New law decreases the number of companies required to designate a Data Protection Officer in Germany

On June 28, 2019, the German parliament (Bundestag) passed new legislation imposing several changes to the current German Federal Data Protection Act (“BDSG”).  Although many of the changes addressed privacy aspects of criminal proceedings, the new legislation makes an important change for small companies by increasing the threshold to designate a Data Protection Officer (“DPO”). Whereas currently companies have to designate a DPO if they constantly employ at least 10 employees who deal with the automated processing of personal data, the new legislation increases the minimum number of employees from 10 to 20, significantly decreasing the financial and administrative burden for small companies doing business in Germany. This article explains the changes and their impact and explains what companies should do.

Regulatory background and current situation

The General Data Protection Regulation (“GDPR”) imposes extensive requirements and minimum standards on the position of DPOs, but requires only a few companies to formally designate a DPO. Companies have to designate a DPO only where the core activities of a company (acting as controller or processor) consist of

  • processing operations which, by virtue of their nature, their scope, and/or their purposes, require regular and systematic monitoring of data subjects on a large scale; or
  • processing special categories of personal data relating to criminal convictions and offenses on a large scale.

However, an opening clause GDPR gives Member States discretion to require a broader range of companies to designate DPOs.

In Germany, consistent with German data protection requirements existing pre-GDPR, the BDSG primarily sets DPO designation requirements based on the number of employees who deal with the automated processing of personal data.  Currently companies have to designate a DPO if they consistently employ at least 10 employees who deal with the automated processing of personal data. Even though it is not the total number of employees that count, but how many employees are involved in data processing, with the digital transformation, for many companies this number may be (close to) equal. The new legislation relaxes these requirements, applying them only to companies that consistently employ at least twenty employees dealing with the automated processing of personal data.  In effect, many small companies may no longer be required to formally designate a DPO.  Indeed, about 80% of the companies in Germany have fewer than 20 employees. That said, even with this new legislation, Germany will still have some of the strictest requirements in the European Union relating to the designation of DPOs. In addition, companies will continue to be subject to other applicable data protection requirements.

The requirement to designate a DPO often imposes burdens on companies with business in Germany as they either have to (i) pay for an external DPO (“external DPO”), or (ii) provide an employee with sufficient data protection training and sufficient independence to designate him or her as the DPO (“internal DPO”). On the one hand, external DPOs may be expensive and do not always know the internal processes well enough to tailor their advice to companies’ needs.  On the other hand, finding a suitable internal DPO can be difficult because the DPO must be free from any conflicts of interest, meaning that often neither the heads of Legal, nor of IT or HR may perform this position.  In addition, internal DPOs must not receive any instructions regarding the exercise of their DPO tasks and are also subject to special protection against both the removal of their “DPO” designation and the termination of their employment.

Further legislative process and first reactions

Before the new legislation goes into effect, it must be approved by the German Federal Council (Bundesrat).  Such approval is expected to be granted shortly because the legislation already took into account concerns raised by the Federal Council during the legislative process.  Following Federal Council approval, the legislation will go into effect one day after publication.

Nonetheless, the change of the threshold for DPOs remains controversial.  The German Federal Data Protection Commissioner Ulrich Kerber has described the legislation as a severe mistake, noting that it may jeopardize the high level of data protection in Germany.  Another member of the parliament has similarly stated that the new legislation increases the liability risks for small companies that will no longer be required to formally designate a DPO but at the same time still have to comply with all other data protection obligations which remain the same.

Despite critics’ concerns, the new legislation gives small companies greater flexibility in their data protection compliance efforts, particularly with respect to appointing individuals internally to monitor and ensure compliance.  Decreasing administrative obstacles for smaller companies thus seems to be a sensible approach.

What does the change mean for companies?

As a result of the new legislation, small companies may no longer need to enter into contracts with external DPOs.  Companies who have designated an external DPO should carefully review those contracts.  Although most companies will likely have to wait until the contract with the DPO expires or would be otherwise ordinarily terminated, some may have a right to extraordinarily terminate existing service contracts with the external DPO if the statutory obligation to designate a DPO was the commercial basis for entering into the contract.

For small companies that designated an internal DPO, such designation may no longer be necessary.  However, it is not clear whether a company can remove an internal DPO’s formal DPO designation once the designation has already been made. The GDPR includes only limited restrictions on a company’s ability to remove an employee from the role of DPO, but the BSDG imposes more extensive restrictions on such removal.  Under the BDSG, if the appointment of a DPO is mandatory, then the DPO can only be removed for “good cause.”  Because the new legislation makes it so that appointment of a DPO is no longer mandatory for smaller companies, there is a good basis to argue that such companies may no longer be required to have good cause to remove a DPO, even if the initial designation was mandatory.

Under the BDSG, a company cannot terminate an employee who is designated as the DPO without good cause for the time of that employee’s position as a DPO and one year thereafter. If the employee was removed from the role of DPO, that employee would also no longer enjoy the legal benefits of a DPO under the BDSG.

What should companies do?

Once the Federal Council has passed the new legislation, consider taking the following steps in response to the new legislation

  1. Assess whether you are legally required to designate a DPO under new legislation:
  • Determine whether you are legally required to designate a DPO according to Art. 37 GDPR.
  • Assess whether you are legally required to designate a DPO based on the number (20 and more) of your employees who deal with the automated processing of personal data.
  • Assess whether you are required to designate a DPO under the BDSG regardless of the number of your employees who deal with personal data (if processing is conducted which is subject to data processing impact assessments according to Art. 35 GDPR or in the case that data is commercially processed for the purpose of (anonymized) transfer of data or for the purpose of market and opinion research).

If any of these assessments lead to a “yes”, appoint a DPO.

If your company is required to designate a DPO under current law but may no longer be required to do so under the new legislation, consider designating a DPO for a limited time until the new law comes into effect.  While the time limitation also comes with a certain risk, it may be helpful for both sides to exactly know that the company intends the appointment to last only for a limited time only.

  1. If a DPO is no longer required (i.e. all of the assessments above lead to a “no”), consider removing an appointed DPO:
  • If your company has already designated an external DPO but does no longer need a designated DPO under the new legislation, review the service contract to confirm whether you can terminate it early and when the contract expires or can be terminated.
  • If your company has already designated an internal DPO, consider removing the internal DPO’s designation as DPO. Preferably, this should be done amicably to avoid potentially costly litigation.
  1. Maintain a privacy compliance program:

Regardless of whether your company is required to designate a DPO, maintain a privacy compliance program that clearly assigns privacy compliance to specific roles and positions within your organization, and provide appropriate training to all responsible employees. If necessary, adapt your privacy compliance program to the new structure.