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7 min read

Writen by Sibel Amet

Posted on: May 14, 2024

Vendor Contracts: Contractual Requirements Under California Privacy Laws

The California Privacy Laws (CCPA/CPRA) require businesses to safeguard consumer data, especially when working with external vendors. When working with third-party vendors, service providers, and contractors, ensuring CCPA/CPRA compliance means establishing clear, legally binding contracts that protect consumer data throughout its lifecycle. These contracts set clear expectations and responsibilities regarding the handling of consumer personal information. Let’s have a look at the key elements and the latest updates you need to consider.

CCPA defines three types of entities: businesses, service providers, and third parties. CPRA added a fourth: contractors. Understanding these entities is key to drafting the appropriate contracts:

1. Business: The entity that collects personal information and determines how it will be processed.

2. Service Provider: Processes personal information on behalf of the business for specific purposes outlined in a written contract.

3. Contractor: Performs services for the business and has access to personal data but may use it for a wider range of purposes, also defined by a written contract.

4. Third Party: Receives personal data from the business, often for its own marketing or advertising purposes. Sales or sharing of personal information with third parties require a contract.

For the purpose of distinguishing between these entities, it’s helpful to understand that service providers and contractors have significant similarities, while third parties represent a distinct category.  Service providers and contractors both process personal information on behalf of a business,  receiving that data to fulfill a specific business purpose outlined in a written contract.  A third party, on the other hand, is primarily an entity that acquires personal information from a business through sale or sharing. They use this data for their own purposes, such as marketing or cross-contextual behavioral advertising. 

CCPA/CPRA-compliant contracts with service providers, contractors, and third parties must:

Clearly outline the specific, limited purposes for which the business is selling or sharing personal information.
Mandate that the receiving party comply with all relevant CCPA/CPRA requirements, providing the same level of consumer privacy protection.
Empower the business to take reasonable steps to ensure the external party uses personal information in line with the business’s own CCPA/CPRA obligations.
Require the external party to immediately notify the business if it can no longer meet its CCPA/CPRA compliance obligations.
Grant the business the authority to halt and rectify unauthorized use of personal information upon receiving notice.

Certain prohibitions on the usage of personal information are also a requirement, specifically, these contracts must include terms that prohibit:

– Selling or sharing personal information;
– Retaining, using, or disclosing the personal information or any purpose other than for the business purposes specified in the contract for the business;
– Retaining, using, or disclosing the information outside of the direct business relationship; and
– Combining personal information from different sources – an area also subject to future regulations.

For contractors, there are two additional contract requirements. CPRA states a contractor must state that they understand the requirements of the contract and allow the business to monitor and audit compliance once a year at minimum. 

Expanded Duty to Contract

It’s worth noting that prior to the adoption of the CPRA, the CCPA did not include third parties as entities that fall under the contractual requirements we mentioned above. The CPRA extends contractual requirements to include third parties with whom you share personal data, closing the loophole present in the CCPA.

Contractor Category

As mentioned above, CPRA introduces the “contractor” category, requiring slightly different contractual terms than those used for service providers.

Revised “Business Purpose” Definition

The CPRA text lists 8 different scenarios that can be considered a valid business purpose. Ensure your contracts reflect the updated definition of business purposes under the CPRA.

Sharing vs. Selling

The CPRA applies the same requirements to both the sale and sharing of personal information, preventing businesses from circumventing compliance through creative labeling.

While not explicitly mandated by the CPRA, businesses may include provisions in their vendor contracts addressing:

Consumer Privacy Requests

Outline cooperation processes for handling consumer requests to delete, correct, or access their data.

Information Security

Detail the security measures vendors must implement to protect personal data.

Data Breach Notification

Require prompt notification by vendors in the event of a data breach.

Well-drafted vendor contracts are essential for CCPA/CPRA compliance. They ensure protection of consumer privacy, responsible data management and uphold consumer rights. Detailed contracts significantly reduce your business’s potential liability under the CCPA/CPRA. Vendors have clear guidelines, you have the power to monitor compliance, and corrective action can be taken efficiently in case of a breach or unauthorized data use.

Our privacy specialists at GDPRLocal can help you navigate the complexities of vendor data handling under the CCPA/CPRA. We’ll work with you to draft compliant vendor contracts that protect consumer privacy and minimize your business’s liability. By upholding the highest privacy standards throughout your vendor network, you demonstrate a commitment to responsible data management, building trust, and safeguarding your brand.

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