The effects of leaked U.S. classified information by Edward Snowden went beyond the intelligence world, but did you know they affected international payroll? His revelations upended how the payroll data of European Union citizens was transferred to the U.S.
Until recently, U.S. companies relied on the Safe Harbor Framework agreement between the EU and the U.S. to legally transmit personal data. The program, enacted in 2000, allowed companies to electronically transfer the personal information of Europeans, including payroll information, outside of the European Economic Area as long as the companies self-certified that they complied with EU privacy directives.
On Oct. 6, 2015, however, the safe-harbor initiative was invalidated by the EU Court of Justice. The decision sent more than 4,000 U.S. employers in the program, along with thousands more E.U. companies, into a legal limbo for how to lawfully transfer personal data of European citizens to the U.S.
In the aftermath of Snowden’s disclosures, the EU Court of Justice said the agreement failed to provide adequate protection of personal data from U.S. intelligence authorities after its transfer to the U.S. Outside of the safe-harbor agreement, the only alternatives to U.S. companies were model contracts, binding corporate rules or choosing not to send personal data outside of the EU. These options are more difficult for companies to implement than the previous self-certification system under the safe-harbor agreement that so many companies relied on to conduct trans-Atlantic business.
The U.S. government and U.S.-based companies were unsurprisingly frustrated by the immediate invalidation of the agreement and scrambled to find another privacy pact. On Feb. 2, 2016, the EU and U.S. announced a new draft agreement called Privacy Shield. Among the differences between the two agreements, Privacy Shield has more enforcement mechanisms and stronger data protection for consent requirements.
Privacy Shield was lauded by U.S. government officials as a major breakthrough for U.S. trade yet the agreement has yet to be formally adopted. Numerous European countries and groups have voiced opposition the agreement, calling it an insufficient replacement. Until formal adoption occurs, employers seeking to transfer European payroll data outside of the EU would remain restricted and susceptible to significant penalties for improper data-privacy transfers.
More information on the payroll implications of Privacy Shield is available in an International Payroll Decision Support Network white paper on the topic, “The EU-U.S. Privacy Shield: Challenges and Observations.” Coverage of quickly changing laws on cross-border data privacy issues is available in the News and Commentary section of the International Payroll Decision Support Network.
Take a free trial to Bloomberg BNA’s International Payroll Decision Support Network,your one-stop resource for reliable, up-to-date guidance and analysis in every area of payroll administration and compliance.
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