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Germany introduces bill to make outsourcing easier for businesses subject to professional secrecy laws

New legislation has been proposed in Germany to make it easier for businesses subject to professional secrecy duties to outsource activities that engage those obligations of confidentiality.18 Aug 2017

Under the planned reforms, insurers, doctors and legal firms, among others, would be able to disclose protected secrets to third party service providers where it is necessary for proper performance of tasks that engage those secrets. Those activities could also be performed by sub-contractors under the same conditions.

At the moment, German law heavily restricts the circumstances in which such functions can be outsourced.

Under section 203 of the German Criminal Code, it is a criminal offence for those subject to professional secrecy duties to unlawfully disclose protected secrets confided or otherwise made known to them in their capacity as a member of that profession.

Such secrets can only be disclosed to certain employees whose function is to assist in matters engaged by those secrets, or with persons being trained. If firms subject to professional secrecy duties want to engage third parties, such as companies to assist with billing or customer support functions, they need the explicit consent of customers and clients to do so.

The legal position has created significant legal uncertainties for outsourcing, Munich-based expert in outsourcing contracts Kai Paterna of Pinsent Masons, the law firm behind Out-Law.com, said. There have been many discussions in Germany over how to mitigate the liability risks from section 203 German Criminal Code – some businesses have felt uncertain and demanded extra contractual safeguarding by outsourcing providers, Paterna said.

Under the new regime proposed, service providers and sub-contractors would be subject to the criminal liability provisions in section 203 German Criminal Code if they unlawfully disclosed protected secrets.

According to the draft legislation, businesses subject to professional secrecy duties would be required to bind service providers to a confidentiality agreement, while the service providers would also be required to put in place a confidentiality agreement with their sub-contractors.

The new measures are designed to close potential "loopholes" in liability which might otherwise arise by facilitating outsourcing, Paterna said.

The existing penalties for breaching section 203 of the German Criminal Code would apply to those that breach the proposed new laws. The maximum penalties that can be imposed are imprisonment for up to one year or a fine.

Such penalties could be applied where a person subject to professional secrecy engages with a service provider without putting place a confidentiality agreement and that service provider subsequently discloses a protected secret, under the reforms that are planned.

Alternatively, the penalties could be imposed where a service provider engages a sub-contractor without putting in place a confidentiality agreement and the sub-contractor goes on to disclose a protected secret.

The draft bill has already being passed by the Bundestag, Germany's parliament. It is likely to become effective in September or October provided that the country's federal council, the Bundesrat, does not object.

Paterna said: "It is to be expected that the legislative change will result in a major boost for outsourcing services, especially for insurers and medical surgeries."