The Court of Justice of the European Union (CJEU) declares invalid a decision of the European Commission which attested that the EU-U.S. Privacy Shield provided adequate protection to personal data transferred from the EU to the U.S., if the receiving party had self-certified its adherence to the Privacy Shield Principles. At the same time, the CJEU clarifies that the so-called standard contractual clauses (SCC) may still be used – with important caveats.
Overlaying this ruling is a genuine concern among multi-national organizations, many of which being Israel-based companies, that privacy commissions throughout the EU may eventually elect to prohibit all personal data transmissions to the U.S. until a more comprehensive data privacy program is adopted by the U.S. government. With developments set to occur over the next few months between the EU and the U.S., broad implications are to be expected for companies doing business all over the world.
For more information, please contact Tel Aviv Shareholder, Adam Snukal.
The Verdict’s Massive Impact
The ruling has an impact on (a) more than 5,000 companies in the United States that have self-certified under the Privacy Shield mechanism, and (b) an undefined number of companies outside the United States that relied on the recipients’ Privacy Shield self-certification to comply with the strict EU data protection laws.
Reasoning Behind the Annulment
As in the case of the Privacy Shield’s predecessor (the “U.S.-EU Safe Harbor Framework”), which was overturned by the CJEU in 2015, the CJEU criticizes the fact that neither U.S. law nor the Privacy Shield provides for effective remedies against the far-reaching rights of U.S. intelligence services. Therefore, the Privacy Shield does not meet the strict requirements of EU data protection law. The CJEU also found that the Privacy Shield ombudsman role was ineffective for providing EU data subjects an adequate level of protection or appropriate redress.
The Good News: CJEU Approved the SCC (Processors)
Fortunately, today’s ruling explicitly approves the general validity of the SCC (Standard Contractual Clauses) per se, but does leave them open to be challenged in the future. However, the CJEU stresses that the parties to the transfer are responsible for assessing on a case-by-case basis whether the SCC constitute a suitable mechanism to justify the transfer in question or not.
Depending on the laws and regulations of the country of destination, compliance with the SCC may require additional measures to be taken by the parties to secure the personal data subject to the GDPR. The CJEU emphasizes that the parties must immediately refrain from transferring data if its adequate protection cannot be ensured. If the parties, nevertheless, continue to base their processing on the SCC, then according to the CJEU, the competent EU supervisory authority must suspend or prohibit the transfer. In doing so, it should involve the European Data Protection Board, where appropriate, to ensure consistency of decisions across the EU.
Companies that are subject to the GDPR should consider (i) their data flows to the U.S., (ii) the respective legal mechanism for such transfers to the U.S., and (iii) if the EU-U.S. Privacy Shield is the current transfer mechanism, put in place a legitimate transfer mechanism for such activities.