Recording Customer Service Phone Calls: Permissible or Penal?

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Consumer protection attorneys across the country have made sure that copious numbers of plaintiffs have received billions of dollars in punitive damages for strict liability laws that punish businesses for failing to properly notify consumers that a call is being recorded.

Twelve states comprising more than one third of the entire U.S.  population, currently require that all parties consent to a phone recording—often referred to as “two-party consent” states.  Heavily populated states including California, Florida, and Illinois have strict liability laws regarding this everyday practice.  

The financial implications of noncompliance with these penal statutes are vast, and can impact any business that places a phone call to or receives a call from a resident in one of these 12 states. Under these laws, a hotel receptionist in Hawaii who receives a call from California residents to confirm a reservation but never notifies the recipient that the call is being recorded, may result in the resort being slapped with a $5,000 penalty for that call under California’s Invasion of Privacy Act (CIPA). The receptionist places and receives hundreds of these calls a week, perhaps thousands a month. It is not difficult to see how a class action lawsuit under one of these statutes could ruin a business.

This seemingly innocuous practice of recording customer service phone calls is one of the most hotly contested issues facing courts and businesses today. The area of law regulating this common business practice is advancing almost as rapidly as recording technology. Understanding the guidelines of CIPA and similar statutes in other states for monitoring or recording customer service phone calls for quality assurance purposes and, more importantly, implementation of effective legal strategies to overcome claims, is of paramount importance.

Consumer class action attorneys are exploiting these laws to attack businesses through perceived loopholes in well-intentioned statutes. CIPA is a perfect example; the California law was enacted by the California legislature 46 years ago. The legislative intent clearly is not in keeping with the motives of plaintiffs’ attorneys, who have exploited the plain language of the statute to the tune of billions of dollars paid to resolve these claims by businesses both inside and outside of California. Thankfully, the tide is turning. There is a recent trend among courts recognizing emerging legal defenses to these claims that for years have gone largely unasserted.

When the legislatures in the 12 two-party consent states enacted their statutes in 1967, they had specific goals in mind. In response to increased public concern over privacy invasions due to unprecedented advances in listening and eavesdropping technology, California’s then-Governor Ronald Reagan enacted CIPA to protect the public from unscrupulous, clandestine wire-tapping and eavesdropping for unjustified reasons. The intent of the law was to thwart espionage, blackmail, theft of trade secrets, and the like.  States throughout the country enacted similar laws to address these types of concerns.  California may be among the most penal, in that CIPA currently imposes a $5,000 penalty per call for unconsented recording or monitoring of “confidential communications. The general public has become accustomed to businesses obtaining consent by giving a disclosure such as “this call may be monitored or recorded for quality assurance purposes.” 

Today, consumer protection attorneys are exploiting these privacy protection laws to cash in on multi-million dollar windfall verdicts that were not intended by the state legislatures, and which threaten financial devastation to businesses.  The intention of businesses recording and monitoring these calls is to improve the quality of customer service and employee efficiency.  The irony concerning these policies is that they have been implemented for the benefit of the very consumers that consumer protection attorneys now seek to make putative class plaintiffs in class actions.  In recent years, this irony has not been lost on California courts forced to take a closer look at CIPA class actions flooding court dockets in near-record numbers. California courts are becoming increasingly educated on the issues and progressively leery of applying CIPA’s penalties to ordinary business call “service monitoring,” a practice the legislature determined in 1967 to be in the public’s best interest and not prohibited by CIPA.

For years, plaintiffs’ attorneys have filed lawsuits alleging that businesses “illegally” monitor or record phone calls of its customers for quality assurance purposes when they fail to first obtain the other party’s consent with the common disclosure that “the call may be monitored or recorded for quality assurance purposes.” The lawsuits allege that the “content” of the call is irrelevant, relying on a strict-liability interpretation of CIPA, and contend that the law is blind to the subject matter of the call. Plaintiffs’ attorneys misguidedly cling to cases such as Flanagan v. Flanagan (2002) and Kight v. CashCall, Inc. (2011) to support their proposition that CIPA protects against the act of simultaneous recording, regardless of what is actually said on the phone call.  However, this position ignores the intent of the statute.  

Defense attorneys have been slow to advance arguments that ordinary business call “service monitoring” is excepted from CIPA’s scope based upon the legislative intent, because such an exception does not appear in the plain text of the statute.  Hence, for years, both state and federal courts have analyzed violations of CIPA based purely on the plain letter of the law, without analyzing what the legislature actually intended. The failure by defense attorneys to educate the courts has resulted in numerous unfavorable outcomes for well-intentioned businesses not engaged in clandestine or unscrupulous monitoring or recording practices.

Fortunately, through the advancement of arguments educating courts as to the legislature’s true intent back in 1967, the tide has begun to change.  Recently, we successfully defended against a CIPA-based class action by presenting these precise arguments based upon the legislature’s true intent.  With eyes finally wide open, courts are now starting to see CIPA class actions for what they are—misapplications of a simple statute designed for a very specific purpose.  Effective advocacy has clarified for courts that these recordings will never likely be listened to or accessed, and that the recordings are not being used for the types of clandestine and unscrupulous purposes that Governor Reagan intended the statute to protect against.  

For businesses faced with such punitive lawsuits, increased focus on the legislative intent of a state’s statute is fundamental. What issue was a state’s legislature addressing? What was its true intent, and how was the law meant to be applied? Regarding these kinds of lawsuits, courts are increasingly giving significant weight to the legislative intent.  This provides an effective legal defense strategy in California, and the additional 11 “two-party consent” states.  

These laws can be detrimental to any business that makes contact with or receives a call from a resident of one of these two-party consent states.  An aggressive approach at the outset of litigation attacking these claims as incongruent with the purposes and intent of these statutes is the best practice. Businesses should not concede in the face of misplaced class action claims of this nature nor shy away from an aggressive defense posture in the face of consumer class action attorneys touting these statutes’ threatened penalties, as courts are now in their corner.