A Multimillion-Dollar Trap:
Recording Customer Service Calls

By Perrie Weiner, Edward Totino, Joshua Briones, Ana Tagvoryan

September 2010

A company's success hinges on the quality and efficiency of its customer service.  For businesses that provide service to customers by telephone, ensuring quality customer service often depends upon the ability to evaluate calls with customers - live through call monitoring or after the fact by listening to recorded calls.  However, while call monitoring and recording aids in agent training, quality assurance, and quality control, these methods can expose a company to legal liability costing hundreds of millions of dollars if call monitoring is not implemented in accordance with local law.  

In the United States, federal and state regulations govern the monitoring and recording of telephone conversations.  Many of these laws are found in the penal statutes that forbid eavesdropping, wiretapping, and monitoring communications.  While these laws may originally have been aimed at nefarious activities, like secretly tapping another person's telephone line, amendments have expanded these laws to cover innocent activity such as a company monitoring its telephone calls for quality assurance.  Indeed, although the federal law makes one party's consent to the recording of a telephone conversation a defense to a claim of unlawful recording or monitoring, many state laws require all parties to the conversation to have consented to the recording or monitoring, or at least be notified that the call may be monitored or recorded.  To avoid liability for monitoring or recording, a business handling customer calls to and from different states in the United States should implement procedures to ensure compliance with every state's monitoring and recording regulations.  Only such universal procedures will provide a bulletproof defense to any claim of unlawful monitoring or recording.

Potential Risks for Monitoring or Recording without Consent: Many state laws provide for criminal sanctions against companies that monitor or record telephone calls without notice, as well as give a private right of action in civil courts against such companies to the person whose "privacy" rights are violated.  Moreover, many of the states that allow for civil actions expressly provide for the recovery of fixed statutory damages on a per call basis, even in the absence of any actual damages.  Minimum statutory damages vary depending on the state, but several states require $1,000 for each recording.  In California, the minimum is $5,000 for each recording.  Many of these statutes also allow for the recovery of punitive damages and attorneys' fees.

The creation of a private right of action, as well as the fixed damages provisions of these statutes, create an incentive for actions to be brought for violation of the statutes on behalf of a class of plaintiffs (i.e., class actions).  Such class actions are often brought on behalf of a class of consumers who engaged in telephone conversations with companies that are alleged to have deficient procedures for providing notification of monitoring or recording, or that experienced a technical breakdown in their automated systems for recording or monitoring.  In such cases, actual damages are minimal or simply do not exist, but each consumer nevertheless may be entitled to the minimum statutory damages for each illegal recording.  For companies that have hundreds or thousands of calls per month, the potential liability can easily reach enormous proportions in the multibillion-dollar range.  Indeed, under California law, recording or monitoring only 200,000 calls without the required notice or consent can result in aggregate statutory damages of $1 billion.  This is true even if no one suffered any actual damages.

Interstate Recording and Monitoring: Twelve states have statutes that in some form or another require all parties to a telephone call to be notified or give consent to recording or monitoring.  When one of the parties to a telephone conversation is in a state that requires all parties to consent to recording, complex choice-of-law issues arise.  A comprehensive analysis of both states' laws will determine whether the party doing the recording can take cover under available safe harbor provisions.  For example, some states have an exception that allows recording that takes place in another state, or a choice-of-law provision or interpretation that only applies the law to recordings done in the state.  Other states have an exception that allows recording without notice for business or customer service purposes.

Businesses that take customer-facing calls from many different states must be wary of the recording laws in the states in which they do the recording, and the states from which they receive or to which they make calls.  Indeed, in 2006, the California Supreme Court decided to apply California Penal Code section 632 - which requires that both parties be notified of, or consent to, monitoring or recording - to calls in which any of the parties is located in California, even if the recording or monitoring took place in a state that allowed recording or monitoring without notice or consent (see Kearney v. Salomon Smith Barney, Inc., 39 Cal. 4th 95, 2006).  The safest approach is to always provide notification of monitoring or recording on every call.  However, even then there may be issues of whether the type of notification given was sufficient to obtain consent to recording.

Notification and Consent: What's the Right Way? There are many different ways that a company may attempt to provide notice of, or obtain a consumer's consent to, monitoring or recording.  For example, a company can give written notification of telephone monitoring or recording in their customer account agreements, email communications, or invoices.  A company may also provide automated notification of recording before a call is routed to an agent, or by using automatic beep tones during a call.  A company may even instruct its customer service agents to inform customers of the possibility of monitoring or recording at the beginning of each call.  Whether any of these methods is sufficient to constitute "consent" under the statutes requiring all parties' consent to recording depends on the state's law.  No statute is specific with regard to the manner in which a person may comply with its provisions, or the manner in which consent may be implied or confidentiality defeated, although some states do have regulations on the subject.  The issue is mainly explored and analyzed through court interpretations, support for which is derived from regulations promulgated by public utility commissions and tariffs of telephone communication carriers.   

For example, the California Supreme Court has discussed the effect of verbal warnings, stating directly that "[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 the [Statute]" (Kearney v. Salomon Smith Barney, Inc., 39 Cal. 4th 95, 118, 2006).  The rationale is that "if, after being so advised, another party does not wish to participate in the conversation, he or she simply may decline to continue the communication" (Ibid., emphasis omitted).  Thus, if the party then continues with the call, he or she no longer can have a reasonable expectation that the call was not being recorded, thereby implying consent to the recording.  In California, courts that have interpreted the statute have not had the occasion to analyze or decide whether tone warnings may defeat confidentiality under the statute.  However, one court has mentioned such circumstance in passing. 

Courts have also opined that several existing legal protections for communications could support the conclusion that a person did or did not possess a reasonable expectation of privacy in a conversation.  One such existing protection is found in the regulations of the Public Utilities Commission of the State of California.  General Order 107-B, for example, provides that notice of recording shall be given "by an automatic tone warning device" or "by verbal announcement by the operator of monitoring equipment to the parties to the communication that their communication is being monitored."  However, whether compliance with CPUC Regulation establishes immunity from suit under the California Penal Code has not been decided. 

Even if notifications of monitoring or recording are provided, it would be wise to have a system that creates and maintains proof that such notification was given.  Accurate records should also be kept of the dates the recordings started, backup procedures, storage of recordings, and software that can accurately quantify and capture call volumes, caller identifying information (including phone numbers), and other data.

Conclusion: There are additional factors that may come into play regarding the liability analysis for recording calls.  For example, some states, like California, make it illegal to record a telephone conversation only when the conversation is "confidential" - meaning that one of the parties has a reasonable expectation that the call would not be overheard or recorded.  Because of the complexity of the analysis for any given case, companies would be wise to engage experienced attorneys to analyze and offer recommendations on their monitoring and recording practices.  Otherwise, they may find themselves defending a "bet the company" class-action lawsuit.

Perrie Weiner, Edward Totino, Joshua Briones, and Ana Tagvoryan are with the law firm DLA Piper.