European Union: Safe Harbor Update: European Commission Issues Communication Following Safe Harbor Invalidation – Safe Harbor 2.0 In Three Months?

On 6 November, the European Commission released a Communication on the implications of the Court of Justice of the European Union's (CJEU) decision in Maximillian Schrems v Data Protection Commissioner (Case C-362/14).

The Communication recognises the importance of Transatlantic data flows, calling the EU and the United States "each other's most important trading partners", but acknowledges that the CJEU's judgment "reaffirms the importance of the right to protection of personal data". The key message, which echoes previous announcements by data protection authorities and the Article 29 Working Party, is that data exporters are ultimately responsible for ensuring that transfers comply with the requirements of EU law.

Safe Harbor 2.0 and Country Adequacy Findings

The Communication, which comes exactly one month after the CJEU's judgment, states that "considerable progress" has been made in bringing together views on Safe Harbor 2.0 on both sides of the Atlantic, and that the Commission's objective is to conclude the negotiations in three months. However, until this agreement is put in place, companies will need to rely on other transfer methods. There has been no concrete date set for the conclusion of these negotiations, nor has any announcement been made on the steps businesses will need to take to benefit from the regime.

The language of the Communication is Delphic in places but at one point the Commission points out one attraction of Safe Harbor 2.0 and other "adequacy findings" to businesses. It notes "[i]n contrast to a situation where the Commission has found that a third country ensures an adequate level of data protection, ... [exporters] remain responsible for verifying that the personal data are effectively protected when using alternative tools." Therefore, reliance on an adequacy decision simplifies the exporter's life post-transfer. However, the Commission also confirms that the CJEU is empowered to overturn any such adequacy finding, if it considers there are grounds to do so and we have fresh in our minds one example of it doing just that.

Regarding other country adequacy findings, the Commission describes measures it will be taking to reinforce these. First it notes that it will be taking steps to excise from its Decisions, past and future, language which "contains a limitation on the powers of the DPAs that is identical to Article 3 of the Safe Harbor Decision and which the Court of Justice considered invalid." Further, the Commission promises that it will "engage in a regular assessment of existing and future adequacy decisions, including through the periodic joint review of their functioning together with the competent authorities of the third country in question."

Standard Contractual Clauses

In line with the Article 29 Working Party's announcement on 16 October, the Commission takes the stance that Standard Contractual Clauses (SCCs) can still be used as a means of ensuring adequacy in the short term. Noting that in some EU countries a notification or pre-authorisation requirement is in place for the use of such clauses, the Commission states that "incorporating the [Standard Contractual Clauses] in a contract means that national authorities are in principle under the obligation to accept those clauses."

This is welcome news for businesses, which can proceed in the knowledge that the Commission is not giving DPAs any room to reject the use of SCCs out of hand. However, in practical terms, businesses that are putting SCCs in place should expect to see increased scrutiny in countries where prior authorisation of a DPA is required, in particular of the Annexes that are drafted by business themselves or legal counsel. DPAs may well become more questioning of the necessity and extent of transfers.

Binding Corporate Rules

The Communication confirms that Binding Corporate Rules (BCRs) remain a valid method of transferring data within a corporate group. However, whilst BCRs may be the best long-term solution for some businesses, their complexity and the time required to put them into place means that they are of little use to businesses that need a short-term solution to issues raised by the invalidation of Safe Harbor. In addition, BCRs are not appropriate where a data flow which was previously based on Safe Harbor is carried out between a business and a third party, e.g. a supplier.

Derogations

Whilst Directive 95/46/EC provides derogations which allow for international transfers to take place in certain circumstances, their use has been heavily limited by guidance issued by the Article 29 Working Party. In particular, whilst the consent of an individual or the need to perform a contract can in some circumstances legitimise a transfer, these grounds are strictly interpreted and of limited application.

Conclusion

In its announcement of 16 October, the Article 29 Working Party indicated that, following the end of January 2016, national DPAs may take coordinated enforcement action against organisations that do not have adequate protection in place. The Communication does nothing to alter this position. Businesses must therefore ensure that, if a question hangs over a particular supplier or the transfer of data to a group company located in the United States, measures are put in place to legitimise transfers.

In addition, given the current unpredictability of EU data protection law, businesses should not assume that putting SCCs or BCRs into place will automatically ensure compliance. The CJEU's judgment has empowered DPAs to undertake investigations even where such measures are put in place, and if the reality of a business's operations does not match the obligations that are put on paper, sanctions are likely to follow. Now is therefore a good time to be taking stock of the exact ways that data flows, is used and is protected within organisations.

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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