Businesses are now prohibited from transferring employee personal data from the European Economic Area (EEA) to the U.S. under the EU-U.S. Privacy Shield program. The Court of Justice of the European Union (CJEU) declared the EU-U.S. Privacy Shield invalid in Data Protection Commissioner v. Facebook Ireland and Schrems (C-311/18) (Schrems II), effective immediately. Businesses that relied on the EU-U.S. Privacy Shield as an adequate transfer mechanism can no longer perform routine activities such as sending employee data from the EEA to U.S. headquarters for HR administration, accessing a global HR database from the U.S., remotely accessing EEA user accounts from the U.S. for IT services, providing EEA data to third party vendors for processing in the U.S., or relying on certain cloud-based services.
The EU-U.S. Privacy Shield program was designed to provide EEA data with a level of protection comparable to EU law upon transfer to the U.S. The CJEU invalidated the program stating that U.S. companies could not provide an essentially equivalent level of protection based on the breadth of U.S. national security surveillance laws, FISA 702, E.O. 12.333, and PPD 28.
U.S. businesses must now identify an alternate mechanism to transfer employee data from the EEA to the U.S. Many businesses rely on transfer mechanisms such as binding corporate rules (BCRs) for intragroup transfers, or standard contractual clauses (SCCs) for intracompany transfers as well as transfers to third parties. SCCs are clauses approved by the EU as providing reasonable safeguards to data transferred from the EEA. The CJEU did not invalidate either of these transfer mechanisms in Schrems II but placed SCCs under heightened scrutiny. The Court emphasized the data exporter’s obligation to verify the data importer’s ability to provide EEA data with an adequate level of protection. The data exporter must review each transfer to determine on a case by case basis whether the SCCs provide sufficient reasonable safeguards, particularly in light of the recipient country’s surveillance laws. As a result, data exporters must review applicable local legislation for each transfer to identify when SCCs are adequate, whether supplemental protective measures are required, or whether the transfer cannot occur. A comparable analysis will apply to BCRs.
Businesses seeking to find an alternate to the EU-U.S. Privacy Shield, BCRs, or SCCs should review whether a transfer may fall under one of several exceptions to the GDPR’s requirement of an adequate transfer mechanism. Many of these exceptions, however, apply only when the transfer is necessary, occasional, and affects a limited number of data subjects.
Under the GDPR, an impermissible transfer can result in assessment of fines up to €20,000,000, or, in the case of an undertaking, up to four percent of the total worldwide annual turnover of the preceding financial year, whichever is higher. In addition, EEA data subjects may bring a private cause of action against the data exporter for an illegal transfer, either individually or as part of a class action.
The CJEU’s decision creates great uncertainty about the future of transatlantic data transfers. As the EU and U.S. negotiate the path forward, U.S. businesses should review their employee data flows, identify whether they or their sub-contractors are subject to U.S. national security laws, and determine the feasibility of additional contractual or technical measures to supplement the reasonable safeguards.