Lawful Basis under GDPR: Performance of a Contract

The newly enacted General Data Protection Regulation (GDPR) in the European Union provides for six lawful bases for processing data. Just as a baseline for readers who may not be familiar with the GDPR, in general processing is prohibited unless you have a lawful basis.  Article 6 of the regulation provides for the list of bases:

  1. Consent
  2. Necessary for performance of a contract
  3. Necessary for compliance with the law
  4. Necessary to protect vital interest of the data subject
  5. Necessary for task carried out in the public interest
  6. Necessary for a legitimate interest of the controller or third party

The most common justification by organizations is probably (6) legitimate interest. The easiest example of this would be fraud prevention. An organization has a legitimate interest in preventing fraud from occurring. Of course, the balancing test for legitimate interest must still be carried out. You can’t justify doing just anything you want on the basis of fraud prevention.

The basis which garners the most press and most debate is consent. In fact, the regulation devotes an entire article to what constitute valid consent. The Working Party 29, the official EU advisory group on data protection , also published a 30 page guide to consent. Consent is essentially a last resort for organizations wanting to use data. If you can’t find a valid basis under the other five, consent is your only option.

Bases 3, 4 and 5 are fairly narrow and of limited general purpose use, only available in certain circumstances.

Which leaves us #2 performance of a contract, the subject of this post. In full, the text of the regulation on this reads: “processing is necessary for the performance of a contract to which the data subject is party or in order to take steps at the request of the data subject prior to entering into a contract.

Unfortunately, many are read this option too broadly as, simply, part of a “contract.”  In other words, their feeling is that, anything put into the contract, makes this a valid basis for processing. But let’s look a little closer.

processing is necessary for the performance of a contract to which the data subject is party”

First off, it’s clear the data subject must be a party to a contract. It can’t be a contract between two organizations concerning the data subject (or their information).  What about the other part of that sentence “necessary for the performance of a contract?” While performance is not defined under the Principles of European Contract Law (PECL), non-performance is in Art 1:301:

“`non-performance‘ denotes any failure to perform an obligation under the contract, whether or not excused, and includes delayed performance, defective performance and failure to co-operate in order to give full effect to the contract.”

Article 7 of PECL goes on to describe, in more detail, issues of performance. One can deduce from the counter definition that performance means completion of an obligation under the contract (in a timely, non-defective and cooperative way).  Article 6:101 describes that a statement in a contract gives rise to an obligation to a party, if the other party reasonably expected it to give rise to that obligation, taking into account (a) the apparent importance of the statement to the other party; (b) whether the party was making the statement in the course of business; and (c) the relative expertise of the parties. Clause (a) is crucial in the analysis for the lawful basis of performance of a contract under GDPR.

In order for “performance of a contract” to be the lawful basis, the processing of data must be necessary to fulfill an obligation, under the contract, of the controller which is important to the data subject.

Let’s look at a clear example: I hire you to design and print business cards for me. Without my name and contact information, it would be impossible for you to fulfill your obligation under the contract. I’ve set you up for failure and arguably non-performed my obligations for failure to co-operate if you’re not allowed to use that information. Processing of that data is necessary for your performance.

Let’s look at one more common one, payment processing. You hire my consulting firm to provide privacy by design training and the firm expects payment for that service. In receiving that payment, I’m in receipt of your personal information, which may be supplied to a payment processor, used to create an invoice, etc. From the contracts perspective, the obligations are that you pay the firm and that the firm provides training services.  Processing payment is for the firm’s benefit (aka in their legitimate interest in facilitating payment) not to fulfill an obligation to you.

The bottom line is, just because there is a contract, doesn’t mean the lawfulness of processing is based on performance of that contract. It has to support and be necessary to perform your obligations under the contract.