European Union: Data Protection: Safe Harbour – What Next?

Last Updated: 20 October 2015
Article by Rob Corbet

In this briefing we look at the recent Court of Justice decision to invalidate the Safe Harbour and we examine the implications of this decision in light of other recent data protection cases and in light of the progress being made in finalising the proposed new EU Data Protection Regulation.

SAFE HARBOUR DECLARED INVALID

Background

As has been widely reported, the Court of Justice of the EU determined on 6 October 2015 that the European Commission Decision underpinning the Safe Harbour (2000/520/EC) was invalid. The Court's decision comes on foot of a referral from the Irish High Court arising from a complaint made by an Austrian Student, Maximillian Schrems. Mr Schrems complained to the former Irish Data Protection Commissioner (DPC), Billy Hawkes, that Facebook Ireland's data transfers to Facebook Inc in the US were not compliant with EU data protection laws. Mr. Schrems' concerns appeared to be based principally on the grounds that his data could be subject to mass and indiscriminate surveillance by the National Security Agency in the United States in light of the Edward Snowden revelations. As the transfers were subject to Facebook's Safe Harbour certification, and on the basis that Safe Harbour was one of the basis approved by the EU Commission under the Data Protection Directive to validate such transfers, the DPC had rejected Mr Schrems' complaint. He appealed this decision to the Irish High Court who in turn referred the matter to the CJEU.

Grounds for the CJEU Decision

The CJEU decision to invalidate the Safe Harbour regime was made on two technical grounds. First, the Commission Decision approving the Safe Harbour was invalid as it failed to sufficiently examine the data protection standards in the US to ensure, by reason of US domestic law or its international commitments, a level of protection of fundamental rights which were equivalent to those guaranteed in the EU. Secondly the Decision potentially deprived data subjects of their rights of access to Data Protection Supervisory authority to exercise independent oversight of data controllers within their jurisdiction.

These may seem to be rather technical reasons for reaching such a drastic decision. From a US perspective in particular, the decision may seem perplexing in that one organ of the EU, the CJEU, has now overruled another organ, the EU Commission, in relation to an issue that was already under review in light of the Snowden revelations.

However, the decision is not that surprising in the context of an increasing body of caselaw which has elevated data protection and privacy rights towards the upper end of the spectrum of legally protected "fundamental" rights. When read in that context, it is perhaps less surprising that EU authorities have applied a strict interpretation to the standards of data protection that they require to be applied to the data of EU citizens, regardless of whether the processing takes place in the EU or in the United States.

ANOTHER CONSEQUENCE OF PRIVACY AS A FUNDAMENTAL RIGHT

The decision again stresses that the right to protection of personal data is "guaranteed" by the Charter of Fundamental Rights of the European Union (the "Charter") and that the Data Protection Directive (95/46/EC) and the roles of national supervisory authorities in protecting this right are to be applied in light of the Charter.

The Schrems case follows hot on the heels of two other important data protection decisions that have been issued in recent years i.e. the decisions of the CJEU in the Google Spain 'right to be forgotten' case,1 and secondly, on the illegality of the laws obliging telecommunications companies to retain all communications traffic data for a period of 2 years (another case prompted by a reference from the Irish Authorities who are vested with the High Court)2. Both of these judgments referred extensively to the Charter in support of the court's decision.

The Schrems case confirms the roles of Articles 7 and 8 of the Charter in the context of data protection and privacy rights. Part of this application means that the concepts of necessity, proportionality and transparency will be particularly important principles for data protection compliance going forward with the CJEU, again reiterating that "above all, protection of the fundamental right to respect for private life at EU level requires derogations and limitations in relation to the protection of personal data to apply only in so far as is strictly necessary". This will provide a strong basis for individual data subjects to litigate under EU data protection and human rights laws to protect their data protection rights, regardless of the location of the processing.

This in turn will add to the compliance burden on businesses that are already looking to revise their procedures in anticipation of a stricter regime that will likely apply once the General Data Protection Regulation is finalised and comes into force (see further below).

IMMEDIATE CONSEQUENCES

The Decision has immediate consequences for the over 4,000 companies who have self-certified under the Safe Harbour regime and to all of their customers and other contractors who have relied on that certification to legitimise transfers of personal data to the US. However, it has already been acknowledged by the Commission that it will take some time for companies to adapt to the CJEU decision. In addition, further guidance is expected to emerge from the DPC, the Commission and the EU's Article 29 Working Party in the coming weeks and months. The Irish High Court is also due to adjudicate on the case when it considers the CJEU decision again on 20 October 2015.

ALTERNATIVES TO SAFE HARBOUR

In that context, clients should take a moment to consider the consequences of the decision in relation to their own particular data arrangements before rushing to judgment. For example, there are a number of avenues which companies may explore as alternatives to the Safe Harbour:

  • Consent or Contract Performance

Section 11 of the Irish Data Protection Acts 1988 and 2003 (which transposes Article 26 of the Data Protection Directive) enumerates a number of situations in which data may be lawfully transferred to countries outside of the EEA. For example, a transfer of personal data outside of the EEA will be lawful if the data subject has given his or her consent to the transfer. Similarly, the transfer of personal data outside the EEA will be lawful if the transfer is necessary for the performance of a contract between the data subject and the data controller or, on instruction of the data subject, for progression towards entering into such a contract. While these grounds have been strictly interpreted, they may be helpful for some companies who previously utilised Safe Harbour.

  • Binding Corporate Rules

Another, more systematic approach to ensuring lawful transfer of data outside the EEA, may be for a company to consider implementing Binding Corporate Rules ("BCRs") thus allowing for the lawful transfer of data between related companies. In practice, the implementation of BCRs is complex and time consuming so this option does not provide a "quick fix" and in any event it does not legitimise transfers of data to unrelated suppliers or contractors in the US.

  • Model Clauses

In many cases, the most pragmatic and efficient approach for companies to ensure lawful transfer of data outside the EEA, is to enter into so-called "Model Clauses" as approved by the European Commission. The Model Clauses are template data processing agreements which have been published in an approved form by the European Commission to allow the lawful transfer of personal data from EEA countries to countries outside the EEA, including the United States. While the European Commission has issued a series of Model Clauses over the years, they do not cater for every possibility. For example, companies cannot currently use model clauses for transfers from a data processor to a sub-processor. The loss of safe harbour is particularly problematic for those type of arrangements.

SAFE HARBOUR MARK II?

In light of the CJEU decision, the European Commission and the US Department of Commerce are under increased pressure to propose a viable alternative to the Safe Harbour. The EU and the US had already been negotiating a replacement for Safe Harbour prior to the Schrems decision but these negotiations had stalled. Among the reported sticking points was the scope of application of exemptions to allow national security services to process European citizen's data, the very issue that drove the CJEU to declare the Safe Harbour decision invalid.

Any future EU/US agreement on Safe Harbour's successor may be more likely to emerge from a political deal to be struck between Brussels and Washington, perhaps under the aegis of the Transatlantic Trade and Investment Partnership (TTIP) which is currently being finalised.

For its part, the EU's Article 29 Working Party has convened an extraordinary plenary meeting to discuss the Schrems judgement and it will be interesting to see if a consensus view emerges from those discussions as to how companies should respond to the judgment. The initial reaction of most national supervisory authorities in Europe to the decision has been to welcome the judgment and confirm their discomfort at US surveillance laws but there has to date been relatively little in the way of practical guidance to companies as to how they can adapt to alternative solutions.

WHAT ABOUT THE PROPOSED DATA PROTECTION REGULATION?

For almost four years now, the EU has been trying to progress a wholesale reform of the current Data Protection Directive 95/46/EC with a proposal for a Regulation on the protection of individuals with regard to the processing of personal data and on the free movement of such data ("GDPR") along with a separate proposal for a Directive on the protection of individuals with regard to the processing of personal data by competent authorities for the purposes of prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and the free movement of such data.

Progress on the GDPR has been painfully slow but it does now seem that there is sufficient momentum to finalise the text by early 2016 as trilogue negotiations to finalise a single text between the Commission, Parliament and Council are reported to be making rapid progress. However, with a two-year transition period between publication and legal effect, it is unlikely that the GDPR will be in force before 2018.

While the GDPR already includes detailed provisions governing jurisdiction and data transfers, the lack of an agreed text and the protracted timeline for implementation do not offer any immediate solutions to companies impacted by the Safe Harbour decision.

CONCLUSION

The CJEU Safe Harbour decision is effective immediately and therefore clients should review their existing data flows and how they might be impacted by the decision (both in terms of their internal data flows and those to their suppliers and contractors). Data protection supervisory authorities are unlikely to move to immediate enforcement action where companies can show that they have commenced a process to address the consequences for them of the decision. Accordingly. we are advising clients to take a calm and considered view of their current arrangements and to take advice on what remedial actions offer the best fit for them in the context of the emerging guidance.

1 Judgment in Case C-131/12, Google Spain SL, Google Inc. v Agencia Española de Protección de Datos, Mario Costeja González

2 Judgment in Joined Cases C-293/12 and C-594/12 Digital Rights Ireland and Seitlinger and Others

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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