The free flow of information is essential to all business transactions and presents both opportunities and obligations for the organizations involved. Inadequate appreciation for the complexity of privacy legislation and the related implications can become not only an obstacle but a liability. This will be the first part in a series of articles that canvass the privacy issues that arise during business transactions. Part 1 will review the various legal regimes in Canada that regulate the collection, use and disclosure of personal information during business transactions.  Part 2 will look specifically at issues that arise during the due diligence phase of business transactions.

Collecting Personal Information Legally During Business Transactions

(a) Privacy Legislation in Canada

The Personal Information Protection and Electronic Documents Act (“PIPEDA”) is the federal legislation responsible for regulating the collection, use and disclosure of personal information by private organizations in Canada.[1] Provincial privacy legislation may be applicable if the private organization operates in a province that has “substantially similar legislation” as PIPEDA. Currently, British Columbia, Alberta and Quebec have privacy legislation that is substantially similar to PIPEDA regulating the private sector. As a result, PIPEDA does not apply to certain entities in these provinces.

Moreover, if the private organization is involved in cross-border transactions, the transaction may be regulated by a complex combination of PIPEDA, provincial legislation, and the privacy regime of another country. Due to variations in privacy legislation, understanding which legislative matrix governs a transaction is essential.

“Personal information” is generally defined as information about an identifiable individual. As a general rule, but with limited exceptions, consent must be obtained from an individual prior to the collection, use or disclosure of personal information relating to that individual. While the Alberta and BC statutes provide exceptions to this general rule, both PIPEDA and Quebec’s privacy statute lack exceptions for business transactions. However, it is notable that PIPEDA excludes the name, title, business address and telephone number of an employee from the definition of personal information some information can be disclosed without consent. Still, this is far more restrictive than either Alberta or BC’s statutes which explicitly provides an exception from the consent requirement during business transactions (the “Business Transactions Exception”).

Amendments, including the incorporation of a business transactions exception that would bring PIPEDA in line with the Alberta and BC statutes, were most recently tabled by Bill C-12 in 2011. However, it would appear that amendment attempts have grown stagnant as no Parliamentary action has been taken with the bill since first reading occurred on September 29, 2011. Although amendments may not be forthcoming, section 29 of PIPEDA requires Parliament to review Part 1 of the Act every five years and such a review could act to reinvigorate amendment attempts.

In the meantime, balancing compliance requirements under PIPEDA and obligations between transacting parties will continue to be very difficult. Obtaining individual consents to disclose personal information in the course of a business transaction on an ad hoc basis can be impractical, if not impossible. One solution around this is to ensure that all necessary consent is obtained in advance through the organization’s privacy policy by having such privacy policy contemplate the collection, use, and disclosure of personal information during such transactions.

Further, obtaining consents or complying with notification requirements set out in the applicable privacy legislation would result in the breach of non-disclosure agreements or confidentiality agreements entered in the course of the transaction. Although it can be a risky proposition, some organizations try to manage the conflicting obligations by relying on implied consent to collect, use and disclose personal information during business transactions. The sensitivity of the information determines whether or not implied consent is adequate under PIPEDA. If information is likely to be sensitive, implied consent is not adequate.

(b) Privacy legislation in Alberta and British Columbia

As noted above, both Alberta and BC’s privacy statutes provide specific exceptions to the general rule requiring consent for information collected, used and disclosed during business transactions. Both statutes define business transactions broadly to include any purchase, sale, lease, merger, amalgamation, acquisition, or disposal of an organization, portion of an organization, security interest, or asset of an organization.[2]

The business transactions exception provided in Alberta’s Personal Information Protection Act (“Alberta’s PIPA”) allows for the exchange of personal information that may be necessary to determine whether to proceed with, necessary to carry out, or necessary to complete a business transaction. This exception allows for fairly broad disclosure of information related to identifiable individuals.

BC’s Personal Information Protection Act (“BC’s PIPA“) includes a substantially similar exception to Alberta’s, but incorporates a notification requirement in the event that the organizations choose to proceed with the transaction. If this is the case, any person whose information has been disclosed must be notified that the business transaction has taken place and that their personal information has been disclosed. Unlike Alberta’s PIPA, which allows disclosure of information related to “identifiable individuals”, BC’s PIPA expressly states that disclosure related to employees, customers, directors, officers, and shareholders, is allowed, subject to the limitations mentioned above.

Both BC’s and Alberta’s exceptions are conditional on the parties entering into a confidentiality or non-disclosure agreement. The agreement must define the types of information to be collected as well as the purposes for collection and include a declaration that the information will be used solely for those purposes. A provision mandating the return or destruction of information in the event that the transaction is no longer pursued is also required. These agreements are important not only for protecting the information but in establishing liability in the event that the agreement is breached.

(c) Cross Border Transactions

The transfer of personal information outside of Canada is often undertaken by sending physical files, sending digital copies, or storing information on remote servers. Increasingly, information is stored on remote servers, or “in the cloud”, and acquirers are given access to that server during the transaction. (For more information on cloud computing and the privacy considerations that are raised, please see my blog on Cloud Computing and Privacy Issues: Implications for Businesses.) Both the target and acquirer need to be cautious of the implications that transferring personal information outside of Canada creates. Most importantly, the legislative matrix that regulates the data will likely change and notification obligations may be imposed.

The federal Privacy Commissioner has noted that, where personal information is transferred to a foreign third party, that information is subject to the laws of the foreign country, and no contract or contractual provision can override those laws. Thus, the Commissioner has stated that, while consent is not required, at the very least, an organization in Canada that transfers personal information to a foreign third party should at least notify affected individuals, depending on the sensitivity of the personal information, that their information may be stored or accessed outside Canada and of the potential impact this may have on their privacy rights.

Unlike PIPEDA, it is a mandatory requirement for organizations to notify individuals before transferring personal information to a foreign service provider under Alberta’s PIPA. However, as mentioned above, notifying individuals of collection, use or disclosure of their personal information during a business transaction may breach non-disclosure or confidentiality agreements between the transacting parties. Weighing notification requirements with confidentiality obligations requires a thorough risk analysis.

Tips for Business

Given the foregoing considerations that arise during business transactions, organizations may benefit from the following tips in relation to personal information:

  1. Implement a privacy policy that contemplates the collection, use, or disclosure of “personal information” during business transactions and cross-border transactions.
  2. Anonymous information is not “personal information.” Make information anonymous by removing any identifying information such as a person’s name or address.
  3. If relying on implied consent under PIPEDA ensure that personal information is not sensitive.
  4. Increase protection through the use of confidentiality or non-disclosure agreements. Include provisions outlining procedures for personal information in the event that the transaction is no longer pursued and address liability in the event of a breach.
  5. If personal information is stored or transferred outside of Canada, ensure adequate contractual provisions are in place to protect both the information and the organization.