For Safe Harbor, Steer North

Many questions follow in the wake of the European Court of Justice ruling invalidating the EU-U.S. Safe Harbor regime for the transfer of personal information. Companies will need to adapt in the long term to a new approach, but interim measures to ensure business continuity exist, and may create opportunity for businesses with Canadian operations.

In early October, the Court of Justice of the European Union struck down the 15-year-old decision of the European Commission recognizing the adequacy of protection for personal information when transferred from the EU to the U.S. within the framework of "safe harbor" privacy principles.¹ This decision is expected to have significant long-term effects for companies engaged in multijurisdictional business, data processing, and litigation.

Background

EU data protection laws prohibit the transfer of personal information to non-member countries unless they provide adequate protection for that information. The European Commission decided shortly after the Canadian Personal Information Protection and Electronic Documents Act (PIPEDA) was enacted that it provided an adequate level of protection for personal information as required by EU data protection laws. Accordingly, Canada was deemed to be a country that provides adequate privacy protection. However, the U.S. does not have federal legislation of general application comparable to PIPEDA or EU laws, so country-wide adequacy was not possible. The U.S. government and the European Commission therefore negotiated the safe-harbor framework of principles to permit U.S.-based organizations subject to Federal Trade Commission or Department of Transportation jurisdiction to self-certify that they provided such protection for information transferred from the EU. In 2000, the European Commission declared that organizations that adhered to the safe-harbor principles adequately protected personal information and the framework has since been widely used to facilitate transfers from EU states to the U.S.

In its recent ruling, the EU Court found that the Commission decision on adequacy did not find that the U.S. as a country ensures an adequate level of protection for personal information and that the safe-harbor principles apply only to certain organizations that choose to adhere to them. Governmental authorities could override these protections by operation of national security laws, without sufficient oversight to ensure the protection of the privacy rights of EU citizens under EU laws.

Adequacy unlikely to be challenged in Canada

The safe-harbor principles largely mirror the principles set out in the National Standard of Canada Model Code, which is incorporated into Schedule 1 of PIPEDA. Those principles include the requirement to provide individuals with notice of the purpose of collecting personal information, the option to decline collection and disclosure of information, the obligations to safeguard the information, to ensure information is only disclosed to third parties with adequate safeguards in place, and to allow individuals to access and correct their information. However, the basis for the decision is unlikely to be extended to Canada because PIPEDA is a law of general application to all organizations engaged in commercial activity and the legislation contains narrow, precise exceptions for disclosure of personal information without individuals’ consent to governmental agencies or other third parties.

Multinational corporations with operations in Canada may find in-house solutions to the uncertainty created by the safe-harbor ruling by using their Canadian locations and employees for the use, processing and storage or personal information of EU residents. Similarly, service providers based in Canada may capitalize on the growth opportunities attendant with the ruling by offering data storage, processing, e-discovery services for litigation and marketing solutions from within Canada.

Regulatory risk is foreseeable, but not imminent

The safe-harbor ruling has induced fear that ongoing or impending transfers of data from the EU to the U.S. will be impossible or impractical for businesses in light of a prohibitive risk of regulatory sanction. Although this concern and risk assessment is well founded, early commentary on the decision has affirmed that the risk is less than immediate. Data protection authorities in EU member states will need time to assess the scope of the ruling, determine a regulatory response appropriate to their laws, authority and regulatory resources, and prioritize their enforcement obligations. Privacy law enforcement continues to be largely complaint-driven, requiring investigations of the specific facts surrounding the impugned transfer and determination of the subject parties’ compliance. In other words, the Court’s decision has removed the safe-harbor path to defensible transfers, but has not constructed a firewall in its place.

As much as data protection authorities will need to assess interim and permanent approaches to enforcement, U.S.-based organizations should examine their existing data transfer arrangements and prioritize a response plan for those most likely to be affected by the safe-harbor ruling. Some initial questions to ask include:

• What types of personal information are being transferred?
• How sensitive is the information?
• From whom is the information being collected—customers, employees, suppliers—and what is the likelihood of complaints from those constituencies?
• For what purpose is the information being transferred? Marketing, sharing with partners, customer service, processing/storage?
• Does the information need to be transferred to the U.S.? Are there alternative solutions that allow the use of personal information within the country of origin or transfer to a third country deemed adequate such as Canada?
• Do the company’s third-party service providers have alternative locations or interim solutions ready to deploy?
• Can impending transfers be delayed until an interim solution is developed without disrupting the business objective?
• As businesses, data protection authorities and practitioners further digest the ruling and consequences for those industries under Federal Trade Commission and Department of Transportation jurisdiction, interim measures will be crafted, tried, and revisited. And although it may take time, a more permanent solution is already on the horizon: the U.S. Department of Commerce and European Commission have already indicated their willingness to negotiate a new framework that is compliant with EU data protection and privacy laws.

What You Need To Know

• Regulatory risk is on the horizon, but not imminent.
• Data transfers from the EU to the U.S. will not cease, but alternative measures should be considered and risk should be prioritized.
• No effect on EU-Canada transfers. The Canadian privacy regime under PIPEDA continues to be recognized as an adequate protection for data transferred from the EU.
• No effect on Canada-U.S. transfers. PIPEDA permits transfers of personal information abroad, as long as sufficient disclosure is given and comparable safeguards are in place.

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¹ Schrems v. Data Protection Commissioner et al., CJEU, C-326/14.