The line between wiretapping and quality assurance

Since at least the 1940s, companies have monitored telephone calls between their customers and customer-service employees. This familiar practice, sometimes known as "service-observing," helps ensure that employees are adequately trained and that customers are adequately served. Many companies announce the practice to every customer who calls in, usually through a recorded message interposed before a live person answers the call. Yet other companies let calls go straight through without warning that the service encounter may be monitored or recorded.

The latter group has been targeted by class actions asserting that their interactions with California residents violate the California Invasion of Privacy Act, or CIPA, Penal Code Sections 632, 632.7. CIPA requires that all parties to a conversation consent to monitoring or recording, in contrast to federal law, which forbids monitoring or recording only when neither party to the call has consented.

Most of the legal skirmishes in the early days of CIPA class actions involved claims that federal law preempted CIPA (at least as to interstate calls) or challenges to the geographic reach of CIPA, which has been applied to out-of-state call centers to the extent that customers have called in from California. The state Supreme Court rejected both of these arguments in 2006. See Kearney v. Salomon Smith Barney, 39 Cal. 4th 95 (2006).

More recently, however, defendants have revisited the scope of CIPA on its own terms, asserting that the law was never intended to outlaw service-observing, let alone criminalize it. (CIPA provides criminal penalties as well as a predicate for civil recoveries under the Unfair Competition Law.) CIPA's author, Assembly Speaker Jesse Unruh, indicated in a variety of public statements (including a letter to the governor) that the law was designed to prohibit and criminalize "clandestine wiretapping and eavesdropping" using "tiny" and "illegal" equipment.

Some courts have held that service-observing is not actionable in the first place. Some federal district courts had concluded that service-observing during customer calls is not actionable for a variety of reasons, including the Legislature's conclusion that the practice is "in the public's best interest," and a call-initiating customer's lack of a reasonable expectation of privacy. Sajfr v. BBG Communications Inc., 2012 WL 398991, at *6 (S.D. Cal. Jan. 10, 2012); see also Faulkner v. ADT Security Serv. Inc., 2011 WL 1812744 (N.D. Cal. May 12, 2011), aff'd, 706 F.3d 1017 (9th Cir. 2013).

Meanwhile, the 9th U.S. Circuit Court of Appeals has held that a single business hadn't violated CIPA because the business was "one person" under Section 632, and thus there was no third party who received or intercepted the communications. Thomasson v. GC Services Ltd. Partnership, 321 F. App'x 557, 559 (9th Cir. 2008).

The California state courts have not been fully receptive to these interpretations of CIPA. In Kight v. Cashcall Inc., 200 Cal. App. 4th 1377 (2011), the court concluded that the "same person" rationale could not apply to recordings even if it could apply to live monitoring, and that whether a customer had a reasonable expectation of privacy was a question of fact that depended on a variety of factors in the customer's relationship with the company

Businesses have argued that certain provisions in CIPA were originally included in to exempt service-observing from liability. The statute exempts from liability any use of "equipment ... furnished and used pursuant to the tariffs of a public utility." Some elements of the legislative history, including the Digest of Senate Amendments and additional statements by Unruh, explicitly characterize this language as exempting routine service-observing by businesses dealing with the public.

The difficulty for defendants has been the sweeping change in the structure of telephone service in the decades since CIPA was enacted in 1967. At that time, telephone service was a regulated monopoly, and all aspects of telephone service were provided under tariffs that were subject to regulatory review. For many years, end-users could not obtain telephone service without renting equipment from the telephone company. Telephone customers did not own their phones, and were prohibited from attaching equipment, such as monitoring and recording devices, to telephone lines unless the equipment was provided under the telephone company's tariff. Thus, when CIPA was enacted, all service-observing would have fallen within the exemption for use of "equipment ... furnished and used pursuant to the tariffs of a public utility."

But although tariffs remain in force for some telephone services, equipment on customers' premises was entirely detariffed by 1982. Yet the language of Section 632(e)(2) remains the same, and in addition was adopted without change in the 1992 amendments explicitly extending CIPA to calls on cellular and cordless phones.

As defendants put it, the question is whether the exemption for service-observing was intended to evaporate with changes in the structure of the telecommunications industry (and whether the provision in Section 632.7 was intended to be a nullity immediately upon its enactment, given the near-complete lack of tariffed equipment on customer premises by that time). Plaintiffs put the question as whether an exemption for tariffed utility equipment can be broadened beyond its terms.

Although state and federal trial courts have addressed the issue with conflicting results, each judicial system has only a single published appellate decision - and the two decisions are in tension if they do not outright conflict. It remains to be seen whether the state Supreme Court will definitively resolve the issue or whether over time call centers nationwide will adopt a California-directed system of universal notification before monitoring or recording conversations (as many vendors have).

Donald Falk is a partner in Mayer Brown LLP's Palo Alto office and James Tierney is an associate in the Washington DC office. They are both members of the firm's Supreme Court & Appellate practice.