Why Reviewing Client Contracts Through the Lens of Data Privacy and Security Matters More Than Ever
In today’s digital age, data is as valuable as currency, and contracts are often the first line of defense in determining how that currency is protected. Whether you operate a startup offering SaaS services, or an established company managing customer information, it’s no longer enough to simply negotiate favorable payment or delivery terms. Every client contract you sign must be reviewed with data privacy and security in mind.
Here’s why:
Data is a Key Asset, and a Major Liability. Almost every modern business collects, stores, or transmits data. That might include customer contact details, financial records, or proprietary business information. If your contract doesn’t clearly define how that data is handled, you may find yourself exposed to significant legal, financial, and reputational harm.
For example, if a client shares personal data with your company and your systems are breached, who’s liable? The answer may lie in your contract—or in the absence of a key clause.
Global and Local Laws Demand Compliance. Data privacy regulations, such as the General Data Protection Regulation (GDPR) in Europe, the California Consumer Privacy Act (CCPA), and New York’s SHIELD Act impose strict rules on how businesses collect, use, and safeguard personal information. If your contracts fail to address these obligations clearly, you could end up on the wrong side of the law (and subject to penalties), regardless of your intent.
Vague Language Leads to Real-World Risk. Many contract templates still include outdated or ambiguous language when it comes to data ownership, breach notification, or third-party vendor obligations. These gray areas can lead to confusion when an incident occurs, or worse, they can lead to costly, time consuming and reputationally damaging litigation.
A well-drafted contract should answer:
Who owns the data?
How will data be transferred, stored, protected, and shared with third parties?
What is the scope of use of the data?
When and under what protocol will data be destroyed when it is either no longer necessary, or deletion has been requested?
What happens in the event of a data breach?
In the event of a data breach, who is responsible for notifying affected individuals or regulators?
While some of these obligations cannot be shifted, the mere act of addressing these questions in a contract will help all parties be on the same page about who is responsible for what.
Your Reputation Depends on Getting this Right. Clients are increasingly privacy-savvy. They want to know their data, and their customers’ data, is safe in your hands. An effective way to do this is structuring contracts to reflect the principle of accountability, i.e., that the contracting company is aware that it is responsible for any data it collects and/or processes, throughout the lifecycle of that data, regardless of whether a third party is also involved with processing the data. Indeed, many data privacy laws demand accountability. Thoughtful data governance not only preserves client trust, but ensures compliance.
A contract that fails to address how data is collected, processed, stored and destroyed may lead to a data incident that could cause lasting damage to your company’s brand and credibility. For example:
If a client provided Company A with personal health information for a specific procedure (scope limitation) which was finished on a certain date (time limitation), and that data was processed and stored by Company B, it would be a violation of that client’s privacy expectations for the data to be maintained longer than necessary, and/or used or sold (either by Company A or Company B) for purposes other than those authorized. Company A must take steps to properly communicate scope of use and data minimization obligations to Company B to ensure privacy is protected, and to minimize the likelihood of a breach impacting that data. No matter who is responsible for the inappropriate use, both companies may face penalties if scope and data minimization were not contemplated by and included in the vendor contract.
It’s Not Just the Big Players at Risk. Small and mid-sized businesses are increasingly targeted by cyber threats and, often, are more vulnerable to these threats as they lack the robust cybersecurity systems that large companies have in place. Unfortunately, regulators don’t give smaller companies a pass when it comes to privacy obligations. That makes it especially important for growing companies to build strong data security foundations early, including in their contracts. Doing so now can help avoid costly mistakes later and prepare your business for scaling with confidence.
While the best time to implement data governance policies is before a company starts collecting data, the second best time is now.
How Nimble Law Can Help
I work with business owners to ensure their client contracts are not only clear and enforceable, but also privacy- and security-aware. Whether you need help updating your standard agreements, reviewing a key client contract, or negotiating with enterprise clients who demand robust privacy commitments, we bring a practical and proactive approach.
Ready to review your contracts with a privacy lens? Contact Me to learn to learn how we can help you get started.
This alert does not purport to be a substitute for advice of counsel on specific matters. Kat practices in New York State. California and Texas admissions pending.
