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Understanding Data Processing Agreements: A Definitive Guide

Updated on :

April 11, 2024
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Understanding Data Processing Agreements: A Definitive Guide

In the digital realm, where data is the new gold, it's imperative to understand the legalities surrounding its extraction, processing, and protection. Enter the world of Data Processing Agreements (DPA) — a crucial instrument ensuring data's secure and lawful management. This guide illuminates the DPA legal essentials and the importance of a meticulously drafted DPA agreement.

What is a Data Processing Agreement (DPA)?

At its core, a Data Processing Agreement (DPA) is a legally binding contract between two parties, typically the data controller (the entity defining the 'why' and 'how' of data processing) and the data processor (the entity processing the data on behalf of the controller). The DPA agreement stands as a testimony to their commitment to handle personal data with utmost care and in accordance with established privacy standards such as the General Data Protection Regulation (GDPR) or CCPA.

The Significance of Data Processing Agreement (DPA) Legal Protocols

  1. Regulatory Adherence: The DPA legal landscape is dotted with stringent regulations. Compliance isn’t merely a nod to legality; it’s about ensuring the sanctity of personal data, with breaches often incurring hefty penalties. Therefore, adhering to applicable data protection laws is a must.
  2. Demarcation of Duties: A well-drafted data processing agreement elucidates the exact responsibilities of each party. It's a blueprint that spells out permissions, restrictions, and the extent of data processing and utilization, eliminating ambiguities.
  3. Guarding Against Risks: Mishaps, like data breaches, can be financially and reputationally costly. A clear DPA sets the ground rules and can act as a safeguard, highlighting lapses and accountability in case of personal data breach.
  4. Fostering Trust: In the age of information, transparency is paramount. When stakeholders realize that an organization respects DPA legal mandates through a solid DPA agreement, it elevates trust and bolsters brand esteem.

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Components of a Comprehensive DPA Agreement

While each DPA agreement might have its nuances, certain foundational elements remain constant:

  1. Purpose and Methodology: The agreement must distinctly outline why the data is being processed and the methodology employed. The data processing and handling of such personal data should be clear.
  2. Protective Mechanisms: A detailed account of the security measures implemented to shield the data is essential. It is vital to protect personal data and ensure ongoing data security.
  3. Involvement of Sub-processors: If a third-party data processor is involved in processing, the agreement should identify them, shedding light on their specific roles.
  4. Upholding Data Subject Rights: The DPA must chart out protocols for honoring data subjects' rights, be it access, rectification, or erasure. This includes data protection impact assessments.
  5. Tenure and Dissolution: Every agreement should define its lifespan, along with explicit terms for its culmination.
  6. Protocol for Breaches: A rigorous section detailing the measures, reporting data breaches and communication lines in case of a data infringement is indispensable.

Who Is a Data Controller?

A data controller is an individual, a public authority, an agency, or any other body that determines the purposes and means of processing personal data. In simpler terms, they're the decision-makers when it comes to why and how personal data is processed. Whether interacting with a website, signing up for a newsletter, or using an app, there's likely a data controller behind the scenes, making key decisions about your personal data. They also ensure that the handling of personal data complies with required regulations.

Learn how to establish compliance as part of your corporate identity here.

The Role & Responsibilities of a Data Controller

Understanding the role of the data controller is essential for both businesses and consumers:

Determination: The primary responsibility of a data controller is determining the purpose (the 'why') and means (the 'how') of data processing.

Accountability: With great power comes great responsibility. Data controllers must ensure compliance with data protection laws and data protection authority regulations such as GDPR or CCPA. They must be ready to demonstrate this compliance at all times.

Transparency: Data subjects (i.e., the individuals to whom the data pertains) have a right to know how their data is being used. Data controllers must provide clear and accessible privacy notices.

Security Measures: Data controllers are tasked with implementing appropriate security measures, ensuring personal data is safeguarded against breaches or unlawful access.

Data Subject Requests: Controllers must facilitate data subject rights, such as data access, correction, and deletion requests, in a timely and compliant manner.

Data Controller vs. Data Processor

While the terms might seem interchangeable, they're distinctly different:

Data Controller: As established, they determine the purposes and means of processing. Think of them as the 'strategist' or 'decision-maker.'

Data Processor: They process data on behalf of the controller. This entity could be a third-party company, like a cloud service provider, that handles data as the controller instructs.

What happens if a DPA is not in place?

Data protection is not just a buzzword; it’s a mandate. With personal data becoming an invaluable asset in our digital age, ensuring its safe and legal processing is non-negotiable. The Data Processing Agreement (DPA) sits at the epicenter of this protective shield. But what transpires if a DPA is not in place?

The Consequences of a Missing DPA

Regulatory Penalties: The most immediate consequence of not having a DPA in place is the potential for significant fines. Regulations like the GDPR can impose substantial penalties on organizations, sometimes amounting to millions or even a percentage of their global turnover.

Legal Liabilities: In the absence of a clear DPA, data controllers or processors could face legal disputes and liabilities. Without documented responsibilities, accountability can be murky, leading to potential lawsuits.

Reputational Damage: Trust is the foundation of customer relations. If stakeholders learn that their data is managed without a DPA, the trust deficit can harm a brand's reputation, potentially leading to customer attrition.

Loss of Business Opportunities: Many businesses now mandate a DPA before entering into partnerships or collaborations. Without one, an organization may miss out on lucrative opportunities.

Operational Uncertainties: Without a DPA's guidelines, operational ambiguities can arise, leading to inefficiencies, misunderstandings, or breaches in data handling protocols.

Increased Data Breach Risks: A DPA often outlines the security protocols to be employed. Without it, there might be gaps in data protection strategies, heightening the risk of breaches.

A Proactive Approach is Best

While understanding the repercussions is vital, taking proactive steps is the real solution:

Draft a Comprehensive DPA: Engage legal professionals familiar with data protection laws relevant to your jurisdiction. Ensure your DPA is comprehensive, clear, and compliant.

Review & Revise: Regularly review and update the DPA, especially if there are changes in data processing activities or new regulatory updates.

Training: Ensure all stakeholders, especially those handling data, are familiar with the DPA’s terms and the importance of adherence.

Key Clauses In a DPA

Purpose of Processing: Every DPA should clearly define the reason behind the data processing. Whether it’s for marketing, research, or customer service, the purpose should be explicit and specific.

Nature and Duration of Processing: This clause pinpoints the type of data to be processed and the period during which it will be held. It acts as a timeline and scope determinant.

Data Protection Measures: Given the sensitive nature of data, a DPA must outline the security mechanisms and protective measures in place to guard against breaches.

Sub-processors: If third parties or sub-processors are involved, the DPA should identify them. Establishing their roles and responsibilities is crucial and ensuring they adhere to the data protection standards outlined in the primary DPA.

Rights of Data Subjects: Reflecting regulations like the GDPR, this clause ensures the rights of data subjects are prioritized. It includes provisions for data access, rectification, erasure, and portability.

Breach Notification Protocols: The DPA should set clear protocols for notifying the other party in the event of a data breach, specifying timelines and detailing the scope of the information to be shared.

Audits and Inspections: This clause gives the data controller the right to conduct audits or inspections, ensuring the processor adheres to the DPA’s terms.

Data Return and Deletion: Post the processing period, the DPA should detail how the data will be returned to the controller or how it will be securely deleted.

Liabilities and Indemnities: Given the legal weight of data breaches, the DPA should outline the liabilities of both parties and any indemnities in case of mishaps.

Jurisdiction and Governing Law: Considering the global nature of data flow, defining which country’s laws will govern the DPA and where any disputes will be settled is essential.

Who Signs a Data Processing Agreement?

In an era where data is more valuable than oil, ensuring proper management is imperative. The Data Processing Agreement (DPA) emerges as a beacon of hope in this scenario, guiding entities on how to handle personal data legally and ethically. But a recurring question lingers: Who exactly needs to sign a DPA?

Key Stakeholders in a DPA

Data Controller: At the heart of the DPA lies the data controller, the body that determines the purposes and means of processing personal data. They are primarily responsible for ensuring that the processing remains within legal boundaries. As such, they are one of the primary signatories of the DPA.

Data Processor: The data processor, often an external entity, processes the data on behalf of the controller. Whether it's cloud service providers, analytics platforms, or CRM systems, if they handle personal data, they should be the other main signatory on the DPA.

Special Scenarios in DPAs

Sub-processors: Sometimes, a data processor may need to involve another entity (a sub-processor) to fulfill certain processing activities. In such cases, while the primary DPA might be between the controller and the main processor, it should contain clauses detailing the roles, responsibilities, and obligations of sub-processors. Some arrangements might even necessitate separate DPAs for sub-processors.

Joint Controllers: There are situations where two or more entities jointly determine the purposes and means of processing. In such scenarios, known as 'joint controllership', all involved entities should be signatories to the DPA, clarifying their respective responsibilities.

Why Is It Essential to Determine the Right Signatories?

Legal Clarity: Clearly defined roles and responsibilities minimize ambiguity in the event of data breaches or disputes.

Regulatory Compliance: Regulations like GDPR have stringent rules regarding data processing. Ensuring the right entities sign the DPA helps maintain compliance and can shield against potential penalties.

Stakeholder Trust: When the appropriate parties sign the DPA, it signals to stakeholders, especially data subjects, that their personal data is in capable and responsible hands.

Data Protection Laws That Need Data Processing Agreement

Across the globe, various laws emphasize the need for data protection, reflecting the shared global sentiment of safeguarding personal information.

General Data Protection Regulation (GDPR) - European Union

Arguably the most renowned of data protection laws, the GDPR came into effect in 2018, significantly transforming the data protection landscape. For entities processing the data of EU residents:

GDPR mandates that controllers and processors have a DPA in place if the processor is carrying out processing on behalf of the controller (Article 28).

The DPA should detail the nature of the processing, duration, purpose, type of data, and the obligations of the processor.

Discover global HR compliance mistakes and how to avoid them here.

California Consumer Privacy Act (CCPA) - California, USA

While the CCPA primarily focuses on granting consumers rights over their data, it has stipulations that can necessitate a DPA:

When businesses sell personal information or disclose it for business purposes, contractual assurances are required, to ensure data protection. This often translates to having a DPA in place.

Personal Data Protection Act (PDPA) - Singapore

The PDPA outlines that organizations are responsible for the personal data in their possession, even if processed by external entities:

DPAs become essential when outsourcing data processing activities to third-party providers to ensure compliance.

Lei Geral de Proteção de Dados (LGPD) - Brazil

Brazil's answer to the GDPR, the LGPD, also emphasizes the need for DPAs:

When a third party carries out data processing, the LGPD mandates that it be regulated by a contract (akin to a DPA) detailing the specifics of the processing.

Personal Information Protection and Electronic Documents Act (PIPEDA) - Canada

Canada's PIPEDA requires organizations to be accountable for the personal information they handle, even when third parties process it:

While not explicitly stated, to ensure third-party compliance with PIPEDA, a DPA is considered best practice.

Manage Global Compliance With Skuad

Data Processing Agreements (DPAs) stand as critical pillars, ensuring invaluable data's ethical and lawful processing. These agreements aren't just contractual necessities; they symbolize an organization's commitment to respecting data protection and individual rights.

Skuad's Employer of Record platform allows businesses to hire and onboard professionals across over 160 countries, all while ensuring absolute compliance with intricate, country-specific legal frameworks. With Skuad by your side, the specter of legal risks and penalties fades away, allowing your organization to focus on what truly matters: growth and innovation.

Eager to redefine your organization's approach to global compliance? Schedule a demo with Skuad today.


What is the difference between a DPA and a NDA?

A DPA (Data Processing Agreement) outlines terms for data processing, focusing on ensuring data protection and privacy compliance. An NDA (Non-Disclosure Agreement) is a contract where parties agree not to disclose confidential information they've shared with each other.

Who can enforce DPA?

DPAs are typically enforced by data protection authorities or regulatory bodies of the jurisdiction in which the data is being processed.

About the author

Catalina Wang is a Human Resource Consultant. She manages recruitment, onboarding, and contract administration staffing for many organizations and remote teams. She’s passionate about efficient HR management and the impact of tech on hiring practices.

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