Bill will not provide relief for businesses recording calls

Last month, the California Assembly Committee on Public Safety approved Assembly Bill 925, an act introduced by newly elected Rep. Evan Low to amend California Penal Code Section 632.7, which is part of the California Invasion of Privacy Act (CIPA). While AB 925 seeks to assist businesses who record calls for quality assurance purposes and curb lawsuits, the actual proposed changes may have the opposite effect.

CIPA was originally enacted in the 1960s to put a stop to "unethical industrial espionage and spying operations in California." Part of CIPA, Penal Code Section 632, prohibits the intentional recording of "confidential communications" without consent.

The legislative history of CIPA reveals the law was never intended to cover routine recording and monitoring of calls by businesses for quality assurance purposes. A Senate Digest from 1967 provides that CIPA "will insure that justifiable and regulated use of devices for overhearing employees' business conversations may continue unimpeded. This practice is known as 'service-observing.'" A letter from Jesse Unruh, the sponsor of the bill which became CIPA, responding to criticism, states that "[u]nder [the law], it would continue to be perfectly legal to monitor business calls, to insure proper service of customers by employees." Responding to concerns from businesses that service-observing would be outlawed by CIPA, Unruh wrote then-Gov. Ronald Reagan stating, "we have exempted from coverage under the measure normal business telephone monitoring, known as 'service-observing." This exception for service-observing was embodied in Section 632(e)(2), which exempts the "use of any instrument, equipment, facility, or service furnished and used pursuant to the tariffs of a public utility."

The exemption clearly was intended to allow service-observing - i.e., quality assurance recording or monitoring. When CIPA was enacted, all telephone equipment was furnished by a telecommunications carrier and used pursuant to its filed tariffs. Any business that obtained telephone recording equipment from its carrier to record customer service calls was exempt. But today businesses no longer obtain their telephone equipment from the telephone company, and often no longer use telecommunications services pursuant to filed tariffs. As a result, looking at Section 632(e)(2), without reference to the historical context, renders the exemption meaningless.

Section 632.7 followed several other statutes enacted with the rise of cellphones and other wireless devices, including Sections 632.5 and 632.6. One of the most notable features of Section 632.7 is that, unlike Section 632, it is not limited to "confidential communications." The impetus for Section 632.7 was an incident where someone used a scanner to eavesdrop on a cordless telephone call between businessmen interested in buying a professional sports team, recorded that call, and offered to sell the recording. In response, Rep. Lloyd Connelly authored a bill which became Section 632.7. Connelly said the statute was needed because persons using cellular or cordless telephones do not "reasonably anticipate that their conversations will be both intercepted and recorded." The evil to be prevented by the statute is the intercepting and recording of the call while it is being transmitted between certain types of devices over the airwaves. Notably, Section 632.7(b)(2) carries over the same "service-observing" exception from Section 632(e)(2).

Because of the available statutory damages, which plaintiff's lawyers and some courts have interpreted to mean $5,000 per recorded call or per violation rather than per action, call recording litigation, and in particular, class actions brought under Section 632.7, have exploded.

AB 925's author statement recognizes that Section 632.7 in its current form is problematic for businesses engaged in service-observing. Rep. Low said, "[w]e have recently seen a number of examples of lawsuits based on entirely routine and benign conduct. For example, one class action alleged a violation of 632.7 based on the recording of a conversation where the answering party stated that the caller dialed the wrong number ... [a]lthough the conversation last only a few seconds and contained no confidential or private information, plaintiffs sought extensive damages under Section 632.7."

The proposed changes to Section 632.7 include the following exception: "A nonconfidential communication between a person or business and a current or former customer of the person or business, or a person reasonably believed to be a current or former customer, regarding their business relationship, including, but not limited to, communications regarding billing, provisioning, maintaining, or operating the product or service provided by the person or business."

In short, AB 925 sought "to apply an exception to the prohibition against eavesdropping in Penal Code Section 632.7 for communications from business to current and former customers." The Assembly committee, however, also approved an amendment requiring that customers be told 20 seconds into the conversation that the call may be recorded.

First, requiring a recording disclosure 20 seconds into the conversation is contrary to the fundamental tenets of CIPA. The act, including Section 632.7, only prohibit recording or monitoring without all parties' consent. There is no requirement that consent must be obtained contemporaneously with the call or that a verbal recording disclosure must be given. By contrast, the California Public Utilities Commission has said consent may be obtained prior to recording, for instance in a written disclosure.

Additionally, the Federal Communications Commission has issued a regulation stating that consent to recording may be obtained by prior written consent. Indeed, many businesses rely on written consent to recording in terms and conditions, account agreements, or other written contracts with their customers. The proposed amendment requiring verbal disclosure within 20 seconds would simply open the door to more lawsuits. Just imagine, a business may be sued in a class action for providing the verbal disclosure at second 21, rather than at second 20. The drafters of AB 925 should not amend Section 632.7 to provide a verbal disclosure requirement where none is necessary.

Similarly, confusion over what constitutes "nonconfidential" information will just stir up more litigation - the statute refers to "billing" as nonconfidential, though "billing" likely includes information many would consider confidential, such as account numbers.

A better way to achieve AB 925's purpose is to clarify the out-of date servicing-observing exemption by making it explicitly cover the recording of calls by businesses in the ordinary course of business for quality assurance, training or other legitimate business purposes. Adding such a general business exception would not only be in line with the original purpose of CIPA, but it would remain true to the language and intent of Section 632.7, which was designed to prevent the interception and recording of calls while being transmitted over the airwaves. Indeed, several other states have an "ordinary course of business" exception, such as Illinois and Florida.

It is clear that CIPA needs reform. Unfortunately for most businesses, AB 925 will not provide the relief they seek.

Edward D. Totino is a partner in DLA Piper's Los Angeles office. You can reach him at edward.totino@dlapiper.com. Monica D. Scott is an associate in DLA Piper LLP's Los Angeles office. You can reach her at monica.scott@dlapiper.com.