On March 9, 2010, the European Court of Justice ruled that the Federal Republic of Germany’s practice of “state supervision” over data protection authorities violates EU Data Protection Directive 95/46/EC.  The case, brought by the EU Commission, is a milestone which will force Germany to change the structure of its DPA system and could have ramifications in other countries as well.

The Court’s decision is based on Article 28(1) of the Directive, which requires that data protection authorities (“DPAs”) act with “complete independence.” German law makes a distinction with regard to DPA supervision depending on whether the data processing is carried out by public or non-public bodies.  There are therefore different authorities responsible for monitoring public entities’ compliance with data protection provisions versus those that monitor compliance by private parties and undertakings governed by public law which compete on the market (öffentlich-rechtliche Wettbewerbsunternehmen) outside the public sector (such as transportation and utility companies).

At the federal level, data processing by public bodies is supervised by the Federal Commissioner for the protection of personal data and freedom of information (Bundesbeauftragter für den Datenschutz und die Informationsfreiheit).  At the regional level, supervision is carried out by the commissioners responsible for regional data protection (Landesdatenschutzbeauftragte).  These commissioners are responsible solely to their respective parliaments and normally are not subject to any scrutiny, instruction or other influence from the public bodies they supervise.  However, the organization of the authorities responsible for supervising private entities’ data processing varies among the regions, and all the laws at the regional level expressly subject those supervisory authorities to state scrutiny.

In the judgment, the European Court of Justice emphasized that the EU Data Protection Directive requires “complete independence” of the work of the competent DPAs.  It held that the Federal Republic of Germany had implemented this requirement incorrectly by subjecting the DPAs to state control.  In this regard, the Court’s opinion differed from the view of Advocate General Mazák, who stated in October 2009 that state supervision over DPAs does not mean the DPAs cannot execute their work completely independently.  In contrast, the European Court of Justice held that the DPAs for the private sector should not be subject to any outside influence.

Even before the Court’s decision, some of the German federal states had already begun to reorganize the responsibilities for supervision of data protection and to unify supervision.  This judgment will force the remaining federal states to do so as well, and could lead to an overhaul of the organization of DPAs in Germany.  Moreover, the judgment will most likely also have broader implications across Europe, given that a number of DPAs in other Member States are also not believed to work with complete independence.  Reorganization of DPAs to give them more independence could also result in more compliance and enforcement actions, and may raise the threshold for the European Commission to issue adequacy decisions concerning the level of data protection in other countries.