A Tale of Shields & Swords or Are Data Transfers between the EU and the US legal once again?

by Hirschfeld Kraemer LLP

The world changed on October 6, 2015; well, at least the world of data transfer between the European Union and the U.S. On that day, the European Court of Justice issued its “Schrems” judgment (case C-362/14) declaring the Safe Harbor Program legally void. This decision resulted in throwing out a well-established set of rules on data transfers between the EU and the US that had been in effect for nearly 15 years. From an HR perspective, this means that any use or transfer of HR data, for example, global talent management programs, salary and benefits schemes or cross border corporate investigations, cannot rely on Safe Harbor.

There is no safe harbor anymore.

The Safe Harbor Program had set forth seven principles that needed to be followed in order to ensure an appropriate level of protection for transatlantic data transfers. Unfortunately, this decision set aside those rules.  The initial shock resulting from this ruling has now subsided, but uncertainty remains: Does the end of the Safe Harbor Program really mean that the entire set of data transfer rules between Europe and the U.S. are now illegal? Are data flows between the EU and its most important trading partner, the U.S., all of a sudden not permitted – entailing all of the conceivable catastrophic consequences for internationally active businesses of every kind and size? 

Where do data protection authorities currently stand?

EU governmental authorities acted swiftly after this decision was announced.  On October 16, 2015, the Article 29 Data Protection Working Party declared the Safe Harbor Program was null and void and  concluded that the EU Standard Contractual Clauses and the so-called Binding Corporate Rules had to be followed for a transitional period ending January 31, 2016.

German data protection agencies quickly announced that very strict investigations would be immediately initiated to ensure corporate compliance and declared that fines would be imposed on companies that continued to rely on the Safe Harbor program. Multi-national companies quickly concluded that a workable solution had to be found.

Privacy Shield as a new safe harbor?

On February 2, 2016, the EU Commission issued a press release concerning the EU-US Privacy Shield Agreement, the follow-up regulation to Safe Harbor. Apparently, the EU Commission and appropriate US government agencies had quietly negotiated a new agreement between October 2015 and January 2016. On February 29, 2016, the EU Commission released more details concerning the new solutions for a so-called Privacy Shield. These new rules called for the following:

  • Strong obligations on companies and robust enforcement: the new arrangement will be transparent and contain effective supervision mechanisms to ensure that companies respect their obligations, including sanctions or exclusion if they do not comply.
  • Clear safeguards and transparency obligations on U.S. government access.
  • Redress possibility in the area of U.S. national intelligence for Europeans through an Ombudsperson mechanism within the U.S. Department of State, who will be independent from national security services.
  • Effective protection of EU citizens' rights with several redress possibilities: Complaints have to be resolved by companies within 45 days. A free of charge Alternative Dispute Resolution solution will be available. 
  • Establishing an annual joint review mechanism.

However, not all NGOs and data protection regulators reacted positively: In a letter addressed to the responsible EU bodies on March 16, 2016, several NGOs, such as Amnesty International, Electronic Privacy Information Center or European Digital Rights, criticized the new EU-US Privacy Shield for not meeting the standards established in the “Schrems”-judgment, for its non-transparency and for not foreseeing adequate legal remedies.

On February 13, 2016, the Article 29 Data Protection Working Party wrote about clarifications needed in order to assess whether the Privacy Shield in its proposed wording would be able to ensure the necessary level of data protection. In light of these concerns, the EU Commission has stated it will review these issues and we anticipate that it will ultimately revise the current privacy rules over the next few months.

So, what should US-based multinationals do in the meantime? Until the Privacy Shield rules are finalized, care must be taken to ensure that data transfers between the US and EU are handled in a way that minimizes governmental scrutiny.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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