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Published: 2008-03-26

Can an Employer Monitor the Telephone Calls of an Employee Who the Employer Believes is Revealing Confidential Company Trade Secrets?



Does an employer have the right to monitor telephone conversations of its employees if the employer believes its employees are revealing confidential information and/or trade secrets? The question must be reviewed under both Federal and State law. The article below attempts to provide guidelines to employers concerned with this issue.

I. Federal Law

The Federal Omnibus Crime Control and Safe Streets Act of 1968, also known as the Federal Wire Tapping Act (Hereinafter "Act"), prohibits interception of oral and electronic communications. See 18 U.S.C. §§ 2510-2520. The statute was amended in 1986 to cover electronic communications, and amended again in 1994 to protect cordless telephone communications.

This Act creates criminal liability for any person who "intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication." See 18 U.S.C. § 2511(1). The statute also makes it illegal to use any electronic, mechanical or other devices to intercept oral communications except under specified circumstances. Id. Under this Act it is also illegal to disclose or otherwise use the contexts of illegally intercepted communications. See 18 U.S.C. § 2515. Violations of the statutes are punishable by criminal and civil penalties, including punitive damages.

However, the Act provides a potentially crucial exception for business employers. First, the Act provides that there is no violation where one of the parties (i.e., the employee) has given prior consent to have a communication intercepted. See 18 U.S.C. § 2511 (2)(d). Moreover, the courts have interpreted sections of the Act to exclude a company's extension telephones use "in the ordinary course of its businesses" from the definition of "electronic, mechanical or other devices to intercept oral communications." See 18 U.S.C. § 2510 (4),(5).

Under the so-called "telephone extension" or "business extension" exception, if the interception of an oral communication is (1) made with interception equipment furnished to the employer by a communication services provider, and (2) made within the ordinary course of business, there is no interception as defined by the statute. Thus, a major issue arising from this exception is what falls into the ordinary course of business.

The monitoring of business calls is clearly within the ordinary course of business, and thus does not violate the federal Act. Yet, complications arise when personal conversations were monitored, and therefore could have been intercepted, as the statute defines the term. It is possible for an employer to defeat this claim by enacting a written policy that either clearly identifies monitored lines or expressly prohibits personal calls on monitored lines. This policy will also serve to reinforce the notion that the employee has a reduced expectation of privacy. Employers invoking this exception must also articulate a legitimate business interest in monitoring oral communications over the telephone. Courts that have addressed this issue analyze what constitutes a legitimate business interest and what type of surveillance is acceptable under the federal Act.

There are numerous court decisions addressing the "business extension" exception. Some of these court decisions find the "business extension" exception applicable and other decisions do not. In James v. Newspaper Agency Corp., 591 F. 2d 579 (10th Cir. 1979), the employer had monitoring equipment installed by the telephone company, and it informed its employees in writing that phone calls in certain departments (particularly those dealing with the public) would be monitored, both for quality control purposes and as some protection for employees from abusive calls. The 10th Circuit noted that the monitoring was not done surreptitiously, and ruled in favor of the employer, concluding that the business extension exception applied.

In Simmons v. Southwestern Bell Telephone Co., 452 F. Supp. 392 (W.D. Okla. 1978) the employer had a written policy that certain specified telephone lines would be monitored for quality control of its employees. Additionally, the employer prohibited personal calls on those lines. An employee sued when he learned that his personal calls on these telephone lines had been monitored. The court ruled that the employer monitored these telephone lines in the ordinary course of business, and in so doing, the Court relied on defendant's policy against the use of these phones for personal calls. The Court emphasized that the employee had been warned about making personal calls on these lines and knew of other lines in the office that were not monitored. The Court concluded that the employer had a legitimate business interest and the continuous monitoring of these lines for quality control purposes was upheld.

In a case somewhat similar to the Simmon's Case, the 5th Circuit in Briggs v. American Air Filter Co., Inc., 630 F. 2d. 414 (5th Cir. 1980), held for the employer where it found that an employee's supervisor had particular suspicions that the employee was disclosing confidential information to a business competitor, had warned the employee not to disclose such information, and knew that a particular telephone call was with an agent of the competitor. The court held that it was within the "course of business" for the supervisor to listen to the conversation on an extension phone as long as the call involved the type of information he feared was being disclosed and the extension telephone extension used to monitor the call was made with interception equipment furnished to the employer by a communication services provider.

In Watkins v. L.M. Berry & Co., 704 F.2d 577 (11th Cir. 1983), the employer had a policy of monitoring employees sales calls. The employees, however, were advised that their personal calls would not be monitored except to the extent necessary to determine that the call was of a personal nature. The employee sued when he discovered that the employer had monitored a call in which the employee discussed a job interview with a perspective employer. The court found that the interception was not in the ordinary course of the employer's business. The Court relied principally on the fact that the employee was an at-will employee and the employer had no legal interest in his future employment plans. The Court stressed that "in the ordinary course of business" cannot be extended to mean anything about which an employer is curious. The Court concluded that personal calls could not be intercepted in the ordinary course of business under the employers stated policy, except to the extent necessary to determine whether the call was personal or not. The Court distinguished this case from the holding in the Simmons case.

In Deal v. Spears, 980 f.2d. 1153 (8th Cir. 1992) the 8th Circuit held that the employer violated the statute by tape recording and listening to all calls, including personal calls, even though the employer's suspicions of theft were a valid reason to monitor calls to the extent necessary to determine their nature.

The "business extension" exclusion also requires that the monitoring equipment used to monitor telephone calls be standard telephone related equipment supplied by the service provider for connection to the phone system. Recent decisions have excluded phone monitoring equipment that was not normal telephone equipment neither obtained, nor installed by a standard service provider.

In Deal v. Spears, the 8th Circuit did not uphold an employer's right to intercept employees telephone calls under the "business extension" exception when it found the employer purchased a recorder at Radio Shack, privately connected the recorder to an extension phone line to automatically recorded all conversations. Since the recorder installed did not qualify as normal telephone equipment, the exclusion to the Act did not apply.

In Williams v. Poulos, 11 F.3d 271 (4th Cir. 1994), the 1st Circuit determined that a custom-made monitoring system consisting of "alligator clips attached to a microphone cable at one end" and an interface connecting [a] microphone cable to a VCR and video camera on the other cannot be considered telephone equipment.

In Sanders v. Robert Bosch Corp., 38 F. 3d 736 (4th Cir. 1994), the 4th Circuit found that a reel-to-reel tape recorder that continuously recorded certain telephone lines did not qualify for the exclusion, since it did not further the plant's communication system.

Finally, in Pascale v. Carolina Freight Carriers Corp., 898 F.Supp. 276 (D.N.J. 1995), the District Court in New Jersey held that tape recorders that the employer installed to intercept employees' telephone conversations were not "telephone instruments or equipment" for purposes of the "business extension" exception under the Act. Citing Poulos and Sanders, the District Court found that the tape recorders did not further the employer's communications system in that they did not have a positive impact on efficiency, clarity, or cost of the system.

II. New Jersey State Law

New Jersey law offers statutory wiretapping protection similar to the federal Act. The New Jersey Wire Tapping and Electronic Surveillance Control Act prohibits the interception of wire and oral communications, and provides both criminal and civil remedies, including punitive damages and attorneys fees. See N.J.S.A. 2A:156-24, et seq. Although the state Act has exceptions similar to those found in the Federal Act, New Jersey state courts have not yet addressed the issue of telephone monitoring in the private employer-employee setting. The cases analyzing the state Act focus on criminal actions. Nevertheless, the state statute largely follows the federal statute. See Poulos, 898 F. Supp. at 281 (citing State v. Minter, 116 N.J. 269 (1989)).

The aforementioned cases provide guidance to an employer who contemplates monitoring the telephone conversations of its employees under the "business exception". While this article serves as an oversimplified guideline, these employers should consult with legal counsel for a more thorough analysis of the employers own situation.