Earlier this year, a putative class action complaint was filed against Sierra Trading Post alleging that the clothing and outdoor sporting goods retailer recorded consumers’ phone calls with company support desk representatives in which consumers divulged personal financial information, without consent, in violation of the California’s Invasion of Privacy Act, (Cal. Penal Code § 630 et seq). The representative plaintiff sought statutory damages of $5,000 per phone call on behalf of the class, and alleged that neither he nor others in the class were told that the “telephone communication was being recorded.” Sierra Trading Post moved to dismiss the case, but the court has denied that motion, disagreeing with the company’s two arguments. First, Sierra Trading Post argued that the customer failed to allege he engaged in a confidential communication with Sierra Trading Post, in violation of the California law (which requires consent of all parties to a conversation before a conversation can be recorded). Second, that the conversations were exempt from liability as a matter of law under a statutory exemption that should be applied to “service-observing,” or recording conversations for quality assurance purposes. In declining to dismiss the action, the court noted that California courts construe the Privacy Act broadly. Unlike a basic customer service call in which a customer calls to dispute a charge, a phone call in which a customer discloses financial information is sufficient to establish a confidential communication. The court also disagreed with the company’s “service observing” exemption argument, finding that the Sierra Trading Post had failed to allege sufficient facts for the exemption to be deemed to apply (the exemption arguably exists when recording is done pursuant to a published tariff).   

TIP: California, like many states, is a two-party call-recording state. Companies should ensure that they address consent requirements when setting up customer service hotlines. If working with vendors to provide these services, companies should ensure that they understand and follow call-recording laws, including requirements surrounding consent to record confidential communications – like ones where financial information will be disclosed.