Liability Risks of Recording Customer Service Calls

Does your company monitor or record its incoming and outgoing customer service calls (or use an outsourced vendor that does so)? While recording customer service calls is commonly viewed as a risk management tool, a recent wave of class action cases brought under California’s Invasion of Privacy Act, Cal. Penal Code § 630 et seq. (CIPA) has challenged this common practice, claiming that the plaintiffs are entitled to $5,000 per call.

You might assume that CIPA covers only California-based companies and/or calls that are placed and recorded at a California call center, so your company is not in danger of being sued in a CIPA class action if it is located outside California or if your calls are placed and recorded in another state. But in a 2006 decision, the California Supreme Court held that CIPA applied to calls made by Californians to Georgia, even though the recordings were made in Georgia and were legal under Georgia law. Kearney v. Salomon Smith Barney, Inc., 39 Cal. 4th 95 (2006). The Kearney Court expressly warned out-of-state companies that they would be subject to California law for “recording of telephone conversations made to or received from California.” Id. at 130-31. This article will explain what CIPA prohibits, discuss a recent Ninth Circuit Court of Appeals decision that offers some protection against CIPA class actions, and provide tips to help your company reduce the risk of liability from a recording class action.

CIPA’s Prohibition on Recording or Monitoring without Consent

Although most states and the federal government generally permit recording of phone calls with just one party’s consent, California and a small minority of other states require all parties to the conversation to consent. CIPA’s legislative history establishes that the act was meant to prohibit industrial espionage and eavesdropping for the purpose of obtaining trade secrets, not routine recording of customer service calls for quality assurance. Unfortunately, however, the statutory language does not make that intended limitation clear, and the California Supreme Court’s Kearney decision assumed (without considering the act’s legislative history) that CIPA applied to routine customer service recordings.

Section 632 of CIPA prohibits eavesdropping upon or recording of “confidential communications” made in person or by telephone without the other party’s consent. The California Supreme Court has explained that a communication is “confidential” under Section 632 if a party to a conversation has an objectively reasonable expectation that the conversation is not being overheard or recorded. Flanagan v. Flanagan, 27 Cal. 4th 766, 776-77 (2002). However, state and federal courts have disagreed regarding whether the content of the conversation has any bearing on that determination.

Even more troubling, mobile phone and cordless phone communications do not have to be “confidential” for liability to be imposed. Section 632.7 of CIPA prohibits intentionally recording all calls to or from mobile phones and cordless phones, regardless of their confidentiality.

Section 637.2 of CIPA provides that any person injured by a CIPA violation may bring an action for the greater of $5,000 or three times the person’s actual damages, but it expressly provides that actual damages are not a prerequisite to filing suit. The availability of this $5,000 statutory penalty and the possibility of multiple violations are responsible for the recent flood of CIPA class actions, which are primarily being brought under sections 632 and 632.7.

While CIPA’s prohibition on secret or surreptitious eavesdropping upon or recording of calls is broad and long-reaching, companies should be able to avoid violating CIPA simply by providing a warning that the call will be monitored or recorded to every person who will be monitored or recorded (“monitoring” typically occurs when an undisclosed supervisor or other third party is listening in on a representative’s conversation with a customer to ensure proper customer service protocols are followed). As stated by the California Supreme Court, “A business that adequately advises all parties to a telephone call, at the outset of the conversation, of its intent to record the call would not violate [Section 632].” Kearney, 39 Cal. 4th at 118. However, the court has not faced a case in which a plaintiff argued that he or she had not consented to the recording, despite receiving a warning.

Recent Ninth Circuit Opinion Offers Some Protection for Routine Recording

The Ninth Circuit’s decision in Faulkner v. ADT Security Services, Inc., 2013 WL 174368 (9th Cir. Jan. 17, 2013), is a welcome ruling for businesses that routinely record customer service calls, because Faulkner makes it harder for class action plaintiffs in federal court to allege an actionable claim under Section 632 of CIPA and to obtain class certification. In Faulkner, the plaintiff called ADT Security Services, his home security provider, to dispute a charge on his bill. He heard beeping, asked the ADT representative about it, and learned his call was being recorded. The plaintiff filed a CIPA class action in California state court, but ADT removed it to federal court and then successfully moved to dismiss it.

The Ninth Circuit upheld the District Court’s dismissal of the plaintiff’s CIPA claim for failure to state a claim, holding that the plaintiff’s allegation that he called ADT to “dispute a charge” was insufficient to allege an objectively reasonable expectation of confidentiality under Section 632 of CIPA. According to the court, “too little is asserted in the complaint about the particular relationship between the parties, and the particular circumstances of the call, to lead to the plausible conclusion that an objectively reasonable expectation of confidentiality would have attended such a communication.” However, the court suggested in a footnote that the plaintiff “might” have a CIPA claim if he provided sensitive information like his social security number or an unlisted phone number during the call.

Faulkner is an important decision because it has now resolved the disagreement among the district courts in the Ninth Circuit over whether the content of the communication is relevant to determining if the communication was “confidential” under Section 632. Under Faulkner, content matters, and merely alleging that a routine customer service call was recorded or monitored is not enough to state a Section 632 CIPA claim in federal court. Further, because individual circumstances are now required to establish confidentiality, it will be more difficult for plaintiffs to allege a cognizable class and obtain class certification.

Best Practices for Reducing Risk

While Faulkner is an important and positive development for companies that routinely record or monitor calls in, to, or from California (or that use an outsourced third-party vendor that does so), that business practice still carries substantial risk. For example, companies that routinely request personal information such as social security numbers before disclosing that the call may be recorded or monitored are still at risk of being sued in a call recording class action under Section 632 of CIPA. Further, as stated above, Section 632.7 of CIPA, which Faulkner did not address, prohibits intentionally recording all calls to or from cell phones and cordless phones, regardless of their confidentiality. Moreover, some defendants will not be able to remove their cases from the California state courts, where the pleading standards are not as exacting, and the case law is divided on the relevance of the content of the call under Section 632.

Accordingly, to reduce the risk of liability from a call recording class action, companies that routinely record or monitor calls in, to, or from California (or other states with dual-consent recording statutes) should consider employing the following practices:

• For inbound calls, providing an automated warning that calls may be monitored or recorded before the caller is connected to a live agent.
• For outbound calls, giving a warning before the person being called is monitored or recorded.
• Providing live agents with scripts requiring them to give a warning at the outset of speaking to every new person (i.e., every time a new person gets on the line).
• If you have contracts with the customers calling/being called, including provisions in your contracts with those customers (1) providing notice that calls may be monitored or recorded, (2) stating that the parties consent to having calls between them monitored or recorded, (3) requiring individual arbitration of claims, and/or (4) providing that the laws of a single-consent state govern the party’s relationship.
• If any third-party vendors make customer service calls on your behalf, including provisions in your contracts with those vendors requiring the vendors to comply with all laws related to call recording and to indemnify you for any claims arising out of calls that they make on your behalf.
• Obtaining insurance coverage for defense of third-party claims for unlawful call recording and invasion of privacy.

Ultimately, however, the litigation risk cannot, under the present case law, be entirely eliminated.

Reprinted with permission from the May 14, 2013 edition of Corporate Counsel © 2013 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or [email protected] or visit www.almreprints.com.