As of November 1, 2018, organizations in Canada subject to the Personal Information Protection and Electronic Documents Act (PIPEDA) will face strict and onerous new privacy breach response requirements with respect to any data security safeguard breach. Under the Digital Privacy Act, every organization that collects, uses and discloses personal information in the course of commercial activity in Canada (with a few exceptions) must follow new mandatory data breach record-keeping, reporting and notification rules – or face significant non-compliance consequences.

Here are the answers to five frequently-asked questions about the Digital Privacy Act and its new data breach response requirements.

1. What’s the Digital Privacy Act and what are its new mandatory data breach response requirements?

The Digital Privacy Act is a federal law that amends PIPEDA to mandate a response to data breaches that includes three key new obligations: record-keeping, reporting and notification.

Existing Safeguarding Obligation. Canadian law already obligates organizations to protect personal information with security safeguards appropriate to the sensitivity of the information, with more sensitive information safeguarded with a higher level of protection. These security safeguards are required to protect personal information (regardless of the format it is in) against loss or theft, unauthorized access, disclosure, copying, use or modification, and can be physical, organizational and technical in nature.

• Sensitivity. Under PIPEDA, organizations must protect personal information, regardless of the format in which they hold it, by security safeguards “appropriate to the sensitivity of the information” against loss or theft, unauthorized access, disclosure, copying, use, or modification.
• Reasonable & Appropriate. The standard the safeguards must meet varies depending on the sensitivity of the information collected, its amount, distribution and format, and how it’s stored: the safeguards must be reasonable and appropriate.

Threshold for New Data Breach Response Obligations. The Digital Privacy Act’s new data breach reporting and notification obligations are only triggered when there’s a “breach of security safeguards” involving personal information under an organization’s control, where it’s reasonable in the circumstances for the organization to believe the breach creates a real risk of significant harm to an individual. But the record-keeping obligation is triggered when there’s any “breach of security safeguards” – no matter how trivial or insignificant the breach is.

• “Breach of security safeguards”. It’s important to understand what amounts to a “breach of security safeguards” under the Digital Privacy Act because it might not align with a general understanding of security or privacy breaches: the definition is very broad, capturing “breaches” that are commonplace, and that most wouldn’t consider to amount to a “data breach” justifying action. The Digital Privacy Act defines “breach of security safeguards” and adds this definition to PIPEDA:

“breach of security safeguards” means the loss of, unauthorized access to or unauthorized disclosure of personal information resulting from a breach of an organization’s security safeguards … or from a failure to establish those safeguards.

Practically, this means any of the following “internal” security breach scenarios could amount to a “breach of security safeguards” – and trigger the mandatory data breach response obligations: an employee violates the employer’s “clean desk policy” and a co-worker from another department sees a customer record; an employee allows their child to use their smart phone, which also contains customer information; an employee flying on a business trip decides to use the plane time to work on a report containing customer information, and the passenger behind them can see the employee’s laptop screen.

• “Real risk of significant harm”. The new regulations define “significant harm” to include bodily harm, humiliation, damage to reputation or relationships, loss of employment, business or professional opportunities, financial loss, identity theft, negative effects on the credit record and damage to or loss of property.

New Data Breach Response Obligations. The Digital Privacy Act implements three new obligations when there’s a “breach of security safeguards”:

• Record-Keeping. Organizations will have the new obligation of documenting every single instance of a “breach of security safeguards” involving personal information under its control – no matter how insignificant, and regardless of the risk or likelihood of harm. Organizations must maintain the records about a breach for 24 months after the day on which it determined the breach occurred. In addition, on the Privacy Commissioner’s request, organizations must provide the Privacy Commissioner with access to or a copy of a record. The Regulations don’t set out what such a record must contain, but do say they must contain any information pertaining to the breach that enables the Privacy Commissioner to verify compliance with the breach notification sections of the Digital Privacy Act. It also says a report to the Privacy Commissioner can be used as a record of the breach. Failure to keep such records, or to provide the records to the Privacy Commissioner upon request, are both offences.
• Report to the Privacy Commissioner. If the organization concludes there has been any breach of its security safeguards involving personal information under its control where it’s reasonable in the circumstances for the organization to believe the breach creates a real risk of significant harm to an individual, it must prepare and send a report to the Privacy Commissioner that includes the information the Breach of Data Safeguard Regulations details. If the organization becomes aware of new, pertinent information after sending the initial report to the Privacy Commissioner, it can submit the new information to the Commissioner.
• Notice to Affected Individuals.In situations where an organization believes a breach creates a real risk of significant harm to an individual it must, in addition to reporting to the Privacy Commissioner, notify affected individuals. The notice must include enough information to allow the individual to understand the significance to them of the breach and to take steps, if any are possible, to reduce the risk of harm that could result from the breach or to mitigate that harm, and the information the Breach of Data Safeguard Regulations details. The new regime also distinguishes between when an organization must give “direct notification” to individuals, and when “indirect notification” will suffice. Generally, the organization must give direct notice, which the organization can give: by email, if the individual consented to receive information in that manner; by letter to the individual’s last known address; by telephone; or in person. An organization can only use indirect notification, such as a posting on its website, where: direct notification would cause further harm to the affected individual; the cost of giving direct notice is prohibitive for the organization; or the organization doesn’t have contact information for the affected individual or the information it has is out of date.

2. Who (or what) does the Digital Privacy Act apply to?

The Digital Privacy Act applies to every organization to which PIPEDA applies. Effectively, that’s every private sector organization that collects, uses and discloses personal information in the course of commercial activity in Canada, with the exceptions of Quebec, Alberta and British Columbia which all have provincial legislation that’s substantially similar to PIPEDA. The Act also applies to “foreign” organizations that do business in Canada – even if they aren’t based in Canada: most breach notification laws depend on the place of ordinary residence of the individual the breach affects.

3. When does the Digital Privacy Act and its mandatory data breach response obligations take effect?

While most of the Digital Privacy Act took effect in June 2015, its mandatory data breach response sections did not. On March 26, 2018, Canada’s federal government proclaimed the Digital Privacy Act’s mandatory data breach response requirements will take effect on November 1, 2018 and subsequently finalized the Breach of Security Safeguard Regulations that detail the new data breach response requirements.

4. Why should organizations comply with the Digital Privacy Act’s data breach response requirements?

Because the consequences of failing to do so are significant. They can include:

Exposure of organizations – and directors personally – to fines of up to $100,000. Failure to comply with any aspect of the mandatory data breach reporting and notification requirements can lead to quasi-criminal liability under the Act for organizations – and for their directors personally. This means it’s not a criminal offence, but it’s subject to a penalty similar to a criminal offence. Failure to meet any of these obligations exposes your organization to fines of up to $100,000 – per violation.

Civil Lawsuits. It goes without saying: a single civil lawsuit can be enough to shutter a small organization, and can put a good dent in a large one. An individual or organization that suffers a loss as a result of a data security breach can sue the organization. These lawsuits are already common in the U.S. and are increasingly common in Canada. The latest trend: data breach class action lawsuits. Regardless of the outcome, the organization will incur significant legal costs to defend any lawsuit(s); win or lose, litigation consumes enormous financial and other resources and is highly public. And many businesses discover – too late – that “ordinary” insurance doesn’t cover this. The only real way to reduce the risk of liability is to reduce the risk of data breaches in the first place.

Investigation. Based on our extensive experience with PIPEDA, most breaches reported to the Privacy Commissioner will result in an Office of the Privacy Commissioner investigation: a time-consuming, laborious – and often public – process that frequently costs more than proactive, preventative measures would have cost.

Reputational Damage. In today’s climate of heightened awareness and fear about cyber security and the prevalence of digital and social media, a data breach – particularly one that’s not handled well – can cause an organization immeasurable, and sometimes fatal, reputational damage. 

5. How do affected organizations comply with the Digital Privacy Act’s mandatory data breach notification requirements?

Breaches happen – but advance preparation can significantly reduce the liability and reputational risks if such a breach occurs. Every organization subject to PIPEDA must act now to ensure it’s ready to comply with the mandatory privacy breach response requirements on November 1, 2018. Effective data breach risk management planning includes taking steps to reduce the risk of a breach in the first place and creating action plans to ensure preparation for when breaches occur – and this requires time and coordination of external expertise and internal stakeholders. Basic data breach risk management planning steps are key for ensuring compliance in this evolving legal landscape. Five key areas on which to focus when preparing to comply with the Digital Privacy Act’s mandatory data breach response requirements are:

• Understand the New Obligations – Well. In preparing for compliance, it’s critical that organizations understand just what the requirements are, when the new obligations – record-keeping, reporting and notification – are triggered, and ensure they implement policies and procedures aligned with the law.
   
• Deal with Third Party Contractor Risks. An oft-overlooked but critical step in preparing for compliance with the Digital Privacy Act – and mitigating the risks of non-compliance – is a review of key third party contracts to ensure they include accountability mechanisms for enabling, monitoring, reporting and verifying their compliance with the new requirements.
• Deal with Employee Risks. Most data breaches, whether accidental or malevolent, are in fact caused by an organization’s own employees. Implementing a plan to avoid and handle data breaches by its own employees is an important aspect of an its data breach risk mitigation plan generally – and the Digital Privacy Act’s new data beach response requirements means more employee “breaches” are likely.
• Paper Trail. The mandatory response requirements will place more organizations under public scrutiny – and likely lead to more lawsuits. Keep in mind that when planning for compliance and complying, an organization is creating a discoverable (that is, materials that must be disclosed to the other party(ies)) paper trail for future litigation.
• Protect your privilege. The increased likelihood of lawsuits also make it imperative that organizations make every effort to protect all of their privacy gap analysis materials by legal privilege. If not, those materials will be available to the Privacy Commissioner in any investigation – and can be used against the organization in a civil lawsuit.

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Please contact your McInnes Cooper lawyer or any member of the Privacy Law Team @ McInnes Cooper to discuss this topic or any other legal issue.

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McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.

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