By Paul Besozzi and Monica Desai, Patton Boggs LLP
The Federal Communications Commission recently issued a ruling with significant implications for any company that hires independent telemarketers to sell its products or services.
Under the ruling, such companies may be held liable—albeit indirectly— for certain violations of the Telephone Consumer Protection Act (TCPA) committed by independent telemarketers working on their behalf.
The ruling responded to questions referred to the Commission from two lawsuits originating in Federal Court. The suits alleged violations of TCPA for prerecorded or artificial voice telemarketing calls to residences and telemarketing calls to phone numbers registered on the national Do-Not-Call list.
In ruling that companies whose independent telemarketers violated the TCPA could be “vicariously liable” for that conduct, the Commission clarified the notion of indirect liability under the TCPA, as liability for unlawful marketing calls made by a third-party agent on behalf of another entity.
Previously, the Commission had distinguished between calls made by a company selling a product or service and those made by a telemarketer on that company's behalf. The May 10 ruling confirmed that the “initiation” of a call by a third-party telemarketer cannot generally be attributed to the hiring seller.
While the Commission left open the possibility of circumstances in which a company may be held to have “initiated” a call placed by a third party, circumstances involving, for example, specific, comprehensive instructions, the ruling noted that current FCC rules reflect a clear distinction between calls made by the seller and those made by a telemarketer, and concluded that any regulatory change to that distinction would require a rulemaking proceeding. Instead, the Commission chose to explore the notion of indirect liability in the course of ruling on the questions referred.
In reaching its ruling, the Commission applied federal common law agency principles of formal agency, apparent authority and ratification as the basis of its ruling that vicarious liability applies to certain telemarketing calls made on behalf of a company selling a product or service by a third-party telemarketer.
For example, a company may be said to have “ratified” the conduct of a third-party telemarketer merely by “knowingly accepting the benefits” of the telemarketer's actions or conduct. It applied these agency principles to both types of TCPA violations—sales calls using prerecorded or artificial messages and calls made to households on the Do-Not-Call list.
Noting that the TCPA provides a private right of action for Do-Not-Call violations “by or on behalf of ‘a company,’ ” the Commission found that TCPA allows, at the very least, the application of federal common law agency principles of vicarious seller liability for Do-Not-Call violations.
The Commission declined to expand “on-behalf of liability” beyond these principles to encompass any call made simply to aid or benefit the seller, it did leave open the possibility of a broader standard of vicarious liability for Do-Not-Call violations at some future point.
Despite the absence of the “on-behalf-of” language in the private right of action for TCPA violations involving unlawful messages, the Commission concluded that TCPA prohibitions against such messages also incorporate the federal common law of agency and that such vicarious liability principles reasonably advance the goals of the TCPA with respect to this type of violation as well.
The Commission found this conclusion consistent with legal and regulatory precedent, noting that the company hiring independent telemarketers is in the best position to assess TCPA compliance by those telemarketers.
The Commission heard a number of concerns raised about possible vicarious liability under federal common law agency principles, including unacceptably heightened business risks, increased burden for legitimate telemarketing activities, reduced incentive for third-party telemarketers to comply with the TCPA because liability could be shifted to the sellers, and the extension of seller liability to marketing by “big-box stores and national dealers” that sell multiple manufacturers' products.
However, the ruling dismissed a number of these concerns as unfounded. Imposing vicarious liability on sellers, for example will not absolve telemarketers of joint liability. And to the extent that big-box stores or national dealers are selling on their own account—having purchased goods from the manufacturer for resale—the manufacturer would not be the seller at all.
Moreover, the Commission advised that companies wishing to engage in legitimate telemarketing can simultaneously employ independent telemarketers and protect their commercial interests by exercising reasonable care in selecting reputable agencies and monitoring their activities. For greater security, companies may also wish to include indemnification clauses in contracts with telemarketers.
The Commission provided examples of situations that would lead it to conclude that a third-party telemarketer is a company's authorized representative, and thus making a company liable for the third-party telemarketer's TCPA violations.
For example, granting a telemarketer access to information and systems normally under a company's exclusive control—such as details of the nature and pricing of products and services, or customer information—could easily lead to liability in the event of subsequent TCPA violations. Similarly, access to sales or customer systems could lead to similar liability, as could authorization to use a company's trade name, trademark and service mark.
Above all, companies hiring independent telemarketers must remain vigilant, constantly aware of the actions of those they hire to telemarket their services and products. The Commission has stated unequivocally that any company that knows or that reasonably should have known of TCPA violations by a third-party telemarketer in their employ and fails to take effective steps within its power to force the telemarketer to cease the conduct will be held responsible and can share in the liability and penalties levied upon the violator.
Class action litigation brought under the TCPA has been growing exponentially, and this decision could open the door for additional claims, now relying on the vicarious liability theory sanctioned by the Commission. It would be prudent in light of the FCC ruling, for companies who use such telemarketers to audit the terms and conditions of their existing agreements. Moreover, sellers should consider putting in place reasonable methods for monitoring and assessing the conduct of third-party telemarketers that they use or plan to use.
Companies impacted by the TCPA should also be aware that several unresolved petitions remain pending before the FCC. Issues that are under review include whether sending messages through certain technology triggers TCPA liability, whether companies sending facsimiles are required to include certain notice and contact information, and what constitutes “consent” under certain circumstances.
Paul Besozzi is a senior partner in the Technology and Communications Practice Group in the Washington, D.C., office of Patton Boggs LLP. He has represented clients at all levels of the FCC and various state regulatory agencies for almost 30 years. He has had significant experience and background in advising clients on the requirements and limitations of all aspects of the Telephone Consumer Protection Act and related FCC rules/precedent thereunder, including in the enforcement, rulemaking and compliance contexts. Most recently, he was involved in the successful representation at the FCC of a client seeking an exemption for certain health-care-related calls.
Monica Desai is a partner in the Washington, D.C., office of Patton Boggs LLP. She spent 11 years in various positions at the FCC, including as the Chief of the FCC's Consumer and Governmental Affairs Bureau, which handles all TCPA policy and rulemaking for the agency. In the private sector, she advises clients from the technology and communications sectors on the regulation of their industry by the FCC and the FTC.
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