On Tuesday April 2, 2014, the government gave first reading to proposed amendments to thePersonal Information Protection and Electronic Documents Act (“PIPEDA”)These amendments have been tabled as Bill S-4 in the Senate (the “Bill”), which is entitled the Digital Privacy Act.

The Bill is broadly similar to the former Bill C-29 which was introduced in 2010 but never passed.  However there are some changes, particularly in introducing a new “compliance agreement” paradigm.

Broadly, the major changes proposed in the Bill can be summarized as follows.  The Bill would:

  • Require mandatory reporting of security breaches to both the Privacy Commissioner and the affected individuals;
  • Introduce a new voluntary compliance agreement regime which will allow the Privacy Commissioner to enforce negotiated resolutions to complaints;
  • Substantially revise the way business contact information is treated under the Act – broadening the scope of contact information which may be used without consent, but narrowing the purposes for which it may be used;
  • Define a threshold standard which would invalidate any consent obtained unless the individual could reasonably be expected to understand what he or she was consenting to; and
  • Adds a number of exemptions defining additional circumstances in which personal information can be collected, used, or disclosed without an individual’s knowledge or consent – including a long-requested exemption for disclosures necessary to facilitate business transactions.

A slightly more detailed look at each of these changes follows.

Breach Notification

For many businesses, the most significant change proposed in the Bill will be the requirement to provide notification of any “breach of security safeguards involving personal information under its control” which “creates a real risk of significant harm to an individual.”  [See Clause 10.]

Breaches are broadly defined to include any loss of, unauthorized access to, or unauthorized disclosure of personal information.  This expressly includes both failures of existing security safeguards and failure to establish adequate safeguards in the first place.

In the event of a breach, organizations would have to conduct a risk assessment of the likelihood of “significant harm”, which is an open concept defined to include “bodily harm, humiliation, damage to reputation or relationships, loss of employment, business or professional opportunities, financial loss, identity theft, negative effects on the credit record and damage to or loss of property”.

The Bill defines two different reporting obligations, both of which would be triggered based on the same threshold standard.  If there was a real risk of significant harm, the organization would be required to report the breach to the Privacy Commissioner.  Separately, the organization would also be required to notify the individuals at risk, unless it was prohibited by law from doing so.

Unlike Bill C-29, the same threshold standard would apply to both obligations; so it would only be appropriate to notify only the Privacy Commissioner if there was a specific legal prohibition preventing notification of the affected individuals and it would never be appropriate to notify the individuals without reporting to the Privacy Commissioner.

This approach differs from the approach under Alberta’s PIPA, the only provincial statute which currently contains a breach notification requirement, in that at first instance it is the organization, not the Privacy Commissioner, who must decide whether to inform individuals and which individuals to inform.  However the Privacy Commissioner could potentially establish a parallel notification stream.

The required content of the report to the Privacy Commissioner and the notification to the individual remain to be defined.  The notification to individuals would have to include enough information for the individual to be able to understand the risks and, if possible, to reduce or mitigate them.  Regulations could define specific prescribed forms or content for these notices.  Regulations would also prescribe the form and manner of reporting to the Commissioner.

A related provision would also permit the organization which had suffered a breach to provide information about that breach to other organizations or government institutions which might be able to help reduce the risk of harm or mitigate any harm arising from the breach.  For example, this could permit an organization to cooperate with service providers or partners to respond to the breach.

Whether or not any notification is given, organizations would be required to keep records of all security breaches involving personal information.  The Privacy Commissioner would have the right to request and review these records at any time.

The required reports and notices must be provided “as soon as feasible” upon learning of the breach unless there is a request from law enforcement to delay notification to protect a criminal investigation relating to the breach.  Failure to provide the required reports and notifications or to keep the required records would be an offence subject to fines of up to $100,000 per affected individual in the most extreme case.

Compliance

Another significant portion of the Bill introduces a set of changes intended to enhance compliance and enforcement measures.  [See Clause 15.]  The Privacy Commissioner would gain the power to enter into binding Compliance Agreements with organizations which would be enforceable through the Federal Court.  These agreements would be voluntary on the part of the organization.  The advantage for the organization would be that the terms could be negotiated and, if accepted, such an agreement would preclude any other enforcement by the Commissioner on any matter covered by the agreement.  This could reduce the risk of costly litigation.  However the agreement would not prevent any enforcement applications to the Federal Court by third parties or the prosecution of any offence.

In a related change, the window for bringing an application before the Federal Court relating to a complaint to the Commissioner would be extended from 45 days after the Commissioner’s report or notification that an investigation was not proceeding.  [See Clause 13.]  This proposed change was motivated, in part, by a desire to provide a reasonable opportunity for the Commissioner to negotiate a voluntary compliance agreement while preserving the ability to apply for an enforcement order if such negotiations failed.

Business Card Exemption

Another proposed change that will be important to many organization is that the Bill would make some significant changes to the way business contact information is regulated under the Act.  The Bill would effectively broaden the scope of the exemption for business contact information to cover any information which is used to communicate or facilitate communication with an individual for business, employment, or professional purposes.  This would become an open list including email or other electronic addresses in addition to the name, title, address and telephone number that are currently excluded.

However, although the scope of the exclusion would be broadened in terms of what contact information would be exempted, the purpose for which the information can be used would become more limited.  Under the current law, certain contact information is not considered “personal information” at all and it can therefore be collected, used and disclosed without consent for any purpose.  Under the proposed changes, all information about an identifiable individual, including a person’s name, would be “personal information” and fully protectedexcept when collected, used or disclosed solely for the purpose of communicating or facilitating communication with an individual in relation to their employment, business or profession (unless some other exemption applied).  [See Sub-clause 2(1) and Clause 4.]  Secondary uses, such as marketing to business contacts, which would be permissible under the existing law, would require informed consent.

Curiously, this restriction appears on its face to be narrower than the similar limitation in Canada’s Anti-Spam Law, which limits its analogous exemption to express consent requirements to messages which are “relevant to the person’s business, role, functions or duties in a business or official capacity” but does not impose a sole purpose standard.[1]  However, implied consent to collect, use and disclose this kind of information is likely to be acceptable under PIPEDA in any event because the contact information would normally be considered “less sensitive”, in keeping with the guidance of the Fair Information Practice Principles.[2]

Consent

The Bill also adds a new reasonableness standard for valid consents.  For a consent to be valid, it must be reasonable to expect that an individual would understand the nature, purpose and consequences of the activity to which he or she is consenting.  [See Clause 5.]  The test appears to be an objective one: the question is whether an individual to whom the organization’s activities are directed would reasonably be expected to understand, not whether the specific individual providing the consent did in fact understand.  But it would at least raise the possibility of disputing a consent obtained in misleading circumstances.  Organizations will have to ensure that their privacy practices and policies are reasonably transparent and comprehensible to their target audiences.

Business Transactions Exceptions

One feature of the Bill that will be of interest to many organizations addresses the long-standing complaint that PIPEDA presents an obstacle to conducting due diligence analyses in some business transactions.  A new exemption, which would apply to merger and acquisition transactions, asset sales, financing transaction, grants of security interests, leases and licensing transactions, and potentially other classes of transaction defined by regulation,[3] would permit the disclosure without knowledge or consent of the individual provided that the information was necessary for the completion of the deal and adequate confidentiality protections were in place.  [See Clause 7.]

If the transaction does not close, the receiving party would be required return or destroy the information, but there would be no obligation to inform the individual.  However, if the transaction closes, one of the parties would be required to notify the individual within a reasonable time that the transaction took place and that their personal information was disclosed.  There does not appear to be any particular requirement to inform the individual of what specific information was disclosed; however the general principle of Individual Access would continue to apply.

Investigations of Breaches of Agreements or Fraud

Another feature that will be of interest to some organizations is that the Bill adds a stronger version of an exemption which was proposed in Bill C-29 which would permit disclosures to other organizations without the knowledge or consent of the individual in relation to investigations of alleged breaches of agreements or fraud.  While Bill C-29 would have required that that the disclosure be “necessary” to investigate a potential breach, Bill S-4 only requires that it be “reasonable for the purposes” of the investigation.  Similarly, while Bill C-29 would have permitted disclosures to organizations in order to “prevent, detect or suppress fraud”, Bill S-4 clarifies that it would be sufficient for the disclosure to be “reasonable for the purpose [..] of preventing fraud that is likely to be committed.” [See Sub-clause 6(10).]

Other Exceptions

Finally, the Bill defines a number of additional exemptions.  These include:

  • a blanket exemption which would permit organizations to collect, use and disclose personal information produced by an individual in the course of their employment, business or profession in any circumstance that is consistent with the purposes for which the work product was produced;
  • exemptions for the collection, use and disclosure of witness statements in the context of processing insurance claims; a number of exceptions dealing with communications with the next of kin of an injured, ill or deceased individual; and
  • exemptions relating to managing or terminating an individual’s employment relationship with a federal work, undertaking or business. [See Clauses 6 and 7.]

Abandoned Proposals from Bill C-29

One significant change relative to the previous Bill C-29 is that the new Bill does not include Bill C-29’s proposed restrictions on voluntarily informing individuals about requests from government institutions, including law enforcement, for certain disclosures of Personal Information.  Similar restrictions on responding to requests from individuals which are present in the existing law would remain unchanged.

The Bill also does not carry over Bill C-29’s attempt to “clarify” the “lawful authority” exemption under paragraph 7(3)(c.1).