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The Data Privacy Mistake That Could Cost You Everything

Pooja Batra
Last Updated:

2 Jul 2024

Published On:

26 Jun 2024

min read

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Consider these scenarios:

  • You engage a vendor to provide access to project management software for your employees. Employees need to register with their email addresses to access the Vendor's software.
  • You share your customers' names, addresses, and contact details with a marketing firm to send out newsletters.
  • You hire a research company to analyze customer data for insights to improve your services.
  • You outsource customer support to a third-party provider and share customer's name and email address
  • You are processing personal data of individuals that are based in California
  • Your business is subject to the GDPR

Do any of these situations sound familiar? If yes, do you know you are responsible for the personal data held by the vendor and it is your responsibility to ensure the protection of such personal data?  

 

A Data processing Agreement is essential between you and the third party vendor to ensure secure handling of personal data by the vendor and avoid hefty fines for non-compliance with data privacy laws.

 

Let’s address all questions business owners have about Data Processing Agreement:

 

What is the essential purpose of Data Processing Agreements?

 

Data Processing Agreements demarcate the data protection responsibilities between the parties sending and receiving personal data for the purpose agreed and specified in the agreement. It is also necessary to ensure compliance with data protection laws and avoid hefty fines. There are two parties to this agreement : data controller and data processor (i.e. the third party entity processing the data).

 

_______________________________________________________________

If your business is engaging a third party to process personal data then you’ll need a data processing agreement.

_______________________________________________________________ 

 

 

Why do businesses have to ensure data privacy?

 

Legal compliance is surely one of the reasons why data privacy is important for business owners. However, there are several other reasons for ensuring data privacy :

 

(a) Prevent Misuse of Personal Data by Third Parties:

 

By having clear Data Processing Agreements (DPAs), businesses can outline the obligations of third parties processing personal data. These obligations include:

  • Processing personal data only for the purposes specified in the DPA.
  • Limiting access to personal data to personnel who need it to fulfill the specified purpose.
  • Processing personal data based on the instructions provided by the data controller.

(b) Prevent Security Breaches:

 

Protecting personal data helps prevent security breaches, which can result in significant financial losses and damage to a business's reputation.

 

(c) Build Customer Trust:

 

Demonstrating a commitment to data privacy reassures customers that their personal information is protected. This trust is crucial for maintaining and growing a loyal customer base.

 

(d) Ethical Business Practices:

 

Ensuring data privacy reflects a business's commitment to ethical practices. It shows that the business values and respects the privacy of its customers, employees, and partners.

 

(e) Legal Compliance:

 

Adhering to privacy laws and regulations is essential to avoid legal penalties and fines. Laws like GDPR, CCPA, and others mandate stringent data protection measures.

 

By prioritizing data privacy, businesses not only comply with legal requirements but also protect themselves from potential threats and enhance their reputation and customer relationships.

 

What is a Data Processing Agreement?

 

A data processing agreement (DPA) is a contract between two parties intending to send and receive personal data of individuals for a specified purpose. 

 

For example, Company A is providing access to its project management software to the employees of Company B. This requires the employees to register with their name and email addresses in order to access the project management software on Company A’s platform.

 

In this scenario, the DPA would specify that:

 

(a) Purpose Limitation: The personal data of the employees will only be used for the purpose of providing access to the project management software.

 

(b) Data Access Restrictions: Only authorized personnel from Company A will have access to the personal data, and only to the extent necessary to fulfill the specified purpose.

 

(c) Processing Instructions: Company A must process the personal data in accordance with the instructions provided by Company B.

 

(d) Data Security Measures: Company A will implement appropriate technical and organizational measures to protect the personal data from unauthorized access, disclosure, or loss.

 

(e) Compliance with Privacy Laws: Both parties agree to comply with relevant data protection regulations to ensure the lawful processing of personal data.

 

(f) Data Subject Rights: Company A will assist Company B in responding to any data subject requests (e.g., access, correction, deletion) related to the personal data.

 

By having a DPA in place, both Company A and Company B can ensure that the personal data of employees is handled responsibly and in accordance with legal requirements, thereby protecting the privacy and rights of the individuals involved.

 

What is Personal Data?

 

Any information that can identify an individual, either on its own or when combined with other collected data, is considered personal information or personal data. A general list of such data includes:

 

  • Name
  • Address
  • Phone number
  • Email address
  • IP address
  • Location
  • Biometric data
  • Political, religious, or philosophical beliefs
  • Sexual orientation
  • Trade union membership
  • Race or ethnic origin
  • Medical data

 

 

How will a Data Processing Agreement Protect My Business?

 

Here’s a quick summary:

  • It will ensure that the third-party service provider follows specific data protection measures and security protocols
  • limit access to personal data to authorized personnel only within the third-party service provider
  • require the third-party service provider to process personal data based on our specific instructions
  • establish clear responsibilities and obligations for both parties regarding the handling of personal data
  • ensure that the third-party service provider assists in responding to data subject requests (e.g., access, correction, deletion)
  • prevent misuse of personal data by the third-party service provider
  • outline procedures for handling data breaches and security incidents
  • gives you the right to conduct regular audits to verify compliance with data protection requirements
  • Obtain indemnity from the vendor  in case of data privacy breaches

What provisions Data Processing Agreements include?

 

Article 28(3) lays out the requirements for a contract between a data processor and a controller. These requirements are inlcuded in the Appendix A of the Sample IAPP Data Processing Agreement.

 

To summarize, A DPA includes:

  • Purpose and Scope of the Processing
  • Type of Personal Data and categories of Personal Data
  • Obligations of the Processor 
  • Obligations of the controller
  • Conditions for Sub-Processing
  • Data Subject Rights
  • Date Retention
  • Security Obligations
  • Data Breach Notification
  • Technical and Organizational measures
  • Deletion and Return of Data
  • Audit and Inspection

Do I need a Data Processing Agreement if my vendor provides services without handling personal data?

 

No, you don’t need a DPA if the transaction does not involve  collection, storing and/or processing of personal data. 

 

However, to safeguard your business as data privacy breaches can lead to heavy penalties, it is advisable to add a ‘No Processing of Personal Data' clause in the agreement you execute with the vendor.

 

Here’s a sample:

 

No Processing of Personal Data Sample Clause:

 

It is mutually agreed by and between [Party A] and [Party B] that no personal data, as defined under applicable data protection laws, is anticipated to be processed by [Party B] on behalf of [Party A] pursuant to the terms of this agreement. In the event that [Party B] foresees or commences the processing of personal data on behalf of [Party A], [Party B] shall:

  1. Ensure strict compliance with all applicable data protection laws and regulations.
  2. Promptly notify [Party A] in writing of such anticipated or actual processing.
  3. Enter into a Data Processing Agreement (DPA) in the form provided by [Party A], to govern the processing of such personal data.

Would a non disclosure agreement suffice or could it be amended to serve the purpose of a Data Processing Agreement?

 

No, an NDA restricts information sharing and a DPA authorizes and regulates the processing of personal data under defined conditions.

 

Non disclosure agreement (NDA) is used to prevent disclosure of all information that parties consider confidential information. The scope of NDA is broader as the it prevents disclosure of all confidential information and not limited to personal data

 

A Data Processing Agreement  focuses on preventing unauthorized disclosure of personal data and details how and why data should be processed, including specific security measures. It outlines operational responsibilities and terms for data processing, making it more detailed than a NDA. 

 

Do Data Processing Agreements need to be signed?

 

Yes. As with any contractual documents, a handwritten signature, or an equivalent electronic signature is recommended for executing a DPA. 

 

I have a privacy policy for my business, do I still need a data processing agreement?

 

Yes. A data processing agreement governs the processing and handling of personal data. In contrast, a privacy policy is targeted to the business’s clients. It explains to them what data the company collects, uses, and processes, as well as the company’s legal basis for doing so.

 

For small businesses, navigating data privacy and processing agreements can seem like complex legal hurdles that slow down growth. 

 

Hence, DocPro offers a user-friendly, customizable DPA solution tailored for your business needs.

 

Data Processing Agreement (Controller to Processor) template from DocPro available at:

 

https://docpro.com/doc1979/data-processing-agreement-controller-to-processor

 

This template enables processing of the personal data by a third-party processor for a specific purpose. It is also in compliance with the GDPR.

Pooja Batra

Pooja has more than 8 years of in-house legal experience in large MNC’s. She has advised on a wide range of corporate and commercial matters including drafting, reviewing and negotiating a variety of commercial contracts and other agreements across various business lines. If you would like to become a contributor to DocPro, please click the link below:

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