The “New” EU Standard Contractual Clauses: FAQs For U.S. Organizations

Jackson Lewis P.C.
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Globalization, compliance, and the growth in outsourcing have created a myriad of cross-border data transfer scenarios. These scenarios include marketing to and servicing customers, assessing global compliance with diversity and including goals, and outsourcing back office business functions. However, the emergence of far reaching data privacy regulation, such as the EU General Data Protection Regulation (“GDPR”), has erected roadblocks to the free flow of personal data, particularly from the European Economic Area (“EEA”) to countries without an EU adequacy decision, including the United States. Standard Contractual Clauses (“SCCs”) are one way to navigate the roadblocks, but the SCCs are not as simple as circulating a form agreement.

The recent Schrems II decision further complicated the flow of information when it invalidated the EU-U.S. Privacy Shield, and the original SCCs were unable to adequately address the EU Commission’s concerns about the protection of personal data. However, SCCs have played an increased role as an appropriate safeguard for transferring personal data. For U.S. companies sending or receiving personal data from the EEA, these new clauses will help accommodate an expanded set of transfer arrangements including processor to processor and processor to controller. Among other changes, the new SCCs address the data importer’s duties in situations where applicable laws affect its ability to comply with the SCCs, an issue raised in the Schrems II decision.

In short, the new SCCs are contractual terms adopted in part by the EU Commission to facilitate the transfer of personal data post-Schrems II. The SCCs are designed to ensure a non-GDPR importer has implemented appropriate safeguards to protect the data, and that data subjects have enforceable rights and effective legal remedies. The FAQs below summarize the new SCCs.

  1. What are the “new” SCCs?

On June 4, 2021, the EU Commission adopted “new” modernized SCCs to replace the 2001, 2004 and 2010 SCCs currently in use.

  1. How are the new SCCs different?

The EU Commission updated the SCCs to address more complex processing activities, the requirements of the GDPR, and the Schrems II decision. These clauses are modular so they can be tailored to the type of transfer.

  1. What types of data transfers are subject to the new SCCs?

The original SCCs apply to controller-controller and controller-processor transfers of personal data from the EU to countries without a Commission adequacy decision. The updated clauses are expanded to also include processor-processor and processor-controller transfers.

  1. Can multiple parties execute the SCCs?

Yes. While the existing SCCs were designed for two parties, the new clauses can be executed by multiple parties. The clauses also include a “docking clause” so that new parties can be added to the SCCs throughout the life of the contract.

  1. What obligations does a data importer have?

The obligations of the data importer are numerous and include, without limitation:

  • documenting the processing activities it performs on the transferred data,
  • notifying the data exporter if it is unable to comply with the SCCs,
  • returning or securely destroying the transferred data at the end of the contract,
  • applying additional safeguards to “sensitive data,”
  • adhering to purpose limitation, accuracy, minimization, retention, and destruction requirements,
  • notifying the exporter and data subject if it receives a legally binding request from a public authority to access the transferred data, if permitted, and
  • challenging a public authority access request if it reasonably believes the request is unlawful.
  1. Do the new SCCs require a risk assessment?

Yes. The SCCs require the data exporter to warrant there is no reason to believe local laws will prevent the importer from complying with its obligations under the SCCs. In order to make this representation, both parties must conduct and document a risk assessment of the proposed transfer.

  1. What does the risk assessment require?

The parties should review the facts and circumstances of the transfer (e.g., the nature of the data, duration of transfer, purpose for processing, storage location of the data, intended onward transfers), the relevant laws and practices of the importer’s jurisdiction, the existence or absence of public authority requests for access to the data in the importer’s jurisdiction, and any reasonable safeguards designed to supplement the protections of the SCCs. This documented assessment must be completed before fully executing the SCCs and it must be made available to the Supervisory Authority on request.

  1. Are the new SCCs negotiable?

No. The new SCCs cannot be negotiated, amended, or edited. However, additional terms can be included as long as they do not contradict or conflict with the underlying SCCs or the data subject’s privacy rights. Of course, those additional terms may be negotiated. It will also be important to consider what effect the new SCCs have on existing service agreement terms and conditions.

  1. What are the SCCs Annexes?

The SCCs include an Appendix with three Annexes for the parties to complete: Description of Transfer, Security Measures, and Sub-processors. These Annexes require detailed information about the transfer, particularly with respect to technical and organizational measures the importer will use to safeguard the data.

  1. Do the new SCCs apply to U.S. organizations that are not subject to the GDPR?

Yes, if a data exporter transfers data from the EU to a U.S. organization, the U.S. organization must execute the new SCCs unless the parties rely on an alternate transfer mechanism or an exception exists. This applies regardless of whether the U.S. company receives or accesses the data as a data controller or processor.

  1. When would a U.S. organization use the new SCCs to transfer or receive personal data from the EU?

A U.S. organization that is subject to the GDPR based on an “establishment” in the EU may transfer data from the EU to a data importer in the U.S. (or other country without an EU adequacy decision) in reliance on the SCCs unless the importer is also subject to the GDPR, the parties rely on an alternate transfer mechanism, or an exception applies. For example, assume the U.S. organization’s EU office transfers customer personal data to a third-party billing vendor located in the U.S. or transfers employee data to a compensation consultant in the U.S. In this case, if the vendor is not subject to the GDPR, the U.S. organization can enter into SCCs with that vendor to meet its obligations under the GDPR with regard to that transfer.

Perhaps a U.S. organization is not established in the EU but is subject to the GDPR because it offers goods or services to data subjects located in the EU or monitors their behavior in the EU. This organization may need to transfer the personal data of its EU customers to a third-party shipping vendor located in the U.S. It may transfer such data in reliance on the SCCs, unless the importer (the shipping vendor) is subject to the GDPR, the parties rely on an alternate transfer mechanism, or an exception applies.

Even in cases where a U.S. organization is not subject to the GDPR, but receives personal data in the U.S. from the EU or accesses personal data stored in the EU from the U.S., it must execute SCCs with the data exporter unless the parties rely on an alternate transfer mechanism or an exception exists. This applies regardless of whether the U.S. company is receiving or accessing the data as a data controller or data processor. For example, where a U.S. organization receives personal data as a controller for its own processing purposes (e.g., a U.S. ), the parties can execute controller – controller SCCs. Alternatively, if the U.S. organization receives personal data as a processor for the data exporter’s processing purposes (e.g., a U.S. marketing company receives customer personal data from an EU retailer), the parties can execute controller – processor SCCs.

In circumstances where a U.S. organization is not subject to the GDPR, but receives personal data from the EU as a processor and transfers that data to a sub-contractor or sub-processor in the U.S. (i.e., an onward transfer), the parties can execute processor – processor SCCs. For example, this may apply where a U.S. company provides fulfillment services to the data exporter and subcontracts shipping services to a third-party.

  1. Do the new SCCs give rights to individuals whose personal data is being transferred?

Yes. Individuals whose personal data is being transferred from the EU (i.e., data subjects) are third party beneficiaries of the SCCs and can invoke and enforce the SCCs against both the data exporter and importer.

  1. Does executing the new SCCs subject a U.S. company to EU jurisdiction?

With the exception of processor-controller transfers, the SCCs will be governed by an EU member state law that recognizes third party beneficiary rights and disputes arising from the clauses will be resolved in the courts of that member state. In addition, the importer must submit to the jurisdiction of the applicable Supervisory Authority and EU member state courts; commit to abide by any binding decision under the member state law; agree to respond to inquiries and submit to audits; and comply with remedial and compensatory measures adopted by the Supervisory Authority. In the case of a processor-controller transfer, the parties shall select the law of the country that will govern; however, that law must allow for third party beneficiary rights.

  1. What is the operative date of the new SCCs?

The 2001, 2004 and 2010 SCCs are repealed, effective September 27, 2021. New transfers made after September 27, 2021 must use the new SSCs.

  1. Should an organization replace the SSCs its currently using for ongoing transfers of personal data from the EU?

Yes, but there is a grace period. Organizations currently using the original SCCs for ongoing transfers must replace them with the new clauses by December 27, 2022. During the grace period, the parties must ensure the ongoing transfer is subject to appropriate safeguards.

  1. Should organizations replace SSCs that were used for a completed, one-time transfer of personal data from the EU?

Maybe. If the transfer of data from the EU to the U.S. has been completed, but the data importer continues to process the personal data, the parties must replace the original SCCs with the new clauses by December 27, 2022.

  1. Do the new SCCs impact GDPR data processing agreements?

Yes. The new SCCs may be used in lieu of a GDPR data processing agreement between a controller and processor or processor and processor during a transfer, thus eliminating the need for both a data processing agreement and SCCs. The new SCCs include the Article 28 provisions typically included in a GDPR data processing agreement.

  1. Do the new SSCs apply to transfers of personal data from the U.K. to the U.S.?

No. The original SCCs will continue to apply to U.K. – U.S. transfers of personal data until the U.K. recognizes the EU Commission’s new SCCs or adopts its own version.

  1. What steps should U.S. organizations take to prepare for the new SCCs?

Preparing for the new SCCs will require a commitment of time and resources. U.S. organizations that plan to transfer, receive, or access personal data from or in the EU after September 27, 2021 should consider the following steps well in advance of the SCC’s operative date:

  • Identifying ongoing transfers that will need to be updated and reviewing completed transfers to determine whether processing on the data is ongoing.
  • Implementing a process to conduct documented risk assessments prior to a transfer that includes
  • Reviewing transfer facts.
  • Identifying applicable national and local laws and practices.
  • Assessing the potential for public authority access to, or requests to access, transferred data.
  • Determining whether the organization previously received public authority access, or requests to access.
  • Identifying additional available reasonable safeguards for the transfer.
  • Developing internal policies for handling data transferred from the EU to ensure compliance with purpose limitations, storage and retention requirements, data minimization, data destruction and confidentiality obligations.
  • Training employees to identify cross border transfers of EU data that may be subject to the GDPR and SCCs including client, consumer, and HR data.
  • Reviewing the organization’s technical and organizational safeguards to ensure adequate protection of EU data during transmission and storage.
  • Determining whether data transferred or received from the EU will be transferred onward to a third party or vendor and reviewing vendor and third-party contracts to ensure the recipient will be contractually obligated to implement reasonable safeguards.
  • Reviewing and updating the organization’s data breach response plan to address the data transferred or received from the EU.
  • Reviewing and updating the organization’s business continuity plan to ensure the availability of data transferred or received from the EU.
  • Reviewing existing transfers to ensure adequate safeguards are in place.

September 27, 2021 is not far away. Most U.S. organizations will need to move quickly to identify new cross border data transfers commencing after that date and be prepared to implement the new procedures and documents for the SCCs. This is, of course, if they are not relying on an alternate transfer mechanism or an exception exists. Organizations will also need to review any ongoing transfers made in reliance on the old SCCs and take steps to comply. As with new transfers, this will require a documented risk assessment and a comprehensive understanding of the organization’s process for accessing and transferring personal data protected under GDPR.

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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