Are you breaking the law by recording calls?
 
Are you breaking the law by recording calls?
10 JULY 2015 6:28 AM
This seemingly innocuous business practice of recording customer service calls without providing some variation of the oft-heard disclosure has the potential to financially cripple a business.
In the past few years, class action plaintiffs have recovered billions of dollars in punitive damages by exploiting strict liability laws that punish businesses for failing to properly notify customers when a phone call is being recorded. 
 
Under the Federal Telephone Consumer Protection Act and similar state statutes, businesses including hotels are prohibited from using certain tactics when telemarketing or making calls to solicit potential guests or customers. Hotels and other businesses are precluded from making calls or using any kind of prerecorded message, unless the caller has obtained a recipient’s prior express consent in writing or electronically. 
 
Additionally, hoteliers are prohibited from making calls to residences before 8 a.m. and after 9 p.m., and a future hotel guest calling to confirm a reservation also must be notified if the call is recorded. Hence, under these laws, if a hotel receptionist in Montana receives a call from a California resident to confirm a reservation but never notifies the recipient that the call is being recorded, it could result in damages ranging from $500 to $5,000 per call under federal and state laws.
 
This seemingly innocuous business practice of recording customer service calls without providing some variation of the oft-heard disclosure, “This call may be monitored or recorded for quality assurance purposes” has the potential to financially cripple a business.
 
Consumer class action attorneys are capitalizing on the snare traps in these well-intentioned laws and attacking hotels and other businesses for the benign recording and monitoring of calls with consumers. The California Invasion of Privacy Act was enacted 47 years ago. The intent of the law was to protect the public from unscrupulous, clandestine wiretapping and eavesdropping for unjustified reasons. 
 
Ultimately, legislators sought to thwart espionage, blackmail and theft of trade secrets. The law was never intended to be used as a hindrance to businesses improving their customer service procedures. Until recently, instead of looking to legislative intent, California courts were far too apt to simply rely on the strict liability interpretation of the statute.
 
Hilton Worldwide Holdings case
California has recently seen a rash of class action lawsuits of this type brought under CIPA. Twelve states, including California, require that all parties consent to a phone recording, often referred to as the “two-party consent” states. Other heavily populated states including Florida and Illinois also have strict liability laws regarding the everyday practice of recording calls between businesses and customers. 
 
In Young v. Hilton Worldwide Inc. et al., a high profile California lawsuit (resolved last year), class action plaintiffs sued Hilton Worldwide, alleging one of its subsidiaries, Hilton Grand, had illegally recorded roughly 37 million incoming customer service cellphone calls regarding reservations and other billing issues with more than 6 million hotel guest customers over the course of four years.
 
On behalf of the class, plaintiff Young alleged that Hilton Grand was recording these calls without obtaining the requisite consent required under CIPA Sections 632 and 632.7. Under the strict liability provisions of CIPA, each call violating the statute could have resulted in a $5,000 penalty for the hotel. Specifically, named plaintiff Rick Young alleged that he had placed a phone call to 1-800-HAMPTON to update his credit card information and was never told he was being recorded, therefore, compromising his private financial information.
 
The issue of consent in this case was hotly contested. After remand on appeal from the Ninth Circuit, the district court judge ultimately dismissed the putative class action, ruling that CIPA’s consent provisions aimed at protecting against clandestine wiretapping and eavesdropping do not apply to ordinary business service-observing and monitoring activities. In concluding that the claims could not continue the judge stated “(t)he context of the statutory scheme along with legislative history make it clear that Section 632.7 does not reach Hilton’s alleged activity. … Hilton had permission to receive the phone calls and service-observing recordings are exempted.”
 
Takeaway for hoteliers 
While the claims against Hilton Worldwide were dismissed based on the court’s observance of the legislative intent, each state has its own respective variation of CIPA, in conjunction with the TCPA to wrestle with; there is simply no telling what each jurisdiction will do with these sorts of claims. 
Unfortunately, more and more of these alleged class actions are likely. The strict liability nature of many of these statutes makes the potential for exposure high and settlement, even in the early stages, could be significantly costly, even if there are grounds for dismissal. 
 
Hotel owners and operators should be proactive in helping to prevent being targeted by implementing the appropriate technology and enforcement procedures for policies requiring employees making or receiving calls to obtain prior consent before any kind is recorded with a customer. Regardless of the content of the call, hoteliers should be ensuring that they are using automatic disclosures—in order to obtain consumer consent—if using an automatic recording system. If an operator becomes the target of one of these consumer privacy class actions, taking an aggressive approach and attacking these claims as incongruent with the legislative purpose and intent behind the respective statute is a recommended. 
 
Jordan Bernstein is a hospitality attorney at Michelman & Robinson, LLP (M&R), a national law firm with offices in Los Angeles, Orange County, San Francisco, Sacramento and New York. Mr. Bernstein can be reached at jbernstein@mrllp.com or 310.564.2670.
 
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