As has been widely publicized, on October 6, 2015, the European Court of Justice (ECJ) issued its much-anticipated decision in Schrems v. Data Protection Commissioner, Case C-362/14 invalidating European Commission’s Decision 2000/520, which previously held that the Safe Harbor principles provided adequate protection for personal data transferred from the European Union (EU) to the United States. While the ECJ did not go as far as invalidating the U.S.-EU Safe Harbor Framework itself, it ruled that data protection authorities in each EU country were no longer bound by Decision 2000/520 and had the power to review the adequacy of the Safe Harbor principles under their national data protection laws. Further, the ECJ decision did not address the viability of other EU-approved methods of transferring personal data, such as standard contract clauses and binding corporate rules, but the rationale underpinning the ECJ's decision, i.e., the ability of U.S. surveillance agencies to access personal data transferred from the EU, is equally applicable to a determination of whether other EU-approved data transfer methods provide adequate protection under EU data protection laws.

The immediate impact of the Schrems decision is that companies transferring personal data from the EU to the United States can no longer rely on the presumption that the Safe Harbor principles provide adequate protections. Consequently, companies that currently rely solely on the Safe Harbor principles to transfer personal data from the EU to the United States will need to find other legal means to transfer this data.

Current Status of Data Transfers From the EU to the United States

Article 29 Working Party Statement. The Article 29 Working Party—which is composed of a representative of the national data protection authorities of each EU country, a representative of the European Data Protection Supervisor, and a representative of the European Commission—recently chimed in on the impact of the Schrems decision. On October 16, 2015, the Article 29 Working Party, which is charged with examining any question covering the application of EU data protection directives and facilitating the uniform application of these directives, issued a statement on the EC J’s Schrems decision.

The Working Party “urgently” called upon “the Member States and the European institutions to open discussions with U.S. authorities in order to find political, legal and technical solutions enabling data transfers to the territory of the United States that respect fundamental rights” and set the deadline of the end of January of 2016 for the EU and U.S. authorities to complete these discussions and agree to a solution.

In the meantime, the Working Party continues to analyze the impact of the ECJ’s decision on other data transfer tools but confirmed that, until the end of January 2016 deadline, data protection authorities will permit “Standard Contractual Clauses” and “Binding Corporate Rules” to be used for data transfers. Finally, the Working Party stated that EU data protection authorities may “take all necessary and appropriate actions, which may include coordinated enforcement actions” if “no appropriate solution is found with the U.S. authorities” and depending on the Working Party’s assessment of alternate data transfer tools.

Based on the Working Party's statement, it appears that companies will have a "grace period” through the end of January 2016 before data protection authorities will engage in any enforcement actions regarding data transfers to the United States. However, as a result of legal proceedings following the Schrems decision, the Irish data protection authority will commence an investigation into Maximilian Schrems's claim that the Safe Harbor framework did not provide adequate protection regarding transfers of his data by Facebook Ireland to Facebook U.S. because of the ability of U.S. agencies to access his transferred data. 

German Investigation. Additionally, on October 28, 2015, German privacy regulators announced that they will launch an investigation into data transfers from the European Union to the U.S. from companies such as Google and Facebook. Further, Hamburg, Germany's Commissioner for Data Protection Johannes Caspar stated: "Anyone who wants to remain untouched by the legal and political implications of the judgment, should in the future consider storing personal data only on servers within the European Union.”

Schleswig-Holstein Position Paper. This announcement comes on the heels of the release of a position paper by the data commissioner from the German state of Schleswig-Holstein on October 15, 2015, which declared that not only was the Safe Harbor framework itself invalid, but that the use of model contract clauses by U.S. companies are invalid and European employees’ consent to transfer their personal data to the United States are invalid. The data commissioner  for the German state of Schleswig-Holstein specifically recommended that German companies cancel their standard model contracts with their U.S. counterparts, perform a complete review of data transfers, and consult with the commissioner from the German state of Schleswig-Holstein regarding data transfers to the United States. Fortunately, so far only the commissioner in this relatively small German state has taken such an extreme view.

Non-EU Countries. Further, the Schrems decision has impacted data transfers to the United States from non-EU countries that previously recognized the Safe Harbor framework as providing adequate protection for data transfers to the United States under their national data protection laws. The data commissioners for Israel and the Dubai International Financial Centre (DIFC) recently announced that, based on the Schrems decision, the Safe Harbor framework can no longer be used for transfers of personal data from Israel or the DIFC to the United States and that companies must use alternate legal means under their respective data protection laws to transfer data.

Judicial Redress Act. Meanwhile, in the United States, Congress is considering the Judicial Redress Act, which, if passed, may remedy the concerns expressed by the ECJ and the Working Party regarding the ability of U.S. surveillance agencies to improperly access personal data transferred from the EU and may pave the way to the formation of a new Safe Harbor arrangement. Additionally, U.S. and EU officials announced on October 26, 2015, that the two sides are close to concluding talks and that an updated Safe Harbor agreement could be finalized in the coming months.

European Commission Communication. Finally, on November 6, 2015, the European Commission issued a communication on the transfer of personal data from the EU to the United States following the Schrems decision. In large part, the communication confirmed the Article 29 Working Party statement of October 16 that model contract clauses and  binding corporate rules may be used to transfer data from the EU in addition to the derogations set out in Article 26 (1) of EU Directive 95/46/EC, the Data Protection Directive.

However, the Commission cautioned that reliance on the alternative tools is subject to two conditions:

  1. The original data collection and processing must have been lawful in the first place.
  2. The controllers remain responsible for verifying that the personal data is effectively protected when using alternative tools.

Further, the Commission confirmed that national data protection authorities (DPA) are authorized to review the adequacy of any alternative tools. Finally, the Commission stated that it hopes to conclude the negotiations with the U.S. government on a new safe harbor arrangement for transatlantic data transfers within three months, coinciding with the end of the “grace period,” which the Article 29 Working Party implicitly granted until the end of January 2016.

Next Steps for Employers

Based on the uncertainty surrounding the Safe Harbor framework and the status of data transfers generally from the EU and other countries, companies should review how the personal data they transfer from Europe and elsewhere is transmitted, processed, and stored. Inasmuch as the Safe Harbor principles are a means of ensuring that personal data processed in the United States is afforded similar protections as those afforded to personal data processed in the EU, its requirements are still a good guide to protecting data whatever system or framework may be established to replace it. Using the Safe Harbor framework’s requirements as a guide will reduce the likelihood that an employee or data protection authority will challenge a company’s use of personal data—even in Schleswig-Holstien.

In addition to maintaining their formerly compliant Safe Harbor data privacy programs, U.S. companies working in the EU and elsewhere can take the following steps with regard to their data privacy practices:

  1. Map the company’s data flows to determine the sources and types of personal data that are being transferred to the United States. Personal data includes any data from which the data subject may be identified. Therefore, the data subject’s name alone is protected personal information as well as photos, physical descriptions, and any other information from which the data subject’s identity may be deduced. EU data protection laws provide special protections to “sensitive personal data,” which typically include race, national origin, religion, union status, political beliefs, philosophical beliefs, and medical information. Finally, remember that storing EU personal data on servers or systems in the United States is considered a data transfer from the EU. In addition, if a U.S.-based individual accesses EU personal data stored in the EU or other locations outside of the United States it would be considered to be a data transfer from the EU.
  2. Limit and “cleanse” personal data that the company has stored and/or transferred and consider anonymizing it. To the extent possible, companies should consider storing EU data within the EU. Data protection laws permit the transfer of personal data that is anonymized or aggregated so that the identities of the data subjects are not revealed and/or cannot be inferred or deduced from the data transferred. 
  3. Look at what derogations from the EU’s Data Protection Directive might apply. The Directive and national data protection laws permit the transfer of personal data from the EU to countries with otherwise inadequate data protections if the transfer is necessary for the performance of a contract or necessary for complying with legal requirements or for defending a legal claim. Thus, companies should limit any transfer of EU employee data that meets these derogations. Further, while the EU’s Data Protection Directive provides that data transfers to countries with inadequate data protections may occur when the data subject has provided voluntary, unambiguous consent, the Article 29 Working Party and other EU DPAs have indicated that it is unlikely that employees can provide voluntary consent because of their subordinate positions within their employers’ infrastructures. Thus, employers are cautioned against reliance on employee consent to transfer data, but should consider consent for the transfer of personal data for nonemployees.
  4. Review the company’s data protection policies and procedures and audit the company’s compliance with them. Regardless of the legal method used to transfer data from the EU to the United States, including transfers made under a new “Safe Harbor 2.0,” companies must ensure that their data protection programs actually comply with EU data protection requirements. Many EU countries have long suspected that a number of U.S. companies have failed to maintain adequate data protection programs even though they subscribe to the Safe Harbor framework or use model contract clauses and binding corporate rules. Consequently, EU data protection authorities likely will look behind the data transfer mechanism adopted by a company and review the adequacy of a company’s data protection program itself in connection with future transfers of data to the United States.
  5. Inform stakeholders of changes required or new consent or registration requirements. These stakeholders include not only a company’s internal data privacy department and employees but also third party providers that store or process employee data on behalf of a company, such as cloud storage providers, third-party benefits administrators and payroll companies.
  6. Adopt model contract clauses in the short term. Model contract clauses are the most cost efficient and quickest alternative to the Safe Harbor framework given the fact that the three-month grace period will conclude at the end of January 2016. It is important to remember that companies may not alter model contract clauses if such alteration lessens the protections provided. Also, many EU countries require that model contract clauses be approved by or registered with local data protection authorities before they can be used to transfer data.
  7. Monitor further developments from EU regulators and from the negotiations regarding the development of a new Safe Harbor framework.