Two weeks after the historic decision of the Court of Justice of the European Union (CJEU) in the Schrems case, striking down the European Commission (EC) decision 2000/520/EC (known as the “Safe Harbour” decision), many people are still left scratching their heads, wondering what it all means.  Global businesses face particular difficulties, but so do smaller enterprises which rely on cloud services with globally distributed infrastructures.

One reason why it may be difficult to formulate a response to the decision is that, although the decision itself is relatively straightforward, its legal consequences are not quite so obvious and may vary among the EU member states.

The background

According to Article 25 of EU Directive 95/46 (the Directive), member states of the EU must, subject to some exceptions, prohibit transfers of personal data to countries outside of the EU unless the destination country “ensures” an adequate level of protection of that data.  Article 25 also provides that the EC may (through a procedure set out elsewhere in the Directive) issue a finding that a particular country does ensure an adequate level of protection, and the member states are bound to respect that decision.

After intergovernmental negotiations, the EC made such a finding about the United States in the Safe Harbour decision.

The Schrems decision

The CJEU was not asked to decide whether or not the US actually ensures (or provides) adequate protection of personal data, or whether or not transfers of personal data from the E.U. to the U.S. were lawful.  It did decide two things:

The Safe Harbour decision itself was invalid (for at least two reasons, the main one being that the Safe Harbour decision failed to demonstrate that U.S. law “ensured” adequate protection); and A decision of the EC under Article 25(6) of the Directive does not prevent the competent Data Protection Authority (DPA) in a member state from exercising its supervisory jurisdiction. (However, since only the CJEU has the authority to overrule a decision of the EC, the DPA may not directly contradict such a decision.  If a DPA reaches a conflicting conclusion, this must be referred to the CJEU for resolution.)

The decision also articulates a number of principles that attempt to clarify what it means to “ensure” an adequate level of protection.  These principles set a high bar that would seem to make it difficult to reach a conclusion that U.S. law does, in fact, ensure adequate protection of the personal data of EU citizens.

What does that mean?

The legal effect of the decision is, effectively, to wipe the Safe Harbour decision off the slate.  But one has to look to the implementing laws in each relevant member state to understand the consequences of doing so.

Roughly speaking, European data protection statutes can be divided into two categories: some transfers of personal data outside of the European Economic Area require an express prior approval by the competent DPA[1]; others do not[2].  Where prior approval is required, it is generally rooted in the independent local authority of the DPA, which the CJEU has affirmed.  Without purporting to assess the laws of countries where the authors do not practice, where a local DPA has exercised an independent authority that does not directly depend on the Safe Harbour decision, in principle it seems likely that such independent assessments would not be directly invalidated by the Schrems decision.

If DPAs have previously relied on the Safe Harbour decision as the sole basis for approving a transfer of personal data, they will now be required to make their own assessments.[3]  No doubt they would have regard to the principles expressed in the Schrems decision in doing so but, in the absence of any further binding authority, they would still have to reach their own conclusions on how to apply them in a particular case.

In those countries which do not require prior approval of transfers of personal data to third countries, data controllers have always acted at their own regulatory risk.  They can always be called upon by the competent DPAs to justify the legal basis for such transfers, and they face liability if they cannot do so.  None of this has changed in the wake of the Schrems decision.

What has changed is that any data controller who has relied solely upon the Safe Harbour decision, and has no other argument to offer, is immediately left without any regulatory cover.  Such data controllers will need to urgently consider what other legal bases are, or may be, available to shelter their transfers.  But the practical risk exposure will again depend on the assessments of the DPAs in each relevant country.

OK, so what are the DPAs doing?

The prospect of a patchwork of independent, and possibly inconsistent, decisions by European DPAs is not a happy one for most global enterprises.  Moreover, it runs directly contrary to the concept of legal harmonization that lies at the core of the European Union itself.  This concern may be all the more pressing in light of the expansive view of the territorial jurisdiction of each DPA expressed in another recent judgment of the CJEU which made it clear that many companies who do business in the EU will have to simultaneously abide by multiple countries’ data protection laws.

The DPAs understand this.  The Article 29 Working Party, a joint body made up of representation from the DPAs and other relevant institutions, recently issued a statement stressing the need for the member states to coordinate their responses to the decision.

But there are real differences of attitude amongst the individual DPAs of the member states and their initial reactions reflect this.  The Information Commissioner’s Office (ICO) in the UK issued a statement which, reading between the lines, amounts to “don’t panic, we understand that it will take some time to figure this out”.  This view is consistent with the UK Data Protection Act, which deems that an “adequate level of protection is one which is adequate in all the circumstances of the case” with regard to eight different statutory factors. Under this or similar data protection legislation, specific kinds of transfers of personal data may be lawful notwithstanding the disappearance of the Safe Harbour justification.

By contrast, the DPA for the German state of Schleswig-Holstein issued a written opinion (in German; see summary here) concluding that, by the application of the reasoning in the Schrems decision, even express consent of the data subjects or contractual guarantees could not make data transfers to the United States lawful and that it was considering whether or not to begin enforcement against organizations that continued to permit such transfers.

Adding to the confusion (and illustrating that the decision in Schrems may impact non-EU data flows as well) is the recent statement (unofficial translation) of the Israeli Law, Information and Technology  Authority (ILITA) revoking its prior authorization to transfer data from Israel to U.S. companies in reliance on Safe Harbor. While not part of the E.U., Israel in 2011 obtained “adequacy” status under the Directive, which allowed the personal data of EU individuals could flow freely from the EU to Israel without relying on legal mechanisms such as standard contractual clauses or binding corporate rules. Israel, however, restricts data transfers to third countries that are not part of the EU or receive data from the EU under a valid legal arrangement. In the past, ILITA had opined that these provisions authorized data transfers to Safe Harbor companies in the U.S. Yet the invalidation of Safe Harbor has undercut the legal basis for such transfers.

The Article 29 Working Party statement refers to the possibility of “coordinated enforcement” after January 2016, if no international solution is forthcoming by that time.  But the Working Party is an advisory body which cannot limit the authority of the local DPAs to determine their own policies.

Accordingly, when considering their options, organizations need to consider not only what they are doing, but where.  They need to be sensitive to the fact that the main effect of the Schrems decision is, at least in the short term, to throw the practical questions back to the local level, in the member states.