The Highest Risk Area for GDPR Compliance: Processing HR Data
Authors: Grant D. Petersen (Tampa), Simon J. McMenemy (London), Hendrik Muschal (Berlin), Danielle Vanderzanden (Boston), Stephen A. Riga (Indianapolis)
Published Date: December 4, 2017
With less than six months until the May 25, 2018, effective date for the European Union (EU) General Data Protection Regulation (GDPR), companies are assessing their GDPR readiness and concentrating their compliance efforts on the highest risk areas. What is the highest risk area for GDPR compliance? Based on (1) the difficulty in achieving full compliance, (2) the probability of data subject complaints or regulatory enforcement actions, and (3) the potential monetary exposure for noncompliance, the answer for most companies is processing human resources (HR) data.
1. Difficulty in Achieving Full Compliance for HR Data Processing
While the GDPR is intended to provide a uniform regulatory scheme for processing consumer and business to business (B2B) customer data across all EU jurisdictions, the same is not true for processing HR data.
Employers must comply with country-specific data protection requirements.
Article 88 of the GDPR specifically permits each EU country to enact additional or stricter requirements for processing HR data through national laws and collective agreements. Germany has already passed its GDPR-compliant national data protection law, which sets forth stricter requirements for monitoring employees in the workplace. Other jurisdictions are in the process of passing their own GDPR-compliant laws with additional or stricter HR data processing requirements. Additionally, many union collective agreements and works council agreements covering employees contain additional or stricter requirements for processing employee data.
Employers must comply with country-specific labor laws.
In addition to country-specific data protection laws and collective agreements, each EU country has its own labor laws that regulate when and how employee data can be processed and set forth record retention requirements for specific types of HR data. Moreover, employers likely will be required to first consult with—and, in some countries, such as Germany, obtain agreement from—local works councils before they can implement their GDPR-compliant programs for HR data.
Employers cannot rely on employee consent to process HR data.
The Article 29 Working Party, which is comprised of EU regulators from each member state, recently issued guidance indicating that, unlike consumers and customers, employees cannot provide voluntary consent for the collection, processing, and transferring of HR data because of the unequal bargaining power between employers and employees. Thus, employers may collect and process employee data only if they demonstrate that the processing of the data is necessary under another legal basis, such as to (1) perform the employment contract, (2) comply with legal obligations, and/or (3) further a legitimate interest of the employer. The first two legal bases are narrowly construed, so employers primarily must rely on the legitimate interest basis to process much of their employee data. To use this legal basis, employers must first perform a privacy impact assessment by balancing their legitimate interest against the employees' privacy rights and documenting that the legitimate interest outweighs the employees' rights. Thereafter, employers must specify such legitimate interest in privacy notices provided to employees.
Employers must comply with special restrictions and protections for sensitive HR data.
Processing HR data involves significantly more sensitive or special data (such as national and ethnic origin information, trade union membership records, medical information, and criminal history data) than processing consumer or B2B customer data. The GDPR limits the circumstances under which sensitive or special data can be processed and requires greater protections for such data.
Employers must comply with special restrictions and protections regarding employee monitoring.
Most companies engage in more invasive monitoring of employee data than of consumer or B2B customer data. For example, employers routinely monitor employee use of company computer and internet systems; review employees’ social media sites; track employees’ locations through vehicle GPS systems, mobile device location tracking devices, or access control systems within workplaces; and use video surveillance systems for facility security that capture employee images. Recognizing that employers engage in such monitoring, the working party has set forth specific requirements and safeguards for monitoring employees.
Employers likely must designate a data protection officer (DPO) as a result of processing HR data.
Article 37 of the GDPR provides that a company must designate a DPO if its core activities involve regular and systematic monitoring of data subjects on a large scale or involve the processing of sensitive or special data on a large scale. Because processing HR data involves significant amounts of sensitive or special data and invasive monitoring of employees, companies that otherwise would not be required to designate a DPO for processing consumer or B2B customer data may be required to designate a DPO for processing HR data.
Employers must conduct data protection impact assessments (DPIA) for many HR data processing functions.
Article 35 of the GDPR requires companies to perform a DPIA where data processing is likely to result in a high risk to the rights of data subjects, such as in the use of new technologies. The working party’s recent guidance regarding DPIAs provides that a DPIA must be performed when any two of the following factors are present: (1) use of automated decision-making with legal or significant effect, (2) evaluation or scoring of data subjects including evaluation of work performance, (3) systematic monitoring, (4) processing sensitive data, (5) processing data on a large scale, (6) processing data of vulnerable subjects, (7) transferring data outside of the EU, (8) engaging in an innovative use or application of technological solutions, or (9) engaging in processing that prevents a data subject from exercising a right. The working party has indicated that employees are “vulnerable subjects” and, therefore, processing employee data that involves evaluating work performance, monitoring of employees, sensitive data, and transfers of HR data outside of the EU will meet the two factor requirement, triggering the obligation to perform a DPIA for such processing.
U.S. parent companies that process HR data for EU employees must comply with these complex HR data requirements.
Because the GDPR applies to companies located outside of the EU that monitor the behavior of EU residents, U.S. parent companies and affiliates that monitor the work performance of EU employees, such as high-level EU management employees who report to U.S. management, must comply with all of these requirements.
2. Probability of Data Subject Complaints or Regulator Enforcement Actions
Unless your company is a high-profile technology company, the chances of a consumer or B2B customer filing a complaint with an EU data protection authority (DPA) and the chances of a DPA initiating an enforcement proceeding against your company are relatively small. However, employees—especially disgruntled employees—are likely to file complaints both internally and externally against companies of any size or profile regarding improper processing of their data under the GDPR. For example:
Employees are likely to discover noncompliant data processing because they are likely to initiate data subject access requests.
Again, unless your organization is a high-profile technology company, the chances of a customer, especially a B2B customer, requesting access to the data your company has collected on his or her is relatively small. On the other hand, employees are likely to request access to their work-related data to see how they are performing on the job. In fact, the working party has suggested that employers provide employees with direct access to the employer’s employment-related databases so that the employees can review their data on a periodic basis. Consequently, employees will have ample opportunity to determine whether their data is being processed properly.
Trade unions and works councils will initiate claims and/or help employees enforce their rights under the GDPR.
Trade unions and works councils will be involved in the negotiation and implementation of GDPR-compliant processes for HR data. Consequently, they will initiate claims on behalf of employees and/or assist employees in exercising their rights under the GDPR, national data privacy laws, collective agreements, and works council agreements containing data privacy requirements.
Disgruntled employees and former employees may bring GDPR data privacy-related claims, especially where the improper data processing resulted in an adverse employment decision.
The GDPR specifically provides that data subjects are entitled to compensation for any damages caused by improper processing under the GDPR. Moreover, if more than one controller was involved either actively or passively in the improper processing, such as the EU employer and U.S. parent company, each controller will be liable for the entire amount of damage compensation.Consequently, employees and former employees may be inclined to file GDPR data privacy-related claims against their EU employers—and potentially against U.S. parent companies—where improper processing resulted in an adverse employment action or otherwise supports a related employment claim.
3. Increased Monetary Exposure for Improperly Processing HR Data
The GDPR provides for two levels of administrative fines for GDPR violations depending upon the nature of the violation. First level violations will result in fines of 10 million euros or 2 percent of the company’s worldwide annual revenue, whichever is greater. Second level violations will result in fines of 20 million euros or 4 percent of worldwide annual revenue, whichever is greater. Significantly, the majority of violations involving the processing of HR data will likely be second level violations, including noncompliance with the Article 88 country-specific requirements for HR data; failure to use a proper legal basis for collecting and processing data; violations of data subjects’ rights, including data subject access rights; and improper transfers of data outside of the EU. Guidance issued so far on the imposition of penalties has made clear that DPAs will exercise discretion when determining whether to impose fines and in what amount, but the exposure is considerable and good faith efforts at compliance are key to any potential leniency regulators may provide.
Key Takeaways for Employers
Based on the difficulty of achieving full compliance, the probability of complaints being filed, and the potential monetary exposure for noncompliance, processing HR data arguably is the highest risk area for GDPR compliance for most companies.
The May 25, 2018, GDPR effective date is fast approaching. Therefore, companies employing employees or recruiting applicants in the EU may want to quickly determine whether their current compliance efforts will satisfy the unique,
Finally, companies with employees who are represented by works councils may want to complete their GDPR compliance programs for HR data well in advance of May 25, 2018, to allow sufficient time to consult with—and in certain countries, such as Germany, obtain agreement from—the works councils prior to implementing their GDPR compliance programs for HR data.
Mr. Petersen represents and counsels employers in a broad range of U.S. and international labor and employment laws, U.S. and global data privacy and data protection laws, and the Foreign Corrupt Practices Act and other international anti-corruption laws. He is the founder of the firm’s Data Privacy Practice Group and co-founder of the firm’s International Practice Group. Mr. Petersen has advised many clients regarding the impact of global data privacy laws in the workplace, the...
Simon is an experienced employment and data privacy law practitioner. He was called to the Bar in 1995, and subsequently qualified as a solicitor while working in the employment and incentives team of a major global law firm. He has advised on the employment aspects of many major international and multi-jurisdictional mergers and acquisitions. He also has a wide range of experience in advising companies on change management, particularly in relation to acquired rights, pensions and benefits....
Hendrik Muschal is a partner in Ogletree Deakins’ Berlin office. As an acknowledged and experienced expert, he advises numerous German and international clients on all aspects of individual employment law, collective employment law in both the private and public sector, international employment law and criminal labor law. One of the focal points of Hendrik’s work regarding global HR management is innovative personnel cost optimization and data protection. As an expert in data...
Ms. Vanderzanden is a Shareholder in the Boston and Portland (ME) offices, and Co-Chair of the firm’s Data Privacy Practice Group. She specializes in the areas of privacy, restrictive covenant, wage and hour, discrimination and labor and employment litigation and counseling. She devotes her practice to helping employers with employment-related disputes, conducting investigations and providing counsel to clients seeking to reduce their potential for liability to their employees and third...
Mr. Riga concentrates his practice in the area of employee benefits and privacy and security issues. Mr. Riga's benefits practice includes work with funds and employers to design, maintain, merge and terminate qualified retirement plans and health and welfare plans. Mr. Riga prepares determination letters and voluntary compliance program submissions and assists employers and funds on COBRA, Medicare Part D, and HIPAA compliance. Mr. Riga evaluates contribution and withdrawal liability...