CALIFORNIA LAW APPLIES TO BAR EMPLOYEES IN ANOTHER STATE FROM RECORDING TELEPHONE CONVERSATIONS THAT ORIGINATE FROM OR ARE MADE TO CALIFORNIA WITHOUT THE KNOWLEDGE OR CONSENT OF ALL PARTIES TO THE CONVERSATION

The California Penal Code makes it unlawful to record a telephone conversation without the knowledge or consent of all parties to the conversation. By contrast, federal law and the laws of the majority of states allow the recording of telephone conversations as long as at least one of the parties to the conversation consents to the recording.

Because of this conflict, in Kearney v. Salomon Smith Barney, Inc., 39 Cal.4th 95 (2006), the California Supreme Court was called upon to decide whether the company's employees located in Georgia (where the law allows for recording as long as one party to the conversation consents), were subject to the California statute and thus barred from recording conversations with clients in California without the clients' knowledge or consent. The Supreme Court held that when telephone calls are placed by or to individuals in California, California law should be applied.

The Supreme Court reasoned that to allow the company's employees in Georgia to record conversations with clients in California without the clients' knowledge or consent would significantly impair privacy rights that are guaranteed by California law and would potentially place California businesses (who are subject to the more restrictive California law) at a competitive disadvantage vis-a-vis their out-of-state counterparts. The Court further explained that California law only applies to telephone calls that are made to or received from persons in California. And more importantly, with respect to such calls, a business in another state that routinely records calls can easily comply with California law by simply informing callers, at the outset of the call, that the company will be recording the call. Finally, given the uncertainty of the outcome of this issue prior to its decision in Kearney, the Supreme Court held that it was appropriate to relieve Salomon Smith Barney from liability for its past conduct in reliance on Georgia law, but to require it and all other out-of-state businesses who make calls to and receive calls from individuals in California to comply with California law prospectively. "In light of our decision . . ., out-of-state companies that do business in California now are on notice that, with regard to future conduct, they are subject to California law with regard to the recording of telephone conversations made to or received from California, and that the full range of civil sanctions afforded by California law may be imposed for future violations."

This recent decision serves to illustrate that California's privacy laws are generally more protective of individual privacy rights than federal law or the laws of many other states. Companies that do business with California customers or that have any California employees must be aware of and comply with all applicable California laws. In the area of routine recording of telephone conversations, compliance with California law requires at a minimum that the parties to telephone conversations that are subject to recording be informed at the outset of the call of the company's policy of recording all such calls.