS required by Section 1137, SSA, that are obtained by the state 
UC agency for determining UC monetary eligibility or are downloaded to 
the state UC agency's files as a result of a crossmatch. It does not 
include IEVS records collected by a state tax department that are 
neither used for determining UC eligibility nor downloaded to the state 
UC agency's files. Section 1137(a)(5)(B), SSA, gives the Secretary of 
Health and Human Services (HHS) primary authority to establish 
safeguards to protect IEVS records against ``unauthorized disclosure 
for other [non-IEVS] purposes.'' The Department of Labor has authority 
only to establish safeguards for IEVS records ``in the case of the 
unemployment compensation program,'' and under Title III, SSA. Thus, 
the Department of Labor is responsible for establishing safeguards only 
with respect to IEVS records obtained by a state UC agency for 
determining benefit eligibility, or copies of IEVS records that have 
been disclosed to the state UC agency as a result of a crossmatch.
    The proposed definition of ``UC information'' and ``state UC 
information'' does not include any information in a state Directory of 
New Hires, even when the directory is maintained by the state UC 
agency, since these records are collected for purposes of complying 
with Title IV, SSA (concerning Federal aid to states for services to 
needy families with children and for child-welfare services). However, 
once information from a state directory is disclosed to the state UC 
agency for UC uses, the disclosed information becomes part of that 
agency's UC information, and that information would be subject to this 
proposed rule.
    Further, the definition does not include the personnel or fiscal 
information of a state UC agency. In addition, the proposed definition 
of ``UC information'' and ``state UC information'' does not include 
information about employment service activities or job training 
activities, even though such activities may be performed within the 
same umbrella agency where UC activities are performed, because such 
information does not pertain to the administration of the state UC law.
    Finally, the definition does not include records of the following 
Federal UC and benefit programs: the Unemployment Compensation for 
Federal Employees (UCFE) program (5 U.S.C. 8501-8508); the Unemployment 
Compensation for Ex-Servicemembers (UCX) program (5 U.S.C. 8521-8525); 
the Trade Adjustment Assistance (TAA) and Alternative Trade Adjustment 
Assistance (ATAA) programs (19 U.S.C. 2271-2321); the NAFTA 
Transitional Adjustment Assistance (NAFTA-TAA) program (19 U.S.C. 2331) 
(which is being phased out); and the Disaster Unemployment Assistance 
(DUA) program (42 U.S.C. 5171); or any Federal UC benefit extension 
program. This is because such information pertains to the 
administration of Federal, not state, UC law and is covered by other 
regulations, operating instructions, and agreements with states.
    Paragraph (k) defines ``Wage information'' to mean information in 
the records of a state UC agency (and, for purposes of Sec.  603.23, 
information reported under provisions of state law which fulfill the 
requirements of Section 1137 of the SSA) about the wages paid to an 
individual, the Social Security account number (or numbers) of such 
individual, and the name, address, state, and Federal employer 
identification number of the employer

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who paid such wages to such individual.

Subpart B--Confidentiality and Disclosure Requirements

    Subpart B sets forth the basic proposed requirement of 
confidentiality, permissible exceptions to the rule of confidentiality, 
and mandatory disclosure requirements. It also proposes requirements 
on: (1) Payment of costs (for disclosures of UC information which are 
not made in the course of the administration of the state UC laws), (2) 
safeguards, (3) agreements between the state UC agency and agencies or 
entities requesting confidential UC information, which set forth the 
terms and conditions for making such disclosures and the remedies that 
apply in the case of breach of an agreement, and (4) conformity and 
substantial compliance with this proposed rule.
Section 603.3, Purpose and Scope
    This section sets forth the purpose and scope of proposed subpart 
B. It expressly states that the purpose of subpart B is to set forth 
the requirements of Section 303(a)(1) of the SSA, as such requirements 
concern the confidentiality of state UC information, to implement the 
disclosure requirements of Sections 303(a)(7), (c)(1), (d), (e), (h), 
and (i), SSA, and Section 3304(a)(16), FUTA, and to establish uniform 
minimum requirements for the payment of costs, safeguards, data-sharing 
agreements when UC information is disclosed, and conformity and 
substantial compliance with this proposed rule. Subpart B would apply 
to states and state UC agencies, as defined in Sec.  603.2(f) and (g).
Section 603.4, Confidentiality Requirement of Federal UC Law
    Paragraph (a) of Sec.  603.4 quotes the ``methods of 
administration'' requirement of Section 303(a)(1) of the SSA, which is 
the basis for the confidentiality requirement.
    Paragraph (b) sets forth the Department's interpretation of Section 
303(a)(1), SSA, as including a basic requirement of confidentiality. It 
would require states to maintain the confidentiality of any UC 
information which reveals the name or any identifying particular about 
any individual or any past or present employer or employing unit, or 
which could foreseeably be combined with other publicly available 
information to reveal any such particulars, and to include provision 
for barring the disclosure of any such information, except as provided 
in new part 603.
    The confidentiality requirement has its origin in the beginning of 
the program and is derived from Section 303(a)(1) of the SSA. Section 
303(a)(1), SSA, requires states to provide in their laws for such 
``methods of administration'' as the Secretary of Labor determines are 
``reasonably calculated to insure full payment of unemployment 
compensation when due.'' From the early years of the program this 
provision has been interpreted to require the confidentiality of 
information collected from individuals and employers for UC program 
administration. Confidentiality is necessary to avoid deterring 
individuals from claiming benefits or exercising their rights, to 
encourage employers to provide information necessary for program 
operations, to avoid interference with the administration of the UC 
program, and to avoid notoriety for the program if program information 
were misused.
    Although the Department of Labor's interpretation of Section 
303(a)(1), SSA, as requiring confidentiality is longstanding, it has 
not previously been set forth in regulations. However, Unemployment 
Insurance Program Letters (UIPLs) 23-96 (``Disclosure of Confidential 
Employment Information to Private Entities'') and 34-97 (``Disclosure 
of Confidential Unemployment Compensation Information''), which would 
be superseded upon completion of this Rulemaking, set forth the 
confidentiality requirement.
    The confidentiality requirement would apply, by its express terms, 
only to state information. (``UC information'' is information that 
``pertain[s] to administration of the State UC law * * *''. (Emphasis 
added.)) Nevertheless, the regulations and operating instructions 
governing the Federal UC and benefit programs of UCFE, UCX, TAA, ATAA 
and DUA require states to apply the same state law confidentiality 
protections that apply to state UC program information to information 
of those Federal UC and benefit programs. (See UCFE--20 CFR 609.13(b); 
UCX--20 CFR 614.14(b); TAA and ATAA--20 CFR 617.57(b); and DUA--20 CFR 
Sec.  625.16(b).) Thus, in order to fulfill their responsibilities 
under the respective Federal program regulations and their 
administrative agreements with the Secretary of Labor, the states would 
need to apply the confidentiality protections of state law conforming 
with these part 603 proposed regulations to UCFE, UCX, TAA, ATAA and 
DUA program information. In addition, in accordance with Sec.  603.6, 
states would need to apply the disclosure provisions of proposed part 
603 to state-held information from the Federal UC and benefit programs 
of UCFE, UCX, TAA and ATAA (except, as described in the following 
paragraph, for confidential business information held by the states 
under the TAA program), and DUA, as well as to state UC information.
    The disclosure provisions of proposed part 603 would not apply, 
however, to the confidential business information that the states 
collect under the TAA program, as reauthorized by the Trade Act of 
2002, P.L. 107-210, or collected under the NAFTA-TAA program, which is 
being phased out. A state may, under the reauthorized and expanded TAA 
program, collect confidential business information upon request by the 
Secretary of Labor under authority of Section 221(a)(2) of the Trade 
Act (19 U.S.C. 2271(a)(2)), which requires a state to ``assist'' the 
Secretary of Labor in the review of a petition for certification of 
eligibility to apply for benefits by ``verifying such information and 
providing such other assistance as the Secretary may request.'' This 
information concerns changes in sales or production, imports of 
competitive articles, and shifts in production. Employers and their 
customers would be very reluctant to disclose this business information 
to the state were it subject to disclosure under the proposed 
exceptions to confidentiality in Sec.  603.5 or the mandatory 
disclosure requirements of Sec.  603.6. A proposed rulemaking to 
implement the reauthorized TAA program will address the confidentiality 
of this business information.
    Paragraph (c) would require each state law to contain provisions 
that are interpreted and applied consistently with the requirements of 
this subpart and provide for penalties for any disclosure of 
confidential information that is inconsistent with any provision of 
this subpart.
Section 603.5, Exceptions to the Confidentiality Requirement
    This section sets forth the permissible exceptions to the 
confidentiality requirement. Disclosure would be permissible under 
exceptions at paragraphs (a) through (g) only if authorized by state 
law and if the state determines the resources required for such 
disclosure does not interfere with the efficient administration of the 
state UC program and law. Disclosure is permissible under exceptions 
(h) through (j) without such restriction.
    Paragraph (a) would provide that information in the public domain, 
as defined in Sec.  603.2(c), is not covered by

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the confidentiality requirement. This means it would be up to the state 
to determine whether and how much of such information is open to the 
public or is kept confidential.
    Some UC information, such as employer names and addresses, is 
public in the sense that it is available from other public sources like 
telephone directories but is not public domain information for purposes 
of this rule.
    Appeals hearing records and decisions are included in the 
definition of ``public domain information'' and, therefore, would be 
excluded from the confidentiality requirement. The Department of Labor 
has historically stated, and repeats here, that the public interest in 
proper administration of the UC program, specifically in payments of 
benefits only to eligible individuals, and in open governmental 
adjudicatory proceedings (to preserve a fair process to claimants and 
employers by avoiding star-chamber-type proceedings), is served by open 
hearings and hearing records. However, nothing in the proposed rule 
would prohibit states from making agency hearings or hearing records 
confidential as a matter of state law or practice.
    Paragraph (b) would provide that the confidentiality requirement 
does not apply to essential program activities, e.g. those activities 
relating to the taking of claims for UC, the determination of 
eligibility (including appeals), the payment of benefits, the 
determination of employer liability, the collection of amounts due the 
state's unemployment fund, or any other activity directly related to 
the administration of the UC program. As a specific example, Section 
303(g), SSA, permits states to withhold UC payable under state laws to 
recover overpayments of benefits made to individuals by another state 
or to recover an overpayment of state UC from a payment made under a 
Federal unemployment benefit or allowance program if the state has 
entered into an agreement with the Secretary of Labor under Section 
303(g)(2), SSA, and if it reciprocally recovers overpayments made under 
a Federal unemployment benefit or allowance program from state 
payments. Disclosure of information which is necessary for purposes of 
carrying out these interstate and cross-program recoveries is 
permissible under this section (and, as discussed below, such 
disclosure is required under Sec.  603.6(a)).
    The Department of Labor emphasizes that paragraph (b) applies only 
when disclosure is necessary for the proper administration of the UC 
program. Redisclosure by a recipient for any separate or non-essential 
purpose is not authorized under this exception. As a result, prior to 
any disclosure under this paragraph, states are expected to take 
reasonable measures to assure that no impermissible redisclosure 
occurs. If, for example, information is provided to another state's UC 
agency, this may be as simple as assuring that a state's laws contain 
similar confidentiality requirements. In the case of disclosure to an 
agent or contractor, such as a collections agency, this means building 
confidentiality requirements and safeguards into the contract.
    Paragraph (c) would permit disclosure of UC information about an 
individual to that individual, or of UC information about an employer 
to that employer.
    Paragraph (d) would permit disclosure of UC information on the 
basis of informed consent to: (1) An agent or attorney of an 
individual, of information that pertains to that individual, or to an 
agent or attorney of an employer, of information that pertains to that 
employer, and (2) to a third party only if that entity obtains a 
written release from the individual or employer to whom the information 
pertains. In the case of disclosures to an agent or attorney, the agent 
or attorney must present a written release from the individual or 
employer being represented, or, if a written release is impossible or 
impracticable to obtain, such other form of consent as is permitted by 
the state UC agency in accordance with state law. In the case of 
disclosures to a third party, the release must be signed and must 
include the following statements:
     Specific identification of the information that is to be 
disclosed;
     That state government files will be accessed to obtain 
that information;
     The specific purpose or purposes for which the information 
is sought and a statement that information obtained under the release 
will be used only for that purpose or purposes; and
     The parties who may receive the information released.
    The purpose specified in the release must be limited to providing a 
service or benefit to the individual signing the release that such 
individual expects to receive as a result of signing the release, or 
carrying out administration or evaluation of a public program to which 
the release pertains. Further, payment of costs, safeguards, and 
agreements would be required, as provided in proposed Sec. Sec.  603.8 
through 603.10. Also, the states would be required by proposed 
Sec. Sec.  603.9 and 603.10 to impose certain penalties for misuse of 
data, additional audits, and additional terms in disclosure agreements.
    The principle behind disclosure to a third party on the basis of 
informed consent is that individuals and employers should be able to 
waive their privacy when they believe it is in their interest to do so. 
The confidentiality requirement exists to serve the interests of 
individuals and employers as well as the needs of the federal-state UC 
program. However, as described, additional conditions would be required 
because of the greater potential threat to employer or individual 
privacy posed by third-party collection, storage, maintenance, use, and 
possible misuse of confidential UC information. This question is dealt 
with in Unemployment Insurance Program Letter 23-96 (``Disclosure of 
Confidential Employment information to Private Entities,'' 61 FR 
28236), which would be superseded upon completion of this rulemaking.
    Finally, the Electronic Signatures in Global and National Commerce 
Act of 2000 (E-Sign), P.L. No. 106-229, may apply where one or more 
parties wish to use an electronic informed consent release (Sec.  
603.5(d)) or a disclosure agreement (Sec.  603.10). E-Sign, among other 
things, sets forth the circumstances under which electronic signatures, 
contracts, and other records relating to such transactions (in lieu of 
paper documents) are legally binding. Thus, an electronic communication 
may suffice under E-Sign to establish a legally binding contract. The 
states would need to consider E-Sign's application to these informed 
consent releases and disclosure agreements. In particular, a state 
must, to conform and substantially comply with this proposed 
regulation, assure that these informed consent releases and disclosure 
agreements would be legally enforceable. If an informed consent release 
or disclosure agreement is to be effectuated electronically, the state 
would have to determine whether E-Sign applies to that transaction, 
and, if so, make certain that the transaction satisfies the conditions 
imposed by E-Sign. The state would also be required to make certain 
that the electronic transaction complies with every other condition 
necessary to make it legally enforceable. A note following proposed 
Sec.  603.5(d) explains this.
    Paragraph (e) would allow disclosure of UC information to a public 
official in the performance of his or her official duties. Since the 
1970s, the Department of Labor's guidance to states has recognized this 
exception, which allows for a variety of uses of UC information that 
ETA believes are beneficial, such as law enforcement, fraud and benefit 
accuracy in programs not addressed by

[[Page 50027]]

Federal UC law (for example, Black Lung and state workers' compensation 
programs), program assessment (for example, of WIA and Vocational 
Education programs), and research.
    ``Performance of official duties'' means administration or 
enforcement of law or, in the case of the legislative branch, oversight 
of UC law. It does not mean the conduct of research by an individual at 
a public or private university, although, where appropriate, a 
researcher could obtain access to confidential UC information under the 
exceptions provided for in paragraph (f) (agent or contractor of a 
public official) or (d)(2) (disclosure to a third party on the basis of 
informed consent), discussed elsewhere. ETA believes that there is less 
risk of unauthorized use or disclosure of UC information if 
responsibility for safeguarding confidentiality rests within the 
executive or legislative branches of government. ETA also believes that 
limiting access within the legislative branch to those legislators who 
need the information to help oversee the UC program further minimizes 
the possibility of unauthorized use.
    Paragraph (f) would allow disclosure of UC information to an agent 
or contractor of a public official to whom disclosure is permissible 
under paragraph (e). This provision takes into account that research is 
often contracted out by public agencies. If confidential UC information 
could not be disclosed to agents or contractors of public officials, 
valuable research might be forgone or become more expensive, as 
agencies would have to undertake interviews of program participants in 
order to gather program evaluation information. A public official, 
ideally one with responsibility for the program or initiative on which 
research is being conducted, would be required to enter into the 
written agreement required by proposed Sec.  603.10 and be held 
responsible for use of the information by the contractor or agent. 
Redisclosure of such information by a public official to an agent or 
contractor would be permitted only as provided in proposed Sec.  
603.9(c).
    When possible, states should provide non-confidential information 
to researchers in lieu of confidential information. State agencies may, 
for example, encrypt identifiers before providing data to a researcher 
so that the researcher cannot identify individuals or employers. The 
agency could add subsequent years of data for the researcher using the 
same encryption so that the researcher can conduct longitudinal 
studies.
    Paragraph (g) would provide that the confidentiality requirement 
does not apply to information collected exclusively for statistical 
purposes under a cooperative agreement with the Bureau of Labor 
Statistics (BLS) and that part 603 would not restrict or impose any 
condition on the transfer of any other information to the BLS under an 
agreement, or the BLS's disclosure or use of such information.
    Transfers of information to the BLS would be excepted from the 
confidentiality requirement because the conditions under which they 
occur already satisfy the requirements of the confidentiality rule, and 
ETA does not wish to interfere with the BLS' existing agreements or the 
ability of the BLS to carry out its statistical programs. Specifically, 
safeguards, agreements, and payment of costs are already in place. The 
BLS applies strict safeguards to protect the confidentiality of 
information it receives. It also funds states for collection and 
disclosure of information. Finally, transfers of information to the BLS 
are governed by agreements that provide assurance that these safeguards 
will be followed.
    Paragraph (h) would permit disclosure of UC information in response 
to a court order, or to an official with subpoena authority, as 
specified in Sec.  603.7(b).
    Paragraph (i) would permit disclosure of UC information as required 
by Federal law.
Section 603.6, Disclosures Required by Federal UC Law
    This section lists disclosures required by Federal UC law. These 
requirements apply to state UC information as well as to information 
from the Federal UC and benefit programs of UCFE, UCX, TAA and ATAA 
(except for the confidential business information compiled by the 
states under the TAA program), DUA, and any Federal extended UC benefit 
program. These statutory requirements, by their terms, require 
disclosure of information maintained regarding these Federal programs, 
as well as state UC information, either because they specifically state 
that they include such Federal information or are written broadly 
enough to cover it. The utility of the information exchanges listed in 
this section would be impeded if this Federal information was not 
included in them.
    Paragraph (a) sets forth the Department of Labor's interpretation 
of Section 303(a)(1) of the SSA as requiring disclosure of all 
information necessary for the proper administration of the UC program. 
This paragraph requires, for example, disclosure to the Internal 
Revenue Service for purposes of UC tax administration or to the Bureau 
of Citizenship and Immigration Services (formerly the Immigration and 
Naturalization Service) for purposes of verifying a claimant's 
immigration status. It also requires disclosure for purposes of 
interstate and cross-program offsets under Section 303(g), SSA.
    Paragraph (b) covers other provisions of Federal UC law, with the 
exception of Section 303(f), concerning an IEVS, which is addressed in 
subpart C, that specifically require disclosure of certain state UC 
information and state-held Federal UC benefit information. These 
provisions include Sections--
     303(a)(7), SSA, which requires state law to provide for 
making available, upon request, to any agency of the United States 
charged with the administration of public works, or assistance through 
public employment, the name, address, ordinary occupation, and 
employment status of each recipient of UC, and statement of such 
recipient's rights to further compensation under state law.
     303(c)(1), SSA, which requires each state to make its UC 
records available to the Railroad Retirement Board, and to furnish such 
copies of its UC records to the Railroad Retirement Board as the Board 
deems necessary for its purposes. This statutory provision requires a 
state to make ``its records'' available to the Railroad Retirement 
Board. Because Section 303 concerns state administration of the 
federal-state UC program, we interpret use of the term ``records'' in 
Section 303(c)(1) to limited to disclosure of UC records and not to 
include other records of the state.
     303(d)(1), SSA, which requires each state UC agency, for 
purposes of determining an individual's eligibility benefits, or the 
amount of benefits, under a food stamp program established under the 
Food Stamp Act of 1977, to disclose, upon request, to officers and 
employees of the Department of Agriculture and state food stamp 
agencies, any of the following information contained in the records of 
such state agency--
    (i) Wage information,
    (ii) Whether an individual is receiving, has received, or has made 
application for, UC, and the amount of any such compensation being 
received, or to be received, by such individual,
    (iii) The current (or most recent) home address of such individual, 
and
    (iv) Whether an individual has refused an offer of employment and, 
if so, a description of the employment so offered and the terms, 
conditions, and rate of pay therefore.

[[Page 50028]]

     303(e)(1), SSA, which requires each state UC agency to 
disclose, upon request, directly to officers or employees of any state 
or local child support enforcement agency, any wage information 
contained in the records of the state UC agency for purposes of 
establishing and collecting child support obligations from, and 
locating, individuals owing such obligations.
    As explained in detail in UIPL 45-89 (55 FR 1886, January 19, 
1990), Section 303(e)(1) limits required disclosure to use for purposes 
of establishing ``child support obligations'' being enforced by a child 
support enforcement agency. Accordingly, state UC agencies would not be 
required to disclose information for purposes related to support 
obligations for the custodial parent of the child receiving services 
from the child support enforcement agency. The Department intends to 
pursue legislation that would expand the purposes for which disclosure 
of wage information (as well as intercept of UC) is required under 
Section 303(e) to include enforcement of custodial parent support. In 
the meantime, however, State UC agencies are encouraged to disclose 
information related to such obligations under the optional disclosure 
permitted under Sec.  603.5(e).
     303(h), SSA, which requires each state UC agency to 
disclose quarterly, to the Secretary of Health and Human Services 
(HHS), wage information and claim information as required under Section 
453(i)(1) of the SSA (establishing the National Directory of New 
Hires), contained in the records of such agency, for purposes of 
Subsections (i)(1), (i)(3), and (j) of Section 453, SSA (establishing 
the National Directory of New Hires and its uses for purposes of child 
support enforcement, Temporary Assistance to Needy Families (TANF), 
TANF research, administration of the earned income tax credit, and use 
by the Social Security Administration).
     303(i), SSA, which requires each state UC agency to 
disclose, upon request, to officers or employees of the Department of 
Housing and Urban Development (HUD) and to representatives of a public 
housing agency, for purposes of determining an individual's eligibility 
for benefits, or the amount of benefits, under a housing assistance 
program of HUD, any of the following UC information contained in the 
records of such state agency about any individual applying for or 
participating in any housing assistance program administered by HUD who 
has signed a consent form approved by the Secretary of HUD--
    (i) Wage information, and
    (ii) Whether the individual is receiving, has received, or has made 
application for, UC, and the amount of any such compensation being 
received (or to be received) by such individual.
    Section 303(i)(2) states that the ``Secretary of Labor shall 
prescribe regulations governing how often and in what form information 
may be disclosed under paragraph (1)(A)'' of Section 303(i). However, 
what is a useful frequency and format for such disclosure depends upon 
the needs of a particular requesting agency (in the case of Section 
303(i), either HUD or a particular public housing agency) and the 
amount the agency is willing to reimburse the UC agency for providing 
the information. These will vary depending upon the circumstances of 
the particular requesting agency and the state or locality in which it 
operates. The preferences of the requesting agency may also change over 
time, along with changes in technology. Thus, in order to provide 
states and localities with needed flexibility, and to avoid drafting 
regulatory requirements that may need frequent revision, we have chosen 
not to regulate the frequency and format of disclosures at this time.
     3304(a)(16), Federal Unemployment Tax Act (FUTA), which 
requires each state UC agency--
    (i) To disclose, upon request, to any state or political 
subdivision thereof administering a TANF program funded under part A of 
Title IV of the SSA, wage information contained in the records of the 
state UC agency which is necessary (as determined by the Secretary of 
HHS in regulations), for purposes of determining an individual's 
eligibility for TANF assistance or the amount of TANF assistance; and
    (ii) To furnish to the Secretary of HHS, in accordance with that 
Secretary's regulations at 45 CFR 303.108, wage information (as defined 
at 45 CFR 303.108(a)(2)) and UC information (as defined at 45 CFR 
303.108(a)(3)) contained in the records of such agency for the purposes 
of the National Directory of New Hires established under Section 453(i) 
of the SSA.
    Paragraph (c) would require each state law to contain provisions 
that are interpreted and applied consistently with this section.
Section 603.7, Subpoenas, Other Compulsory Process, and Disclosure to 
Officials With Subpoena Authority
    This section sets forth the Department of Labor's long-standing 
position on state responses to subpoenas and other compulsory 
processes. With two exceptions, it would require the state or state UC 
agency to file and pursue a motion to quash, in the appropriate forum, 
when a subpoena or other compulsory process of a lawful authority, 
which requires the production of or appearance for testimony about 
confidential UC information, is served upon the state UC agency or the 
state. If such a motion were denied, after a hearing in the appropriate 
forum, confidential UC information may be disclosed, but only upon such 
terms as the court or other forum may order, including that the 
recipient protect the disclosed information and pay the state's or 
state UC agency's costs of disclosure.
    The proposed exceptions are, first, where a court has previously 
issued a binding precedential decision that requires such disclosures 
and, second, when confidential UC information is requested by an 
official of state or Federal government, other than a clerk of court on 
behalf of a litigant, with authority to obtain the information by 
subpoena under state or Federal law. These proposed exceptions 
recognize that filing a motion to quash in these circumstances may 
indeed be futile and a waste of administrative resources. They would 
also facilitate state cooperation with law enforcement.
    We believe that filing motions to quash subpoenas involving the 
disclosure of confidential UC information is an important means of 
avoiding unnecessary or unlawful disclosures, which might deter 
claimants from exercising their rights or employers from providing 
information. Where the exceptions apply, a state may still file such a 
motion if warranted, or may file a motion to require that the recipient 
protect the disclosed information or for reimbursement of costs. (As 
described in proposed Sec.  603.8(b), seeking reimbursement in some 
manner would be required if grant funds are used to cover the costs of 
the disclosure.) If the state law is sufficiently rigorous concerning 
the release of confidential UC information, the courts may be less 
inclined to enforce subpoenas; so, states may wish to review their 
state laws in this regard. To conserve time and funds, states may wish 
to pursue a motion to quash by mail or by telephone if permitted by 
state law.
Section 603.8, Payment of Costs; Program Income
    This section would set forth rules on the use of UC grant funds for 
disclosures of UC information, recovery of the state's and state UC 
agency's costs for disclosing information not made in the course of the 
administration of the UC

[[Page 50029]]

program, and use of program income. It would require payment of costs 
for any disclosures made for purposes other than administration of the 
UC program, with limited exceptions for requests involving incidental 
costs and some situations involving subpoenas. The statutory principle 
underlying these rules is that funds granted under Title III of the SSA 
for the administration of the state UC law may not be used for other 
purposes. This is required by the explicit statutory terms of Section 
302(a) of the SSA (providing for payments to states for ``proper and 
efficient administration'' of state UC law), Section 303(a)(8) of the 
SSA (limiting expenditure of UC grants to amounts necessary for 
``proper and efficient administration'' of state UC law), and Section 
303(a)(9) of the SSA (requiring repayment to the Secretary Labor of any 
funds expended for purposes other than, or in amounts in excess of, 
those necessary for the proper administration of state UC law). It is a 
conformity requirement for approved state laws and is a substantial 
compliance requirement for the states and state UC agencies under 
Section 303(b) of the SSA. Thus, even if a required disclosure in Title 
III, SSA, or Section 3304(a)(16) does not explicitly require payment of 
costs, such payment is required by this section under authority of the 
sections of Title III, SSA, mentioned above.
    Paragraph (a) of Sec.  603.8 sets forth the general rule 
prohibiting the use of grant funds to pay any of the costs of making 
any disclosure except as provided in paragraph (b). It also specifies 
that grant funds may not be used to pay any of the costs of making any 
disclosures for non-UC purposes under Sec.  603.5(e) (to a public 
official), Sec.  603.5(f) (to an agent or contractor of a public 
official), Sec.  603.5(g) (to BLS), Sec.  603.6(b) (as required by 
Federal UC law for non-UC purposes), or Sec.  603.22 (to HHS or a 
requesting agency for purposes of an IEVS)).
    Paragraph (b) sets out the exceptions when use of grant funds would 
be permitted to pay the costs of disclosures. Grant funds may be used 
to pay the costs of disclosures made for purposes of administration of 
the UC program (which may include some disclosures under Sec. Sec.  
603.5(a) (public domain information), (c) (to an individual or 
employer), or (d) (on the basis of informed consent)). Grant funds may 
also be used to pay the costs of disclosures made in response to 
requests involving only incidental staff time and no more than nominal 
processing costs, and for disclosures in response to subpoenas under 
Sec.  603.7(b)(1) (when a court decision requires disclosure) if a 
court has denied recovery of costs, or to officials with subpoena 
authority under Sec.  603.7(b)(2) if the state UC agency has attempted 
but not been successful in obtaining reimbursement of costs.
    Paragraph (c) sets out how costs would have to be calculated. Costs 
would be required to be calculated in accordance with the cost 
principles and administrative requirements of 29 CFR part 97 and Office 
of Management and Budget Circular No. A-87 (Revised). Costs would be 
required to be charged to and paid by the recipient and would include 
any initial start-up costs incurred by the state UC agency, such as 
computer reprogramming required to respond to a request, and the costs 
of implementing safeguards and agreements required by Sec. Sec.  603.9 
and 603.10. (Start-up costs would not include the costs to the state UC 
agency of obtaining, compiling, or maintaining information for its own 
purposes.) Postage or other delivery costs incurred in making any 
disclosure would be part of the costs of making the disclosure. Penalty 
mail, as defined in 39 U.S.C. 3201(1), must not be used to transmit 
information being disclosed, except when the disclosure is made for 
purposes of administration of the UC program. By statute (Sections 
453(e)(2) and 453(g) of the SSA), the Secretary of HHS has the 
authority to determine what constitutes a reasonable amount for the 
reimbursement for disclosures under Sections 303(h), SSA, and 
3304(a)(16)(B), FUTA.
    Paragraph (d) would require the payment of costs, calculated in 
accordance with paragraph (c), to be paid by and collected from the 
recipient of the information either in advance or by way of 
reimbursement. If the recipient is not a public official, such costs, 
except for good reason, would be required to be paid and collected in 
advance. Payment in advance would mean full payment of costs before or 
at the time the disclosed information is given in hand or sent to the 
recipient. ETA's intention is that the ``good reason'' exception 
generally be associated with disclosures involving minimal costs.
    The requirement for payment of costs would be met when a state UC 
agency has in place a reciprocal data-sharing agreement or arrangement 
with another agency or entity. ``Reciprocal'' means that the relative 
benefits received by each party to the agreement or arrangement are 
approximately equal.
    Paragraph (e) would provide that reimbursed costs and any funds 
generated by the disclosure of information are program income and may 
be used only as permitted by 29 CFR 97.25(g) (on program income). 
Program income may not be used to benefit a state's general fund or 
another program.
Section 603.9, Safeguards for Disclosed Information
    This proposed section sets forth the safeguards that states and 
state UC agencies would have to require of recipients who obtain 
confidential UC information under: Sec. Sec.  603.5(d)(2) (disclosure 
to a third party on the basis of informed consent); (e) (disclosure to 
a public official), except as provided in paragraph (d) of this 
section; (f) (disclosure to an agent or contractor of a public 
official); Sec.  603.6(b)(1) through (4), (6), and (7)(i) (disclosures 
required by Federal UC law, except for disclosures to HHS under 
Sections 303(h), SSA, and 3304(a)(16)(B), FUTA); or Sec.  603.22 (to a 
requesting agency for purposes of an IEVS). These safeguards are 
similar to those in present part 603 that currently apply to 
disclosures under an IEVS but have been simplified to provide 
flexibility to states. They would preclude the unauthorized use, 
access, and redisclosure of the information.
    Not all the disclosure requirements of Title III, SSA, referred to 
above explicitly require safeguards, but Section 303(a)(1), SSA, 
provides a basis for the requirement. Safeguards protect against the 
misuse or improper redisclosure of disclosed information and, 
therefore, like the confidentiality requirement itself, maintain 
claimant and employer confidence in the UC system and their willingness 
to participate and cooperate in its administration. This participation 
and cooperation is essential to the system's effective administration. 
Requiring safeguards is therefore a ``method of administration'' 
reasonably calculated to insure full payment of UC when due.
    Paragraph (a) sets forth the general rules, which would require the 
state or state UC agency to require that the recipient of disclosed 
information safeguard the information against unauthorized access or 
redisclosure as provided in paragraphs (b) and (c), and that the 
recipient be subject to penalties provided by the state law for 
unauthorized disclosure.
    Paragraph (b) sets forth safeguards that the state or state UC 
agency would have to require of recipients.
    Paragraph (b)(1)(i) would require states or state UC agencies to 
require recipients to use the disclosed information only for purposes 
authorized by law and consistently with an agreement that meets the 
requirements of Sec.  603.10.

[[Page 50030]]

    Paragraph (b)(1)(ii) would require the recipient to store the 
disclosed information in a place physically secure from access by 
unauthorized persons.
    Paragraph (b)(1)(iii) would require the recipient to store or 
process disclosed information maintained in electronic format, such as 
magnetic tapes or discs, in such a way that unauthorized persons cannot 
obtain the information by any means.
    Paragraphs (b)(1)(ii) and (iii) can be met by, among other things, 
placing paper files in a locked cabinet or room, and in the case of 
information maintained electronically, using electronic passwords or 
computer encoding to block access by unauthorized persons.
    Paragraph (b)(1)(iv) provides for precautions to ensure that only 
authorized personnel are given access to disclosed information stored 
in computer systems.
    Paragraph (b)(1)(v) would require each recipient agency to give 
specified instructions to all personnel having access to the disclosed 
information and to sign an acknowledgment that all such personnel have 
been so instructed and that they will adhere to the state's or state UC 
agency's confidentiality requirements and procedures which are 
consistent with subpart B and the agreement required by Sec.  603.10, 
and will report any infractions to the state UC agency.
    Paragraph (b)(1)(vi) would require the recipient to dispose of 
information disclosed or obtained, and any copies thereof made by the 
recipient agency, entity, or contractor, after the purpose for which 
the information is disclosed is served, except for disclosed 
information possessed by any court. Disposal means return of the 
information to the disclosing state or state UC agency or destruction 
of the information, as directed by the state or state UC agency. 
Disposal includes deletion of personal identifiers by the state or 
state UC agency in lieu of destruction. The state or state UC agency 
would set appropriate time limits on retention on a case-by-case basis 
in order to prohibit permanent records storage.
    Paragraph (b)(1)(vii) would require states to maintain a tracking 
system sufficient to allow an audit of compliance with the requirements 
of this subpart. States would be free to specify the details for this 
disclosure tracking system. Tracking by states is necessary to ensure 
that recipients of disclosed information are complying with the 
required safeguards. This responsibility may not be handed over to the 
recipient. Where recipients would be required to pay for the costs of 
making a disclosure, the costs of tracking should be reflected in the 
amount charged to the recipient. As a result, tracking, like other 
provisions in this proposed rule, should not increase costs for state 
UC agencies.
    Paragraph (b)(2) would specifically require the state to conduct, 
in the case of optional disclosures to entities on the basis of 
informed consent (Sec.  603.5(d)(2)), a periodic audit of sample 
transactions to assure that the entity receiving information has on 
file a written release authorizing each access. The audit would be 
required to ensure that the information is not being used for any 
unauthorized purpose. This provision would also require that all 
employees of entities receiving access to information pursuant to Sec.  
603.5(d)(2) be subject to the same confidentiality requirements, and 
state criminal penalties for violation of those requirements, as are 
employees of the state UC agency.
    The safeguards in proposed paragraph (b) do not address specific or 
new technologies used in storing and sharing confidential UC 
information. Nevertheless, these safeguards would be applicable to 
disclosures of confidential UC information no matter what medium of 
storing and sharing the information is used. ETA encourages efficient 
use of technologies in storage, retention, and, where appropriate, 
sharing of information. Proposed paragraph (b) would not restrict the 
types of media that may be used to transmit confidential UC information 
as long as the safeguards are met.
    Paragraph (c)(1) would permit a state or state UC agency to 
authorize any recipient of confidential information under paragraph (a) 
(which applies to disclosure to a public official, except as provided 
in paragraph (d) of this section, to an agent or contractor of a public 
official, and to any other entity on the basis of informed consent) to 
redisclose information only in eight situations. These are 
redisclosure:
     To the individual or employer who is the subject of the 
information (paragraph (c)(1)(i)).
     To attorney or other duly authorized agent representing 
the individual or employer (paragraph (c)(1)(ii)).
     In a civil or criminal proceedings for or on behalf of a 
recipient agency or entity (paragraph (c)(1)(iii)).
     As provided in Sec.  603.7, in response to a subpoena 
(paragraph (c)(1)(iv)).
     To agents and contractors of public officials (paragraph 
(c)(1)(v)). Under this provision, the recipient public official would 
remain responsible for the uses of the confidential UC information by 
the agent or contractor.
     By one public official to another public official 
(paragraph (c)(1)(vi)). This provision would take into account 
situations in which public officials in different agencies or in 
different states need to share confidential UC information with each 
other in the course of administering a public program.
     Of wage information from state and local child support 
enforcement agencies to agents under contract with such agencies for 
purposes of carrying out child support enforcement, consistent with 
Section 303(e)(5) of the SSA (paragraph (c)(1)(vii)) and state law. 
Though proposed paragraph (c)(1)(vii) covers only wage information, 
redisclosure of other confidential UC information between a state or 
local child support enforcement agency and its contractor or agent 
would be permitted by paragraph (c)(1)(v).
     By an entity that has obtained confidential UC information 
on the basis of informed consent, when authorized by the state and by a 
written release from the individual or employer to whom the information 
pertains that meets the requirements of proposed Sec.  603.5(d)(2) 
(paragraph (c)12(1)(viii)).
    The redisclosure provisions would allow sharing of confidential UC 
information by a public official to an individual administering the WIA 
who is not a public official if the individual is an agent or 
contractor of a public official, or on the basis of informed consent.
    Paragraph (c)(2) would require that information redisclosed under 
paragraphs (c)(1)(v) and (vi) be subject to the safeguards in paragraph 
(b).
    Paragraph (d) would provide that the safeguards in this section, 
including the limitations on redisclosure, do not apply to disclosures 
of UC information to a Federal agency where the Department has 
published a notice in the Federal Register that the Federal agency has 
appropriate safeguards, and limitations on redisclosure, to protect the 
confidentiality of the disclosed information consistent with Section 
303(a)(1), SSA. The reason for this exception is to avoid unnecessary 
duplication of requirements, or the creation of inconsistent 
requirements, concerning safeguards and restrictions on redisclosure, 
for Federal agencies that already follow strong safeguards for 
protecting the confidentiality of information. This exception is 
limited to Federal agencies because the Department, through its regular 
contacts with such agencies, is in a position to easily determine 
whether the applicable

[[Page 50031]]

Federal laws and regulations provide safeguards and limitations 
consistent with Section 303(a)(1), SSA. Two disclosures for which the 
Department has already determined that a Federal agency has in place 
adequate alternative safeguards include disclosures to the Internal 
Revenue Service (IRS) for purposes of administering the Health Coverage 
Tax Credit (HCTC), and disclosures of wage and claim information to HHS 
for purposes of the National Directory of New Hires.
    The HCTC, established by the Trade Act of 2002 (Pub. L. 107-210), 
is a partial Federal tax credit toward the purchase of qualified health 
insurance for eligible individuals and their families. Eligible 
individuals include workers covered by the TAA program who are either 
receiving Trade Readjustment Allowances (TRA) or who would be eligible 
for TRA but for not having exhausted UC and eligible participants in 
the ATAA program. The IRS, which administers the HCTC, needs 
information from state workforce agencies (SWAs) about who is eligible 
for TRA, or would be but for not having exhausted UC, as well as 
information about who is participating in the ATAA program, to 
determine eligibility for the tax credit. UC information needed by the 
IRS would fall within the protection of this rule, and TAA and ATAA 
information would be subject under state law to the same 
confidentiality protections as contained in this rule.
    However, Section 6103 of the Internal Revenue Code and IRS 
regulations on the confidentiality of tax return information (26 CFR 
301.6103(a)-1 et seq.) are sufficient to protect the confidentiality of 
this information consistent with Section 303(a)(1), SSA. (Once this 
information about ATAA, TRA, and UC eligibility is submitted to the IRS 
or its agents, it becomes protected tax return information.) Requiring 
the IRS to follow the requirements of this regulation in addition to 
Section 6103 and IRS regulatory requirements would be unnecessarily 
burdensome and may create conflicting obligations for that agency. 
Accordingly, the requirements of Sec.  603.9 of this rule, concerning 
safeguards, do not apply to disclosures to the IRS for purposes of 
administering the HCTC. The Department has determined that the IRS has 
appropriate alternative safeguards, and limitations on redisclosure, to 
protect the confidentiality of the disclosed information consistent 
with Section 303(a)(1), SSA.
    Similarly, wage and claim information disclosed to HHS for purposes 
of the National Directory of New Hires is protected by a ``security 
plan'' of HHS which the Department of Labor has determined provides 
safeguards adequate to meet the requirement of Section 303(a)(1) to 
maintain confidentiality. Further, laws governing information in the 
National Directory of New Hires impose strict controls on redisclosure 
and disposal of that information. See, e.g., 42 U.S.C. 653(i), (j), 
(l), and (m). Accordingly, the requirements of Sec.  603.9 of this 
rule, concerning safeguards, do not apply disclosures to the HHS for 
purposes of the National Directory of New Hires. The Department has 
determined that HHS has appropriate alternative safeguards, and 
limitations on redisclosure, to protect the confidentiality of the 
disclosed information consistent with Section 303(a)(1), SSA.
Section 603.10, Agreements
    This section sets out the proposed requirements concerning data-
sharing agreements with parties obtaining confidential UC information. 
The required terms and conditions are similar to those contained in the 
existing part 603 but have been simplified to provide state 
flexibility.
    Paragraph (a)(1) would require a state or state UC agency to enter 
into a written, enforceable agreement with any agency or entity 
requesting disclosure of UC information under proposed Sec.  
603.5(d)(2) (disclosure to a third party on the basis of informed 
consent); (e) (disclosure of information to a public official), except 
as provided in paragraph (d) of this section; (f) (disclosure to an 
agent or contractor of a public official); Sec.  603.6(b)(1) through 
(4); (6); and (7)(i) (where disclosure is required by Federal UC law, 
except to HHS under Sections 303(h), SSA, and 3304(a)(16)(B), FUTA); 
and Sec.  603.22 (to a requesting agency for purposes of an IEVS).
    Paragraph (a)(2) requires, for disclosure to an agent or contractor 
of a public official, that the state or state UC agency enter into a 
written, enforceable agreement (whether on paper or electronic) with 
the public official on whose behalf of the agent or contractor will 
obtain information, which requires the public official to ensure that 
the agent or contractor complies with the safeguards of Sec.  603.9. 
The purpose of this provision would be to have the public official with 
responsibility for the public purpose that is being carried out by the 
use of the disclosed information, assume responsibility for 
safeguarding the confidentiality of the data.
    Paragraph (b)(1) sets out the terms and conditions that would be 
required to be included in all agreements, and also provides that the 
terms and conditions of any agreement need not be limited to those 
specifically required. Required to be included would be:
     A description of the specific information to be furnished 
and the purposes for which the information is sought;
     A statement that those who request or receive information 
under the agreement will be limited to those with a need to access it 
for purposes listed in the agreement;
     The methods and timing of requests for information, 
including the format to be used;
     Provision for paying the state or state UC agency for any 
costs of furnishing information, as required by Sec.  603.8 (on costs);
     Provision for safeguarding the information disclosed, as 
required by Sec.  603.9 (on safeguards); and
     Provision for on-site inspections of the agency, entity, 
or contractor to assure that the requirements of the state's law and 
the agreement or contract are being met.
    Paragraph (b)(2) would require that, for disclosures under Sec.  
603.5(d)(2) (to a third party on the basis of informed consent), the 
agreement required by paragraph (a) of this section must assure that 
the information will be accessed by only those entities with 
authorization under the individual's or employer's release, and that it 
may be used only for the specific purposes authorized in that release. 
This safeguard is included in UIPL 23-96 (Disclosure of Confidential 
Employment Information to Private Entities), which will be superseded 
by a final rule.
    A single, comprehensive agreement would satisfy the requirement for 
an agreement in cases where repeated disclosures to the same entity 
occur.
    Paragraph (c) discusses enforcement and breach of agreements.
    Paragraph (c)(1) would prescribe the steps to be taken in case of 
any breach of an agreement, including failure to timely pay for the 
costs of any disclosure. First, the agreement would have to be 
suspended, and any further disclosure would have to be prohibited, 
until the state or state UC agency is satisfied that corrective action 
has been taken and that no further breach of the agreement will occur. 
Second, in the absence of prompt and satisfactory corrective action, 
the agreement would have to be cancelled, and the party would have to 
surrender all information obtained under the agreement and any

[[Page 50032]]

other information relevant to the agreement.
    It is necessary to the integrity of the confidentiality requirement 
that any breach of an agreement, whatever its importance may seem in 
the abstract, be promptly addressed and corrected, and, in the absence 
of prompt and satisfactory correction, that the agreement be cancelled 
and the state or state UC agency retrieve and secure all disclosed 
information.
    Paragraph (c)(2) would require that the state and state UC agency 
utilize all available legal enforcement tools. Thus, in addition to the 
actions required to be taken in accordance with paragraph (c)(1), the 
state or state UC agency would be required to undertake any other 
action under the agreement, or under any law of the state or of the 
United States, to enforce the agreement and secure satisfactory 
corrective action or surrender of information. Other remedial actions 
the state would be required to undertake include seeking damages, 
penalties, and restitution for any charges to granted funds, and 
recompense for all costs incurred by the state or state UC agency in 
pursuing legal action for the breach of the agreement and enforcement 
as required by paragraph (c).
    Paragraph (d) would except from the requirements of this section, 
concerning agreements and their enforcement, disclosures of UC 
information to a Federal agency that the Department has determined to 
have in place adequate safeguards to satisfy Section 303(a)(1), SSA's 
requirement of maintaining confidentiality, and to have an appropriate 
method of paying or reimbursing the state UC agency (which may involve 
a reciprocal cost arrangement) for costs involved in such disclosures. 
For the reasons described in the discussion of Sec.  603.9(d) 
(concerning safeguards), the Department has determined or will 
determine that in certain cases Federal agencies already have in place 
safeguards adequate to satisfy confidentiality concerns.
    The Department believes that for these disclosures, when the 
relevant Federal agency also has in place a method determined adequate 
by the Department of Labor to reimburse state UC agencies for the costs 
associated with disclosure, the state UC agencies should be excepted 
from the requirement to enter into written agreements. The reasons are 
several. First, the safeguards that govern information disclosed to 
Federal agencies are already codified in statute, regulation, or the 
Federal agency's written operating policies and procedures, so there is 
no need to memorialize them by agreement. Further, most disclosures to 
Federal agencies are documented in the sense that they are either 
explicitly or implicitly required by statute or are the subject of a 
memorandum of understanding between the Department of Labor and the 
recipient Federal agency. Finally, for Federal agencies that already 
have a method in place that is determined adequate by the Department of 
Labor to reimburse state UC agencies for the costs associated with 
disclosure, there is no need to negotiate cost reimbursement by 
agreement.
    Two agencies that the Department has determined to already have in 
place appropriate alternative safeguards (as indicated in the 
discussion of Sec.  603.9, safeguards) and to have appropriate methods 
in place to reimburse state UC agencies for costs associated with 
disclosure are the IRS, for purposes of administering the HCTC, and 
HHS, for purposes of the National Directory of New Hires. Thus, the 
requirements of this section, concerning agreements and their 
enforcement, do not apply to the IRS, for purposes of administering the 
HCTC, or to HHS, for purposes of the National Directory of New Hires.
Section 603.11, Notification of Claimants and Employers
    This section would require state UC agencies to notify claimants 
and employers how confidential UC information about them may be 
requested and utilized. This section is derived from present Sec.  
603.4 but, unlike the present Sec.  603.4, would be applicable to 
employers as well as claimants. State privacy law may require more 
detailed notification.
    Section 603.4 of the present part 603 implements the notification 
requirement applicable to the IEVS of Section 1137(a)(6) of the SSA. 
This section restates the notification requirement of Section 
1137(a)(6), SSA, as a general requirement of Section 303(a)(1) of the 
SSA. Notifying claimants and employers what use may be made of UC 
information is necessary to maintaining their confidence in the 
federal-state UC system, which is critical to its proper and efficient 
administration.
Section 603.12, Enforcement
    For a state to receive Federal grants to fund UC administration, 
and for employers in the state to receive credit against the Federal 
unemployment tax, state law must conform and its practices must 
substantially comply with the requirements of Federal UC law. 
Conformity means that a state's law contains provisions required by 
Federal UC law, and that those provisions are interpreted consistently 
with Federal UC law. Substantial compliance means that a state's 
administration of its law is substantially consistent with Federal UC 
law.
    This section sets forth how the Department of Labor would determine 
and enforce conformity and substantial compliance with the 
confidentiality and disclosure requirements of Title III of the SSA and 
Section 3304(a)(16), FUTA, as provided in subparts B and C of this 
regulation. The procedures in 20 CFR 601.5 would apply, meaning that if 
any issue involving conformity and substantial compliance arose, the 
Department would generally first hold informal discussions with state 
officials. Should informal discussions fail to resolve the issue, the 
Department would offer the state UC agency an opportunity for a 
hearing. If the Secretary of Labor were to find, after reasonable 
notice and opportunity for a hearing, a failure to conform or 
substantially comply with the confidentiality and disclosure 
requirements of Title III, SSA, as provided in subparts B and C, the 
Secretary would notify the Governor of the state that grants to fund 
state administration of the UC program would be withheld. For failure 
to conform or substantially comply with the disclosure requirements of 
Section 3304(a)(16), FUTA, as provided in subpart B, the Secretary 
would make no certification under FUTA to the Secretary of the Treasury 
that employers in the state are eligible to receive credit against the 
Federal unemployment tax.
    All the confidentiality and disclosure requirements set forth in 
this proposed regulation are intended to be both conformity and 
substantial compliance requirements, even though some of the disclosure 
provisions in Title III, SSA, mention only substantial compliance and 
do not explicitly require that they be provided for in state law (the 
definition of a conformity requirement). However, since only state law 
can compel the state UC agency to hold information confidential or to 
disclose information, a conformity mandate is inherent in these 
provisions. Additionally, since these provisions are exceptions to 
Section 303(a)(1), SSA's confidentiality requirement, which is itself a 
conformity requirement, conformity is implied, since an exception to 
state law is needed to permit or compel disclosure. We note that, as a 
practical matter, the effect of a state's nonconformity or lack of 
substantial compliance under Title III, SSA, is the same: loss to the 
state of Federal UC administrative grants.

[[Page 50033]]

    Two provisions of Section 303, SSA, mention neither conformity nor 
substantial compliance (Sections 303(c) and 303(f)). Section 303(c) 
(requiring, among other things, disclosures to the Railroad Retirement 
Board) uses terminology of strict compliance, though we interpret it to 
require substantial compliance to be in keeping with our interpretation 
of the rest of the requirements in Title III, SSA. Section 303(f) 
(requiring disclosures for IEVS purposes) is completely silent on 
enforcement. However, that section would be a meaningless requirement 
if enforcement authority did not exist. Further, the structure of Title 
III, SSA, which gives the Secretary of Labor authority to distribute 
grant funds to states who meet the requirements of Title III, SSA, 
indicates that the Secretary of Labor has authority to implement and 
enforce its provisions.
    Conformity and substantial compliance with proposed part 603 may 
require amendments to state law (including regulations) or to state UC 
agency policy or practice. Each state would need to review its law and 
data-sharing agreements to ensure that they conform and substantially 
comply with the confidentiality and disclosure requirements of Title 
III, SSA, and Section 3304(a)(16), FUTA, as provided in this proposed 
rule.

Subpart C--Income and Eligibility Verification System (IEVS)

    Subpart C would implement Section 303(f) of the SSA. That section 
requires states to have an IEVS which meets the requirements of Section 
1137 of the SSA, under which information is requested and exchanged for 
the purpose of verifying eligibility for, and the amount of, benefits 
available under several federally assisted programs including the 
federal-state UC program. Because the purpose of these regulations is 
limited to addressing confidentiality and disclosure of UC information 
by state government agencies, subpart C includes only those portions of 
the present part 603 IEVS regulations which address that subject. 
Consequently, subpart C merely notes, but does not implement, the 
requirement of Section 1137 SSA, and the present part 603 concerning 
claimant provision of Social Security account numbers and other 
requirements of Section 1137, SSA. Nevertheless, those requirements are 
statutory and states must still comply with them.
    Section 303(f), SSA, is a mandatory disclosure requirement like the 
requirements addressed in Sec.  603.6 of subpart B. In addition to 
requiring disclosure, however, Section 303(f) requires state UC 
agencies to obtain information from other agencies. In order to clarify 
what information state UC agencies must obtain from other agencies and 
in what circumstances, this proposed rule addresses Section 303(f), the 
IEVS requirements, in a separate subpart. Enforcement of subpart C, 
however, would occur under Sec.  603.12 of subpart B.
Section 603.20, Purpose and Scope
    This section sets forth the purpose and scope of proposed subpart 
C. It also notes the statutory requirements (under Section 1137, SSA) 
that states have wage record systems and that claimants furnish 
statements regarding their Social Security account numbers (as 
discussed above), and, under the 1988 amendments to Section 1137, SSA, 
nationality or immigration status.
    This subpart applies only to state UC agencies, as they, not 
states, are required to disclose information referred to in subpart C.
Section 603.21, Definition
    This section defines ``requesting agency,'' in accordance with 
Section 1137 SSA, to mean an agency that administers Temporary 
Assistance to Needy Families, Medicaid, Food Stamps, or other SSA 
programs under Titles I, II, X, XIV, or XVI, SSA.
Section 603.22, Disclosure of Information
    This section sets forth the basic requirement of the subpart that 
each state UC agency must disclose wage and claim information to 
requesting agencies and that the state UC agency must adhere to 
standardized formats established by the Secretary of HHS and defined in 
42 CFR 435.960. This section would require state UC agencies to 
disclose only wage and claim information contained in the agency's UC 
records.
Section 603.23, Crossmatch of Wage and Benefit Information
    This section would require that states UC agencies obtain 
information from the Social Security Administration and any requesting 
agency that is needed in verifying eligibility for, and the amount of, 
compensation payable under the state UC law. It would also require 
state UC agencies to crossmatch quarterly wage information with UC 
payment information to the extent such information is likely, as 
determined by the Secretary of Labor, to be productive in identifying 
ineligibility for benefits and preventing or discovering incorrect 
payments.

Executive Order 12866

    This proposed rule is a ``significant regulatory action'' within 
the meaning of Executive Order 12866 because it meets the criteria of 
Section 3(f)(4) of that Order in that it raises novel or legal policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order. Accordingly, the 
proposed rule has been submitted to, and reviewed by, the Office of 
Management and Budget (OMB).
    However, the proposed rule is not ``economically significant'' 
because it would not have an annual effect on the economy of $100 
million or more. We have also determined that the proposed rule would 
have no adverse material impact upon the economy and that it would not 
materially alter the budgeting impact of entitlement, grants, user fees 
or loan programs, or the rights and obligations of recipients thereof.
    Further, we have evaluated the proposed rule and found it 
consistent with the regulatory philosophy and principles set forth in 
Executive Order 12866, which governs agency rulemaking. Although the 
proposed rule would impact states and state UC agencies, it would not 
adversely affect them in a material way. The proposed rule would 
protect state UC agencies from becoming clearinghouses of confidential 
UC information and preserve UC grant funds for program purposes. In 
addition, the proposed rule would maintain state flexibility in 
deciding whether to permit certain disclosures of confidential UC 
information for purposes other than the administration of the UC 
program so long as certain safeguards are followed.

Executive Order 13132

    We have reviewed this proposed rule in accordance with Executive 
Order 13132 and have determined that it may have federalism 
implications. We intend to consult with organizations representing 
state elected officials about this rule in the upcoming weeks. We held 
a previous federalism consultation with organizations representing 
state elected officials at the Department of Labor on October 19, 2000, 
during an earlier stage in this rulemaking process. These organizations 
expressed no concerns at that time, or in the following months. 
However, we invite these organizations and states to submit comments on 
this proposed rule. Twenty-five states submitted comments on the 1992 
proposed regulation. We believe this proposed rule addresses the 
concerns expressed in those comments.

[[Page 50034]]

Executive Order 12988

    We drafted and reviewed this proposed regulation in accordance with 
Executive Order 12988, Civil Justice Reform, and it would not unduly 
burden the Federal court system. The proposed rule was written to 
minimize litigation and provide a clear legal standard for affected 
conduct, and was reviewed carefully to eliminate drafting errors and 
ambiguities.

Unfunded Mandates Reform Act of 1995 and Executive Order 12875

    This proposed rule was reviewed in accordance with the Unfunded 
Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq.) and 
Executive Order 12875. We have determined that this proposed rule does 
not include any Federal mandate that may result in increased 
expenditures by state, local, or tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. 
Accordingly, we have not prepared a budgetary impact statement.

Paperwork Reduction Act

    The following sections of this proposed rule contain information 
collection requirements or would revise information collection 
requirements in current 20 CFR part 603: Sec. Sec.  603.5, 603.6, 
603.7, 603.8, 603.9, 603.10, 603.11, 603.22, and 603.23. As required by 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), we have 
submitted the information collection requirements in this proposed rule 
to the OMB for approval under OMB control number 1205-0238.
    The annual burden associated with this proposed rule for all states 
combined is estimated at approximately 25,810 hours.
    We invite public comment on all of the information collection 
requirements in this proposed rule. These comments should be submitted 
to: Office of Information and Regulatory Affairs, Office of Management 
and Budget, Attention: Desk Officer for the Department of Labor, 
Employment and Training Administration, 725 17th Street, NW., Room 
10235, Washington, DC 20503.

Regulatory Flexibility Act

    This proposed rule would not have a ``significant economic impact 
on a substantial number of small entities.'' The proposed rule affects 
states and state agencies, which are not within the definition of 
``small entity'' under 5 U.S.C. 601(6). Under 5 U.S.C. 605(b), the 
Secretary has certified to the Chief Counsel for Advocacy of the Small 
Business Administration to this effect. Accordingly, no regulatory 
flexibility analysis is required.

Congressional Review Act

    This proposed rule is not a ``major rule'' as defined by Section 
804 of the Small Business Regulatory Enforcement Fairness Act of 1996. 
This proposed rule would not result in an annual effect on the economy 
of $100 million or more; a major increase in costs or prices; or 
significant adverse effects on competition, employment, investment, 
productivity, innovation, or the ability of United States-based 
companies to compete with foreign-based companies in domestic and 
export markets.

Effect on Family Life

    We certify that this proposed rule was assessed in accordance with 
Public Law 105-277, 112 Stat. 2681, and that the proposed rule would 
not adversely affect the well-being of the nation's families.

List of Subjects in 20 CFR Part 603

    Employment and Training Administration, Labor, Unemployment 
Compensation.

Catalogue of Federal Domestic Assistance Number

    This program is listed in the Catalogue of Federal Domestic 
Assistance at No. 17.225, Unemployment Insurance.

    Signed in Washington, DC on August 5, 2004.
Emily Stover DeRocco,
Assistant Secretary of Labor, Employment and Training Administration.

Words of Issuance

    For the reasons set forth in the preamble, part 603 of Title 20, 
Code of Federal Regulations is proposed to be revised as set forth 
below:

PART 603--FEDERAL-STATE UNEMPLOYMENT COMPENSATION (UC) PROGRAM; 
CONFIDENTIALITY AND DISCLOSURE OF STATE UC INFORMATION

Sec.
Subpart A--In General
603.1 What is the purpose and scope of this part?
603.2 What definitions apply to this part?
Subpart B--Confidentiality and Disclosure Requirements
603.3 What is the purpose and scope of this subpart?
603.4 What is the confidentiality requirement of Federal UC law?
603.5 What are the exceptions to the confidentiality requirement?
603.6 What disclosures are required by Federal UC law?
603.7 What requirements apply to subpoenas, other compulsory 
process, and disclosure to officials with subpoena authority?
603.8 What are the requirements for payment of costs and program 
income?
603.9 What safeguards and security requirements apply to disclosed 
information?
603.10 What are the requirements for agreements?
603.11 How do states notify claimants and employers about the uses 
of their information?
603.12 How are the requirements of this subpart enforced?
Subpart C--Mandatory Disclosure for Income and Eligibility Verification 
System (IEVS)
603.20 What is the purpose and scope of this subpart?
603.21 What definitions apply to this subpart?
603.22 What information must state UC agencies disclose for purposes 
of an IEVS?
603.23 What information must state UC agencies obtain from other 
agencies, and crossmatch with wage information, for purposes of an 
IEVS?

    Authority: 42 U.S.C. 1302(a); Secretary's Order No. 4-75 (40 FR 
18515) and Secretary's Order No. 14-75 (November 12, 1975).

Subpart A--In General


Sec.  603.1  What is the purpose and scope of this part?

    The purpose of this part is to implement the requirements of 
Federal UC law concerning confidentiality and disclosure of UC 
information. This part applies to states and state UC agencies, as 
defined in Sec.  603.2(f) and (g).


Sec.  603.2  What definitions apply to this part?

    For the purposes of this part:
    (a)(1) Claim information means information about:
    (i) Whether an individual is receiving, has received, or has 
applied for UC;
    (ii) The amount of compensation the individual is receiving or is 
entitled to receive; and
    (iii) The individual's current (or most recent) home address.
    (2) For purposes of subpart C (IEVS), claim information also 
includes:
    (i) Whether the individual has refused an offer of work and, if so, 
a description of the job offered including the terms, conditions, and 
rate of pay; and
    (ii) Any other information contained in the records of the state UC 
agency that is needed by the requesting agency to verify eligibility 
for, and the amount of, benefits.
    (b) Confidential UC information and confidential information mean 
any UC information, as defined in paragraph (j) of this section, 
required to be kept confidential under Sec.  603.4.

[[Page 50035]]

    (c) Public domain information means--
    (1) Information about the organization of the state and the state 
UC agency and appellate authorities, including the names and positions 
of officials and employees thereof;
    (2) Information about the state UC law (and applicable Federal law) 
provisions, rules, regulations, and interpretations thereof, including 
statements of general policy and interpretations of general 
applicability, appeals records and decisions, and precedential 
determinations on coverage of employers, employment, and wages; and
    (3) Any agreement of whatever kind or nature, including interstate 
arrangements and reciprocal agreements and any agreement with the 
Department of Labor or the Secretary, relating to the administration of 
the state UC law.
    (d) Public official means an official, agency, or public entity 
within the executive branch of Federal, state, or local government who 
(or which) has responsibility for administering or enforcing a law, or 
a legislator in the Federal, state, or local government with oversight 
responsibility for the UC program.
    (e) Secretary and Secretary of Labor mean the cabinet officer 
heading the United States Department of Labor, or his or her designee.
    (f) State means a state of the United States of America, the 
District of Columbia, the Commonwealth of Puerto Rico, and the United 
States Virgin Islands.
    (g) State UC agency means an agency charged with the administration 
of the state UC law.
    (h) State UC law means the law of a state approved under Section 
3304(a) of the Internal Revenue Code of 1986 (26 U.S.C. 3304(a)).
    (i) Unemployment compensation (UC) means cash benefits to 
individuals with respect to their unemployment.
    (j) UC information and state UC information means information in 
the records of a state or state UC agency that pertains to the 
administration of the state UC law. This term includes those state wage 
reports collected under the Income and Eligibility Verification System 
(IEVS) (Section 1137 of the Social Security Act (SSA)) that are 
obtained by the state UC agency for determining UC monetary eligibility 
or are downloaded to the state UC agency's files as a result of a 
crossmatch but does not otherwise include those wage reports. It does 
not include information in a state's Directory of New Hires, but does 
include any such information that has been disclosed to the state UC 
agency for use in the UC program. It also does not include the 
personnel or fiscal information of a state UC agency.
    (k) Wage information means information in the records of a state UC 
agency (and, for purposes of Sec.  603.23 (IEVS)), information reported 
under provisions of state law which fulfill the requirements of Section 
1137 of the SSA) about the--
    (1) Wages paid to an individual,
    (2) Social security account number (or numbers, if more than one) 
of such individual, and
    (3) Name, address, state, and the Federal employer identification 
number of the employer who paid such wages to such individual.

Subpart B--Confidentiality and Disclosure Requirements


Sec.  603.3  What is the purpose and scope of this subpart?

    This subpart implements the basic confidentiality requirement 
derived from Section 303(a)(1), SSA, and the disclosure requirements of 
Sections 303(a)(7), (c)(1), (d), (e), (h), and (i), Social Security Act 
(SSA), and Section 3304(a)(16), Federal Unemployment Tax Act (FUTA). 
This subpart also establishes uniform minimum requirements for the 
payment of costs, safeguards, and data-sharing agreements when UC 
information is disclosed, and for conformity and substantial compliance 
with this proposed rule. This subpart applies to states and state UC 
agencies, as defined in Sec.  603.2(f) and (g).


Sec.  603.4  What is the confidentiality requirement of Federal UC law?

    (a) Statute. Section 303(a)(1) of the SSA (42 U.S.C. 503(a)(1)) 
provides that, for the purposes of certification of payment of granted 
funds to a state under Section 302(a) (42 U.S.C. 502(a)), state law 
must include provision for ``(s)uch methods of administration * * * as 
are found by the Secretary of Labor to be reasonably calculated to 
insure full payment of unemployment compensation when due * * *''.
    (b) Interpretation. The Department of Labor interprets Section 
303(a)(1), SSA, to mean that ``methods of administration'' that are 
reasonably calculated to insure the full payment of UC when due must 
include provision for maintaining the confidentiality of any UC 
information which reveals the name or any identifying particular about 
any individual or any past or present employer or employing unit, or 
which could foreseeably be combined with other publicly available 
information to reveal any such particulars, and must include provision 
for barring the disclosure of any such information, except as provided 
in this part.
    (c) Application. Each state law must contain provisions that are 
interpreted and applied consistently with the interpretation at 
paragraph (b) of this section and with this subpart, and must provide 
penalties for any disclosure of confidential UC information that is 
inconsistent with any provision of this subpart.


Sec.  603.5  What are the exceptions to the confidentiality 
requirement?

    The following are exceptions to the confidentiality requirement. 
Disclosure is permissible under exceptions at paragraphs (a) through 
(g) of this section only if authorized by state law and if such 
disclosure does not interfere with the efficient administration of the 
state UC law. Disclosure is permissible under exceptions at paragraphs 
(h) and (i) of this section without such restrictions.
    (a) Public domain information. The confidentiality requirement of 
Sec.  603.4 does not apply to public domain information, as defined at 
Sec.  603.2(c).
    (b) Administration of the UC program. The confidentiality 
requirement of Sec.  603.4 does not apply when disclosure is necessary 
for the proper administration of the UC program.
    (c) Individual or employer. Disclosure of UC information about an 
individual to that individual, or of UC information about an employer 
disclosed to that employer is permissible.
    (d) Informed consent. Disclosure of UC information on the basis of 
informed consent is permissible in the following circumstances--
    (1) Agent or attorney--to an agent or attorney of an individual, of 
information that pertains to that individual, or to an agent or 
attorney of an employer, of information that pertains to that employer, 
if --
    (i) The agent or attorney presents a written release from the 
individual or employer being represented, or
    (ii) If a written release is impossible or impracticable to obtain, 
the agent or attorney presents such other form of consent as is 
permitted by the state UC agency in accordance with state law;
    (2) Third party--to a third party only if that entity obtains a 
written release from the individual or employer to whom the information 
pertains.
    (i) The release must be signed and must include a statement--
    (A) Specifically identifying the information that is to be 
disclosed;
    (B) That state government files will be accessed to obtain that 
information;
    (C) Of the specific purpose or purposes for which the information 
is sought and a statement that information

[[Page 50036]]

obtained under the release will only be used for that purpose or 
purposes; and
    (D) Indicating all the parties who may receive the information 
released.
    (ii) The purpose specified in the release must be limited to--
    (A) Providing a service or benefit to the individual signing the 
release that such individual expects to receive as a result of signing 
the release; or
    (B) Carrying out administration or evaluation of a public program 
to which the release pertains.

    (Note to paragraph (d)(2): The Electronic Signatures in Global 
and National Commerce Act of 2000 (E-Sign), Public Law 106-229, may 
apply where a party wishes to effectuate electronically an informed 
consent release (paragraph(d)(2) of this section) or a disclosure 
agreement (Sec.  603.10(a)) with an entity that uses informed 
consent releases. E-Sign, among other things, sets forth the 
circumstances under which electronic signatures, contracts, and 
other records relating to such transactions (in lieu of paper 
documents) are legally binding. Thus, an electronic communication 
may suffice under E-Sign to establish a legally binding contract. 
The states will need to consider E-Sign's application to these 
informed consent releases and disclosure agreements. In particular, 
a state must, to conform and substantially comply with this part, 
assure that these informed consent releases and disclosure 
agreements are legally enforceable. If an informed consent release 
or disclosure agreement is to be effectuated electronically, the 
state must determine whether E-Sign applies to that transaction, 
and, if so, make certain that the transaction satisfies the 
conditions imposed by E-Sign. The state must also make certain that 
the electronic transaction complies with every other condition 
necessary to make it legally enforceable.)

    (e) Public official. Disclosure of UC information to a public 
official for use in the performance of his or her official duties is 
permissible. ``Performance of official duties'' means administration or 
enforcement of law, or, in the case of a state or Federal legislative 
branch, oversight of UC law.
    (f) Agent or contractor of public official. Disclosure of UC 
information to an agent or contractor of a public official to whom 
disclosure is permissible under paragraph (e) of this section.
    (g) Bureau of Labor Statistics. The confidentiality requirement 
does not apply to information collected exclusively for statistical 
purposes under a cooperative agreement with the Bureau of Labor 
Statistics (BLS). Further, this part does not restrict or impose any 
condition on the transfer of any other information to the BLS under an 
agreement, or the BLS's disclosure or use of such information.
    (h) Court order; official with subpoena authority. Disclosure of UC 
information in response to a court order or to an official with 
subpoena authority is permissible as specified in Sec.  603.7(b).
    (i) As required by Federal law. Disclosure as required by Federal 
law is permissible.


Sec.  603.6  What disclosures are required by Federal UC law?

    (a) The Department of Labor interprets Section 303(a)(1) of the SSA 
as requiring disclosure of all information necessary for the proper 
administration of the UC program.
    (b) In addition to Section 303(f), SSA (concerning an IEVS), which 
is addressed in subpart C, the following provisions of Federal UC law 
also specifically require disclosure of state UC information and state-
held information pertaining to the Federal UC and benefit programs of 
UCFE, UCX, TAA (except for confidential business information collected 
by states), DUA, and any Federal UC benefit extension program:
    (1) Section 303(a)(7), SSA, requires state law to provide for 
making available, upon request, to any agency of the United States 
charged with the administration of public works or assistance through 
public employment, disclosure of the following information with respect 
to each recipient of UC--
    (i) Name;
    (ii) Address;
    (iii) Ordinary occupation;
    (iv) Employment status; and
    (v) A statement of such recipient's rights to further compensation 
under the state law.
    (2) Section 303(c)(1), SSA, requires each state to make its UC 
records available to the Railroad Retirement Board, and to furnish such 
copies of its UC records to the Railroad Retirement Board as the Board 
deems necessary for its purposes.
    (3) Section 303(d)(1), SSA, requires each state UC agency, for 
purposes of determining an individual's eligibility benefits, or the 
amount of benefits, under a food stamp program established under the 
Food Stamp Act of 1977, to disclose, upon request, to officers and 
employees of the Department of Agriculture, and to officers or 
employees of any state food stamp agency, any of the following 
information contained in the records of the state UC agency--
    (i) Wage information,
    (ii) Whether an individual is receiving, has received, or has made 
application for, UC, and the amount of any such compensation being 
received, or to be received, by such individual,
    (iii) The current (or most recent) home address of such individual, 
and
    (iv) Whether an individual has refused an offer of employment and, 
if so, a description of the employment so offered and the terms, 
conditions, and rate of pay therefore.
    (4) Section 303(e)(1), SSA, requires each state UC agency to 
disclose, upon request, directly to officers or employees of any state 
or local child support enforcement agency, any wage information 
contained in the records of the state UC agency for purposes of 
establishing and collecting child support obligations (not to include 
custodial parent support obligations) from, and locating, individuals 
owing such obligations.
    (5) Section 303(h), SSA, requires each state UC agency to disclose 
quarterly, to the Secretary of Health and Human Services (HHS), wage 
information and claim information as required under Section 453(i)(1) 
of the SSA (establishing the National Directory of New Hires), 
contained in the records of such agency, for purposes of Subsections 
(i)(1), (i)(3), and (j) of Section 453, SSA (establishing the National 
Directory of New Hires and its uses for purposes of child support 
enforcement, Temporary Assistance to Needy Families (TANF), TANF 
research, administration of the earned income tax credit, and use by 
the Social Security Administration).
    (6) Section 303(i), SSA, requires each state UC agency to disclose, 
upon request, to officers or employees of the Department of Housing and 
Urban Development (HUD) and to representatives of a public housing 
agency, for purposes of determining an individual's eligibility for 
benefits, or the amount of benefits, under a housing assistance program 
of HUD, any of the following information contained in the records of 
such state agency about any individual applying for or participating in 
any housing assistance program administered by HUD who has signed a 
consent form approved by the Secretary of HUD--
    (i) Wage information, and
    (ii) Whether the individual is receiving, has received, or has made 
application for, UC, and the amount of any such compensation being 
received (or to be received) by such individual.
    (7) Section 3304(a)(16), Federal Unemployment Tax Act (FUTA) 
requires each state UC agency--
    (i) To disclose, upon request, to any state or political 
subdivision thereof administering a TANF program funded under part A of 
Title IV of the SSA, wage information contained in the records of the 
state UC agency which is necessary (as determined by the Secretary of 
HHS in regulations), for

[[Page 50037]]

purposes of determining an individual's eligibility for TANF assistance 
or the amount of TANF assistance; and
    (ii) To furnish to the Secretary of HHS, in accordance with that 
Secretary's regulations at 45 CFR 303.108, wage information (as defined 
at 45 CFR 303.108(a)(2)) and UC information (as defined at 45 CFR 
303.108(a)(3)) contained in the records of such agency for the purposes 
of the National Directory of New Hires established under Section 453(i) 
of the SSA.
    (c) Each state law must contain provisions that are interpreted and 
applied consistently with the requirements listed in this section.


Sec.  603.7  What requirements apply to subpoenas, other compulsory 
process, and disclosure to officials with subpoena authority?

    (a) In general. Except as provided in paragraph (b) of this 
section, when a subpoena or other compulsory process is served upon a 
state UC agency or the state, any official or employee thereof, or any 
recipient of confidential UC information, which requires the production 
of confidential UC information or appearance for testimony upon any 
matter concerning such information, the state or state UC agency or 
recipient must file and diligently pursue a motion to quash the 
subpoena or other compulsory process. Only if such motion is denied by 
the court or other forum may the requested confidential information be 
disclosed, and only upon such terms as the court or forum may order, 
such as that the recipient protect the disclosed information and pay 
the state's or state UC agency's costs of disclosure.
    (b) Exceptions. The requirement of paragraph (a) of this section to 
move to quash subpoenas shall not be applicable, so that disclosure is 
permissible, where--
    (1) Court Decision--a subpoena or other compulsory legal process 
has been served and a court has previously issued a binding 
precedential decision that requires disclosures of this type, or
    (2) Public Official with Subpoena Authority--UC information has 
been requested, with or without a subpoena, by a state or Federal 
government official, other than a clerk of court on behalf of a 
litigant, with authority to obtain such information by subpoena under 
state or Federal law.


Sec.  603.8  What are the requirements for payment of costs and program 
income?

    (a) In general. Except as provided in paragraph (b) of this 
section, grant funds must not be used to pay any of the costs of making 
any disclosure. Grant funds may not be used to pay any of the costs of 
making any disclosures under Sec.  603.5(e) (optional disclosure to a 
public official), Sec. 603.5(f) (optional disclosure to an agent or 
contractor of a public official), Sec. 603.5(g) (optional disclosure to 
BLS), or Sec. 603.5(h) (disclosure to the IRS for HCTC purposes), Sec.  
603.6(b) (mandatory disclosures for non-UC purposes), or Sec.  603.22 
(mandatory disclosure for purposes of an IEVS).
    (b) Use of grant funds permitted. Grant funds paid to a state under 
Section 302(a) of the SSA may be used to pay the costs of only those 
disclosures necessary for proper administration of the UC program. 
(This may include some disclosures under Sec.  603.5(a) (concerning 
public domain information), Sec. 603.5(c) (to an individual or 
employer), or Sec. 603.5(d) (on the basis of informed consent)). In 
addition, grant funds may be used to pay costs associated with a 
request for disclosure of UC information if not more than an incidental 
amount of staff time and no more than nominal processing costs are 
involved in making the disclosure. Finally, grant funds may be used to 
pay costs associated with disclosures under Sec.  603.7(b)(1) 
(concerning court-ordered compliance with subpoenas) if a court has 
denied recovery of costs, or to pay costs associated with disclosures 
under Sec.  603.7(b)(2) (to officials with subpoena authority) if the 
state UC agency has attempted but not been successful in obtaining 
reimbursement of costs.
    (c) Calculation of costs. The costs to a state or state UC agency 
of processing and handling a request for disclosure of information must 
be calculated in accordance with the cost principles and administrative 
requirements of 29 CFR part 97 and Office of Management and Budget 
Circular No. A-87 (Revised). For the purpose of calculating such costs, 
any initial start-up costs incurred by the state UC agency in 
preparation for making the requested disclosure(s), such as computer 
reprogramming necessary to respond to the request, and the costs of 
implementing safeguards and agreements required by Sec. Sec.  603.9 and 
603.10, must be charged to and paid by the recipient. (Start-up costs 
do not include the costs to the state UC agency of obtaining, 
compiling, or maintaining information for its own purposes.) Postage or 
other delivery costs incurred in making any disclosure are part of the 
costs of making the disclosure. Penalty mail, as defined in 39 U.S.C. 
3201(1), must not be used to transmit information being disclosed, 
except information disclosed for purposes of administration of state UC 
law. As provided in Sections 453(e)(2) and 453(g) of the SSA, the 
Secretary of HHS has the authority to determine what constitutes a 
reasonable amount for the reimbursement for disclosures under Section 
303(h), SSA, and Section 3304(a)(16)(B), FUTA.
    (d) Payment of costs. The costs to a state or state UC agency of 
making a disclosure of information, calculated in accordance with 
paragraph (c) of this section, must be paid by and collected from the 
recipient of the information either in advance or by way of 
reimbursement. If the recipient is not a public official, such costs, 
except for good reason (such as when the disclosure involves minimal 
cost) must be paid and collected in advance. For the purposes of this 
paragraph (d), payment in advance means full payment of all costs 
before or at the time the disclosed information is given in hand or 
sent to the recipient. The requirement of payment of costs in this 
paragraph is met when a state UC agency has in place a reciprocal cost 
agreement or arrangement with the recipient. As used in this section, 
``reciprocal'' means that the relative benefits received by each are 
approximately equal. Payment or reimbursement of costs must include any 
initial start-up costs associated with making the disclosure.
    (e) Program income. Costs paid as required by this section, and any 
funds generated by the disclosure of information under this part, are 
program income and may be used only as permitted by 29 CFR 97.25(g) (on 
program income). Such income may not be used to benefit a state's 
general fund or other program.


Sec.  603.9  What safeguards and security requirements apply to 
disclosed information?

    (a) In general. For disclosures of confidential UC information 
under Sec.  603.5(d)(2) (to a third party on the basis of informed 
consent); Sec. 603.5(e) (to a public official), except as provided in 
paragraph (d) of this section; and Sec. 603.5(f) (to an agent or 
contractor of a public official); or, Sec.  603.6(b)(1) through (4), 
(6), and (7)(i) (as required by Federal UC law, except for disclosures 
to HHS under Sections 303(h), SSA, and 3304(a)(16)(B), FUTA); or Sec.  
603.22 (to a requesting agency for purposes of an IEVS), a state or 
state UC agency must require the recipient to safeguard the information 
disclosed against unauthorized access or redisclosure, as provided in 
paragraphs (b) and (c) of this section, and must subject the recipient 
to penalties provided by the state law for unauthorized disclosure of 
confidential information.

[[Page 50038]]

    (b) Safeguards to be required of recipients. (1) The state or state 
UC agency must:
    (i) Require the recipient to use the disclosed information only for 
purposes authorized by law and consistent with an agreement that meets 
the requirements of Sec.  603.10;
    (ii) Require the recipient to store the disclosed information in a 
place physically secure from access by unauthorized persons;
    (iii) Require the recipient to store and process disclosed 
information maintained in electronic format, such as magnetic tapes or 
discs, in such a way that unauthorized persons cannot obtain the 
information by any means;
    (iv) Require the recipient to undertake precautions to ensure that 
only authorized personnel are given access to disclosed information 
stored in computer systems;
    (v) Require each recipient agency or entity to
    (A) Instruct all personnel having access to the disclosed 
information about confidentiality requirements, the requirements of 
this subpart B, and the sanctions specified in the state law for 
unauthorized disclosure of information, and
    (B) Sign an acknowledgment that all personnel having access to the 
disclosed information have been instructed in accordance with paragraph 
(b)(1)(v)(A) of this section and will adhere to the state's or state UC 
agency's confidentiality requirements and procedures which are 
consistent with this subpart B and the agreement required by Sec.  
603.10, and agreeing to report any infraction of these rules to the 
state UC agency fully and promptly,
    (vi) Require the recipient to dispose of information disclosed or 
obtained, and any copies thereof made by the recipient agency, entity, 
or contractor, after the purpose for which the information is disclosed 
is served, except for disclosed information possessed by any court. 
Disposal means return of the information to the disclosing state or 
state UC agency or destruction of the information, as directed by the 
state or state UC agency. Disposal includes deletion of personal 
identifiers by the state or state UC agency in lieu of destruction. In 
any case, the information disclosed must not be retained with personal 
identifiers for longer than such period of time as the state or state 
UC agency deems appropriate on a case-by-case basis; and
    (vii) Maintain a tracking system sufficient to allow an audit of 
compliance with the requirements of this part.
    (2) In the case of disclosures made under Sec.  603.5(d)(2) 
(disclosure of confidential information to a third party on the basis 
of informed consent), the state or state UC agency must also--
    (i) Periodically audit a sample of transactions accessing 
information disclosed under that section to assure that the entity 
receiving disclosed information has on file a written release 
authorizing each access. The audit must ensure that the information is 
not being used for any unauthorized purpose;
    (ii) Ensure that all employees of entities receiving access to 
information disclosed under Sec.  603.5(d)(2) are subject to the same 
confidentiality requirements, and state criminal penalties for 
violation of those requirements, as are employees of the state UC 
agency.
    (c) Redisclosure of confidential UC information. (1) A state or 
state UC agency may authorize any recipient of confidential UC 
information under paragraph (a) of this section (which applies to 
optional disclosures to public officials, to agents or contractors of a 
public official, and to other entities on the basis of informed 
consent) to redisclose information only as follows:
    (i) To the individual or employer who is the subject of the 
information;
    (ii) To an attorney or other duly authorized agent representing the 
individual or employer;
    (iii) In any civil or criminal proceedings for or on behalf of a 
recipient agency or entity;
    (iv) In response to a subpoena only as provided in Sec.  603.7;
    (v) To an agent or contractor of a public official only if the 
person redisclosing is a public official, if the redisclosure is 
authorized by the state law, and if the public official retains 
responsibility for the uses of the confidential UC information by the 
agent or contractor;
    (vi) From one public official to another if the redisclosure is 
authorized by the state law;
    (vii) When so authorized by Section 303(e)(5) of the SSA 
(redisclosure of wage information by a state or local child support 
enforcement agency to an agent under contract with such agency for 
purposes of carrying out child support enforcement) and by state law; 
or
    (viii) When specifically authorized by a written release that meets 
the requirements of Sec.  603.5(d) (permitting optional disclosure to 
other entities on the basis of informed consent).
    (2) Information redisclosed under paragraphs (c)(1)(v) and (vi) of 
this section must be subject to the safeguards in paragraph (b) of this 
section.
    (d) The requirements of this section do not apply to disclosures of 
UC information to a Federal agency which the Department has determined, 
by notice published in the Federal Register, to have in place 
safeguards adequate to satisfy the confidentiality requirement of 
Section 303(a)(1), SSA.


Sec.  603.10  What are the requirements for agreements?

    (a) Requirements. (1) For any disclosure of confidential 
information under Sec.  603.5(d)(2) (to a third party on the basis of 
informed consent); Sec.  603.5(e) (to a public official), except as 
provided in paragraph (d) of this section; Sec.  603.5(f) (to an agent 
or contractor of a public official); Sec.  603.6(b)(1) through (4), 
(6), and (7)(i) (as required by Federal UC law, except to HHS under 
Sections 303(h), SSA, and 3304(a)(16)(B), FUTA); and Sec.  603.22 (to a 
requesting agency for purposes of an IEVS), a state or state UC agency 
must enter into a written, enforceable agreement with any agency or 
entity requesting disclosure(s) of such information. The agreement must 
be terminable if the state or state UC agency determines that the 
safeguards in the agreement are not adhered to.
    (2) For disclosures referred to in Sec.  603.5(f) (to an agent or 
contractor of a public official), the state or state UC agency must 
enter into a written, enforceable agreement with the public official on 
whose behalf the agent or contractor will obtain information. The 
agreement must hold the public official responsible for ensuring that 
the agent or contractor complies with the safeguards of Sec.  603.9. 
The agreement must be terminable if the state or state UC agency 
determines that the safeguards in the agreement are not adhered to.
    (b) Contents of agreement--(1) In general. Any agreement required 
by paragraph (a) of this section must include, but need not be limited 
to, the following terms and conditions:
    (i) A description of the specific information to be furnished and 
the purposes for which the information is sought;
    (ii) A statement that those who request or receive information 
under the agreement will be limited to those with a need to access it 
for purposes listed in the agreement;
    (iii) The methods and timing of requests for information and 
responses to those requests, including the format to be used;
    (iv) Provision for paying the state or state UC agency for any 
costs of furnishing information, as required by Sec.  603.8 (on costs);

[[Page 50039]]

    (v) Provision for safeguarding the information disclosed, as 
required by Sec.  603.9 (on safeguards); and
    (vi) Provision for on-site inspections of the agency, entity, or 
contractor, to assure that the requirements of the state's law and the 
agreement or contract required by this section are being met.
    (2) In the case of disclosures under Sec.  603.5(d)(2) (to a third 
party on the basis of informed consent), the agreement required by 
paragraph (a) of this section must assure that the information will be 
accessed by only those entities with authorization under the 
individual's or employer's release, and that it may be used only for 
the specific purposes authorized in that release.
    (c) Breach of agreement--(1) In general. If an agency, entity, or 
contractor, or any official, employee, or agent thereof, fails to 
comply with any provision of an agreement required by this section, 
including timely payment of the state's or state UC agency's costs 
billed to the agency, entity, or contractor, the agreement must be 
suspended, and further disclosure of information (including any 
disclosure being processed) to such agency, entity, or contractor is 
prohibited, until the state or state UC agency is satisfied that 
corrective action has been taken and there will be no further breach. 
In the absence of prompt and satisfactory corrective action, the 
agreement must be canceled, and the agency, entity, or contractor must 
be required to surrender to the state or state UC agency all 
confidential information (and copies thereof) obtained under the 
agreement which has not previously been returned to the state or state 
UC agency, and any other information relevant to the agreement.
    (2) Enforcement. In addition to the actions required to be taken by 
paragraph (c)(1) of this section, the state or state UC agency must 
undertake any other action under the agreement, or under any law of the 
state or of the United States, to enforce the agreement and secure 
satisfactory corrective action or surrender of the information, and 
must take other remedial actions permitted under state or Federal law 
to effect adherence to the requirements of this subpart B, including 
seeking damages, penalties, and restitution as permitted under such law 
for any charges to granted funds and all costs incurred by the state or 
the state UC agency in pursuing the breach of the agreement and 
enforcement as required by this paragraph (c).
    (d) The requirements of this section do not apply to disclosures of 
UC information to a Federal agency which the Department has determined, 
by notice published in the Federal Register, to have in place 
safeguards adequate to satisfy the confidentiality requirement of 
Section 303(a)(1), SSA, and an appropriate method of paying or 
reimbursing the state UC agency (which may involve a reciprocal cost 
arrangement) for costs involved in such disclosures. These 
determinations will be published in the Federal Register.


Sec.  603.11  How do states notify claimants and employers about the 
uses of their information?

    (a) Claimants. Every claimant for compensation must be notified, at 
the time of application, and periodically thereafter, in what 
situations confidential UC information pertaining to the claimant may 
be requested and utilized. Notice on or attached to subsequent 
additional claims will satisfy the requirement for periodic notice 
thereafter.
    (b) Employers. Every employer subject to a state's law must be 
notified in what situations wage information and other confidential 
information about the employer may be requested and utilized.


Sec.  603.12  How are the requirements of this subpart enforced?

    (a) Resolving conformity and compliance issues. For the purposes of 
resolving issues of conformity and substantial compliance with the 
requirements set forth in subparts B and C, the provisions of 
paragraphs (b) (informal discussions with the Department of Labor to 
resolve conformity and substantial compliance issues), and (d) 
(Secretary of Labor's hearing and decision on conformity and 
substantial compliance) of 20 CFR 601.5 apply.
    (b) Conformity and substantial compliance. Whenever the Secretary 
of Labor, after reasonable notice and opportunity for a hearing to the 
state UC agency of a state, finds that the state law fails to conform, 
or that the state or state UC agency fails to comply substantially, 
with:
    (1) The requirements of Title III, SSA, implemented in subparts B 
and C, the Secretary of Labor shall notify the Governor of the state 
and such state UC agency that further payments for the administration 
of the state UC law will not be made to the state until the Secretary 
of Labor is satisfied that there is no longer any such failure. Until 
the Secretary of Labor is so satisfied, the Department of Labor shall 
make no further payments to such state.
    (2) The FUTA requirements implemented in this subpart B, the 
Secretary of Labor shall make no certification under that section to 
the Secretary of the Treasury for such state as of October 31 of the 
12-month period for which such finding is made.

Subpart C--Mandatory Disclosure for Income and Eligibility 
Verification System (IEVS)


Sec.  603.20  What is the purpose and scope of this subpart?

    (a) Purpose. Subpart C implements Section 303(f) of the SSA. 
Section 303(f) requires states to have in effect an income and 
eligibility verification system, which meets the requirements of 
Section 1137 of the SSA, under which information is requested and 
exchanged for the purpose of verifying eligibility for, and the amount 
of, benefits available under several federally assisted programs, 
including the federal-state UC program.
    (b) Scope. This subpart C applies only to a state UC agency.

    (Note to Sec. 603.20: Although not implemented in this part, 
Section 1137(a)(1) of the SSA provides that each state must require 
claimants for compensation to furnish to the state UC agency their 
Social Security account numbers, as a condition of eligibility for 
compensation, and further requires states to utilize such account 
numbers in the administration of the state UC laws. Section 
1137(a)(3) of the SSA further provides that employers must make 
quarterly wage reports to a state UC agency, or an alternative 
agency, for use in verifying eligibility for, and the amount of, 
benefits. Section 1137(d)(1) of the SSA provides that each state 
must require claimants for compensation, as a condition of 
eligibility, to declare in writing, under penalty of perjury, 
whether the individual is a citizen or national of the United 
States, and, if not, that the individual is in a satisfactory 
immigration status. Other provisions of Section 1137(d) of the SSA 
not implemented in this part require the states to obtain, and 
individuals to furnish, information which shows immigration status, 
and require the states to verify immigration status with the Bureau 
of Citizenship and Immigration Services (formerly the Immigration 
and Naturalization Service).


Sec.  603.21  What definitions apply to this subpart?

    For the purposes of this subpart C, requesting agency means:
    (a) Temporary Assistance to Needy Families Agency--Any state or 
local agency charged with the responsibility of administering a program 
funded under part A of Title IV of the SSA.
    (b) Medicaid Agency--Any state or local agency charged with the 
responsibility of administering the provisions of the Medicaid program 
under a state plan approved under Title XIX of the SSA.

[[Page 50040]]

    (c) Food Stamp Agency--Any state or local agency charged with the 
responsibility of administering the provisions of the Food Stamp 
Program under the Food Stamp Act of 1977.
    (d) Other SSA Programs Agency--Any state or local agency charged 
with the responsibility of administering a program under a state plan 
approved under Title I, X, XIV, or XVI (Supplemental Security Income 
for the Aged, Blind, and Disabled) of the SSA.
    (e) Child Support Enforcement Agency--Any state or local child 
support enforcement agency charged with the responsibility of enforcing 
child support obligations under a plan approved under part D of Title 
IV of the SSA.
    (f) HHS--The Secretary of HHS in establishing or verifying 
eligibility or benefit amounts under Titles II (Old-Age, Survivors, and 
Disability Insurance Benefits) and XVI (Supplemental Security Income 
for the Aged, Blind, and Disabled) of the SSA.


Sec.  603.22  What information must state UC agencies disclose for 
purposes of an IEVS?

    (a) Disclosure of information. Each state UC agency must disclose, 
upon request, to any requesting agency, as defined in Sec.  603.21, 
that has entered into an agreement required by Sec.  603.10, wage 
information (as defined at Sec.  603.2(k)) and claim information (as 
defined at Sec.  603.2(a)) contained in the records of such state UC 
agency.
    (b) Format. The state UC agency must adhere to standardized formats 
established by the Secretary of HHS (in consultation with the Secretary 
of Agriculture) and set forth in 42 CFR 435.960 (concerning 
standardized formats for furnishing and obtaining information to verify 
income and eligibility).


Sec.  603.23  What information must state UC agencies obtain from other 
agencies, and crossmatch with wage information, for purposes of an 
IEVS?

    (a) Crossmatch with information from requesting agencies. Each 
state UC agency must obtain such information from the Social Security 
Administration and any requesting agency as may be needed in verifying 
eligibility for, and the amount of, compensation payable under the 
state UC law.
    (b) Crossmatch of wage and benefit information. The state UC agency 
must crossmatch quarterly wage information with UC payment information 
to the extent that such information is likely, as determined by the 
Secretary of Labor, to be productive in identifying ineligibility for 
benefits and preventing or discovering incorrect payments.

[FR Doc. 04-18333 Filed 8-11-04; 8:45 am]
BILLING CODE 4510-30-P