Social media, mobile computing, “big data” analysis and cloud computing (“SMAC”) are fundamentally changing the way in which HR professionals can now  operate.

In many ways, SMAC can help increase efficiency and improve outcome, particularly with HR processes  such as talent acquisition, performance management and employee engagement.

However, using these technologies without understanding the legal risks and compliance issues could  be dangerous and costly.

This legal update is part of our series of updates to discuss the excitement and pitfalls in using  SMAC. In this update, we look at issues from a Hong Kong data privacy law angle, and discuss terms  you may consider negotiating with your SMAC provider.

Read on if you wish to find out more.

1. Data Privacy Obligations

Under the Personal Data (Privacy) Ordinance (“PDPO”), all HR related SMAC providers are likely to  be regarded as “data processors”, as they are engaged to process personal data of staff on behalf  of the employers.

Employers, as data users, are expected to adopt “contractual or other means” to restrict:

  1. any personal data transferred to a data processor from being kept longer than is necessary  (Data Protection Principle 2(3)); and
  2. unauthorised or accidental access, processing, erasure, loss or use of any personal data  transferred to a data processor for processing (Data Protection Principle 4(2)).

These obligations apply regardless of whether the SMAC providers are based in Hong Kong. Under section 65(2) of the PDPO, any data breach or misuse of the personal data by a data user’s contractor (such as SMAC provider) will be treated as carried  out by the data user.

2. What Can Be Done?

From a data privacy perspective, you should negotiate with the SMAC providers to ensure each  service contract contains terms to protect the employer’s interest and comply with the PDPO.

The following sample clauses may help focus your discussion (as data user) with your SMAC  providers. If you already have a SMAC contract, you may consider writing to the SMAC service  provider to set out the standard of security and confidentiality you expect of it.

2.1 Security measures of the SMAC provider

A SMAC provider should be expected to adopt a reasonable level of security measures to protect the  personal data entrusted to it.

What practical measures should be adopted to safeguard the personal data entrusted to it will  depend on many factors. These include:

  • the nature or sensitivity of the personal data involved,
  • whether such data is in hard copy or electronic form,
  • whether there are any relevant industry practices and standards, etc.

If the SMAC provider operates outside Hong Kong, you may need to seek its assurance that its  policies, procedures and processes are in compliance with local data privacy laws.

SAMPLE CLAUSE:

  • SMAC provider] must at all times employ reasonable organisational, operational and  technological processes and procedures to keep the Personal Data safe from any unauthorised,  accidental or unlawful use, access, alteration, loss, destruction, erasure, theft or disclosure.
  • The organisational, operational and technological processes and procedures adopted by [SMAC  provider] must at all times comply with:
    1. the requirements under the Personal Data (Privacy) Ordinance;
    2. the relevant guidelines and best practices recommended by the Office of the Privacy Commissioner  from time to time; and
    3. [any other relevant market practices or Data User’s own internal policies]
  • [Data User] reserves the right to require [SMAC provider] to improve the security or protection  of the Personal Data if it is of the opinion that the processes and procedures taken by [SMAC  provider] are insufficient in any regard.

2.2. Restricting access

Those SMAC employees who have access to the personal data should also be adequately trained in data  protection procedures and policies. Their access to the data should be provided on a “need-to-know”  basis.

SAMPLE CLAUSE:

  • [SMAC provider] should ensure that:
  1. only those employees required to carry out the services under this Agreement may have access to  the Personal Data; and
  2. such employees:
    1. are only provided with as much Personal Data as they need to perform the services under the  Agreement;
    2. are informed of the confidential nature of the Personal Data;
    3. have undergone adequate training with respect to data protection procedures and policies; and
    4. agree to comply with the obligations set out in this Agreement. ​​​

2.3. Restricting use of personal data

It is important to limit your SMAC provider’s use of the personal data to the purpose for which you  provide the personal data in the first place.

For example, if you entrust your SMAC provider with the personal data of your employees for HR  analytics purposes, it is important that you limit the SMAC provider’s use of the personal data to  that purpose, and not for its own purposes.

  • [SMAC provider] must:
  1. only use the Personal Data for the purpose(s) set out in this Agreement;
  2. process the Personal Data in accordance with the instructions of [Data User]; and
  3. process the Personal Data only to the extent, and in such manner, as is necessary for the  proper provision of the services set out in this Agreement.
  • [SMAC provider] must not perform this Agreement in such a way so as to cause [Data User] to  breach any of its applicable obligations under the Personal Data (Privacy) Ordinance or any other  applicable laws or regulations.

2.4. Transfer or disclosure of personal data

The SMAC provider should not disclose or transfer any personal data of the employer to a third  party, except with the express consent of the employer or where required by law.

  • [SMAC provider] must not publish, disclose, divulge or transfer any Personal Data to any third  party (whether within or outside Hong Kong) without the prior written consent of [Data User].
  • If [SMAC provider] is required by law or legal process to disclose any Personal Data, it must  promptly inform [Data User] before any such disclosure, unless such notification is prohibited by  law.

2.5. Subcontracting by the SMAC provider

The  Privacy  Commissioner  suggests  that  data  users  should restrict or ban SMAC providers from sub- contracting  their  obligations  under  the   service agreement  to  another  third  party.  The  clauses  below provide  that  sub-contracting   is  only  permitted  with the express consent of the data user and set out the responsibilities of the SMAC provider in engaging a sub-contractor.

  • [SMAC provider] must not sub-contract any of its rights or obligations under this Agreement  without the prior written consent of [Data User].
  • Where prior written consent is obtained from [Data User] in accordance with the clause above,  [SMAC provider] may only sub-contract its rights or obligations under this Agreement by way of a written agreement with [Sub-Contractor]  which imposes the same obligations on [Sub- Contractor] as are imposed on [SMAC provider] under  this Agreement.
  • Where [Sub-Contractor] fails to fulfil its obligations under any subcontracting agreement,  [SMAC provider] shall remain fully liable to [Data User] for the fulfilment of its obligations  under this Agreement.

2.6. Deletion or retention of data

A SMAC provider should be expected to delete or return the personal data once the SMAC provider no  longer needs them to carry out its obligations under the service agreement.

  • [SMAC provider] must destroy all Personal Data promptly:
    1. When it is no longer needed for [SMAC provider] to perform the services for which [SMAC  provider] was retained; or
    2. at the instruction of [Data User].
  • In complying with the clause above, [SMAC provider] must ensure that:
  1. all electronic copies of the Personal Data are removed from its systems by either destruction of  the storage device (by drilling holes through the media or putting magnetic media through a  degausser) or using appropriate electronic deletion software;
  2. any printed copies are securely destroyed by cross-cut shredding and are not recycled; and
  3. a record of such activities is maintained so to provide [Data User] with evidence of what records have been deleted/ destroyed, when, by whom  and by what method.

2.7. Notification of data security breach

A SMAC provider must notify a data user where  there has been a data security breach or data  leakage. You may also consider requiring the SMAC provider to take immediate steps to stop or rectify the security breach as soon as a breach is discovered.

  • Where there has been any unauthorised, accidental or unlawful use, access, alteration, loss,  destruction, erasure, theft or disclosure of the Personal Data (“Security Breach”), [SMAC provider]  must report this to [the Data User] as soon as [SMAC provider] becomes aware of the incident of:
  1. the Personal Data involved;
  2. how the incident occurred;
  3. those who were involved; and
  4. the anticipated impact.
  • [SMAC provider] must provide any assistance as required by [Data User] to rectify such Security  Breach.

2.8. Indemnity from the SMAC provider

The following suggested clause provides you with a  contractual remedy against your SMAC provider for any losses you suffer as a result of any non-  compliance by your SMAC provider with the PDPO or the terms of your agreement.

  • [SMAC provider] agrees to hold harmless and indemnify [Data User] against all claims, demands,  actions, proceedings and expenses (including legal fees and disbursements) which arise or is  connected with [SMAC provider]’s provision of the services under this Agreement, including but  without limitation those arising out of any third party demand, claim or action, or any breach of  contract, negligence, fraud, wilful misconduct, breach of statutory duty or non-compliance with any  part of the Personal Data (Privacy) Ordinance by [SMAC provider] or its employees, agents or sub-contractors.

3. Further Tips 3.1 Additional clauses

Apart from the above suggested clauses, you may wish to consider:

  • reserving the right to inspect the SMAC provider’s systems, 
  • requiring the assistance of the SMAC provider in complying with a data access request or data correction request made by a data subject.

What additional clauses are required or desirable will depend on various different factors, such as  the type of work carried out by the SMAC provider, the nature or sensitivity of the personal data  provided to the SMAC provider, relevant industry standards or market practice, etc. For example, if  the personal data provided to the SMAC provider are transported in hard copy format, then you  should consider the security measures required to safeguard the personal data during transport.

3.2 Other tips

For cloud providers that have data centres in multiple countries, personal data entrusted to them  may flow from one country to another based on an algorithm that optimises the use of the cloud  provider’s storage and processing resources.

For this reason, it is important to find out from the cloud provider:

  • where the data will be stored, and
  • whether it can be stored in countries you are reasonably certain that they are adequate legal  and regulatory protection.

If a SMAC provider is based outside of Hong Kong, you should consider consulting a local expert to  advise on the relevant data protection laws or regulations in that jurisdiction (and ensure that  your agreement is enforceable against the SMAC provider in that jurisdiction!)

4. Conclusion

Negotiating the terms of a SMAC agreement can be tricky, but a well-drafted agreement will not only  discharge your liabilities under the Personal Data (Privacy) Ordinance, but will also help build  trust and confidence with your SMAC provider as it removes any ambiguities (and minimises future arguments).