India: Employee Data Protection In India- What Should Employers Be Aware Of?

Last Updated: 2 March 2016
Article by Zeenat Phophalia

Data Protection in India

With the increase in usage of technology in businesses, the ease of doing business has undoubtedly gone up, but this also presents certain concerns including the protection of personal information and data.  The protection of personal information is the essence of the right to privacy of an individual.   In India, the concept of data protection and privacy has not been addressed in any exclusive comprehensive legislation.  The Supreme Court of India has held in a number of cases that the right to privacy is implicit in the right to life and personal liberty guaranteed to an Indian citizen under Article 21 of the Constitution of India. However, such rights afforded under the constitution are typically enforced only against the State or State-owned organizations and not against private individuals or organizations in the private sector.  For any non-governmental violations of the right to privacy, principles and provisions of torts and contracts such as breach of confidentiality usually apply.

This article discusses obligations of employers under the relevant laws in India pertaining to data privacy and protection vis-à-vis their employees.

The Information Technology Act, 2000

The Information Technology Act, 2000 contains specific provisions intended to protect electronic data (including non-electronic records or information that has been, is currently or is intended to be processed electronically).  Section 43-A of the Information Technology (Amendment) Act, 2008 (the "IT Act") provides for protection of 'sensitive personal data or information' (SPDI) such as passwords, credit or debit card information, medical and biometric records, etc.; and deals with compensation for negligence in implementing and maintaining reasonable security practices and procedures in relation to SPDI. Section 72-A of the IT Act provides for protection of personal information and imposes punishment for disclosure of information in breach of a lawful contract or without the information provider's consent.

India's IT Ministry adopted the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules ("Rules") which took effect in 2011.  The Rules require corporate entities collecting, processing and storing personal data, including sensitive personal information to comply with certain procedures.  Further, on August 24, 2011, the Indian Ministry of Communications and Information Technology released a Press Note1 which clarified a number of provisions of the Rules. Amongst others, the Press Note clarified that the Rules relate to SPDI and are applicable to a body corporate2 or any person located in India.

Obligations of an Employer under the Rules

Employers collect SPDI of the employees such as health records, medical records, financial information and so on for various reasons pertaining to payroll purposes, screening candidates based on certain criteria, etc.  Certain obligations come into play in relation to SPDI and an employer should be aware of such obligations and the liabilities arising from a failure to comply.

The Rules require every company to have in place such information security practices, standards, programmes and policies that are commensurate with the information assets being protected.  'Reasonable security practices and procedures' under Section 43-A of the IT Act is defined to mean "security practices and procedures designed to protect such information from unauthorized access, damage, use, modification, disclosure or impairment, as may be specified in an agreement between the parties or as may be specified in any law for the time being in force..."

In the event that an employer is negligent in implementing "reasonable security practices and procedures' for the protection of an employee's SPDI resulting in wrongful loss or wrongful gain, an employer could be held liable and would have to pay compensation to the aggrieved employee.  The compensation claimed can be up to INR 5 crores (approximately US$727,380).

The Rules also set out that International Standards (IS / ISO / IEC 27001) is one such standard which could be implemented by a body corporate. If any industry association, etc. are following standards other than IS / ISO / IEC 27001 for data protection, they would need to get their codes approved and notified by the Central Government. Bodies corporate who have implemented the standards or codes need to get them certified or audited by independent auditors approved by the Central Government.

Compliance relating to SPDI and when is Employee Consent Required?

Connection to the Business: An employer should collect SPDI of an employee only if required for a lawful purpose and in connection with the functioning of the employer and if collection of such information is necessary.  For example, an airline company would require medical and fitness records and certifications of their pilots and flight crew and thus obtaining such SPDI of its employees would be necessary for the purpose of providing its services.

Written Consent: An employer should obtain prior written consent from its employees regarding purpose of usage of the SPDI. SPDI under the IT Act includes passwords, credit or debits card information, medical and biometric records, sexual orientation, etc.  An employer should take reasonable steps to ensure that the employee knows that the information is being collected, the purpose of collecting such information, the intended recipients and the name and address of the agency collecting and retaining the information. The information should be used only for the purpose for which it is collected and should not be retained for a period that is longer than is required.

Right to Review, Modify and/or Withdraw Consent: An employer is required to permit its employee to review / amend the SPDI and give an option to withdraw consent at any time, in relation to the information so provided. In case of withdrawal of consent, employer has the option not to provide the goods or services for which the concerned information was sought.

Consent for Disclosure: Apart from applicable legal obligations or information sought by government agencies, an employer is required to obtain permission from the employee prior to disclosure of such information to a third party, unless such disclosure has been agreed to in a contract between the parties.  However, such information can be shared without any prior consent with government agencies mandated under law or any other third party by an order under the law, who shall be under a duty not to disclose it further.

Need for Privacy Policy

Under the Rules, an employer handling SPDI is required is provide a privacy policy. The privacy policy should contain the prescribed details such as type of information collected, purpose for collection of information, disclosure policy, security practices and procedures followed, etc. The privacy policy is required to be made available to an employee and is required to be clearly published on website of the employer.

The Rules give a body corporate the liberty to transfer SPDI to those body corporate(s), located anywhere, who ensure(s) the same / equal level of data protection that is adhered to by the body corporate as per the Rules. However, the transfer may be permitted only if the same is necessary for the performance of lawful contract between the employer and employee or where such information provider has consented to the transfer.

Sanctions under the IT Act

An employer failing to implement and maintain reasonable security practices and procedures in relation to its employee's SPDI thereby causing wrongful loss or wrongful gain to any person, would be liable to pay damages by way of compensation to the person so affected. In addition to the civil liabilities prescribed under Section 43-A, the IT Act also provides for criminal sanctions of up to three years in prison and/or a fine of up to INR 500,000 (approximately US$ 7,275) in respect of intentional or negligent disclosure of an individual's personal information, obtained under a contract, where such disclosure is made without the consent of the concerned individual or in breach of the concerned contract.

Conclusion

The specific requirements under the IT Act come into picture only where SPDI of an employee is collected.  Having said that, as a matter of good practice, employers should take care when an employee's SPDI is being collected.  Even if the specific requirements under the IT Act may not apply, an employer can be subjected to liability under common law.  It is therefore important for employers to understand the requirements mandated under the IT Act and Rules and conform to these requirements so as to avoid any liability, and protect the reputation of the organization.

Although the Indian legislature has made an effort to ensure protection and privacy of personal data, what is still needed is an effective and comprehensive legislation for data protection.  Bearing in mind the influence and dependence on technology in today's world, it is essential that India brings its data privacy and protection laws in line with the international regulatory frameworks.  As India continues to be a major outsourcing center for several offshore businesses, the concern of data privacy and protection will continue to grow.  The government needs to put in place a legal framework setting standards in line with international requirements relating to the methods, purpose and protection of personal data collected both electronically and otherwise.

Footnotes

1. Ministry of Communications and Information Technology at http://deity.gov.in/sites/upload_files/dit/files/PressNote_25811.pdf (Visited on January 11, 2016)

2. "body corporate" means any company and includes a firm, sole proprietorship or other association of individuals engaged in commercial or professional activities, under the IT Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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