Federal law allows employers to monitor phone calls unannounced with clients, customers and employees provided that they are business-related calls.  See 18 USC 2510.  California law provides much greater protection and requires that all parties to a call be informed that the conversation is being recorded or monitored.  Failure to notify before recording is a crime under California Penal Code section 632.

The California Supreme Court held that business and individuals calling California from states without a law requiring notice before recording a telephone conversation were subject to California law.  Kelly Kearney, et. al. v. Salomon Smith Barney, Inc., 39 Cal.4th 95 (2006).  The court reasoned that the foreign state, here Georgia, had less at stake in protecting the right of its citizens to record phone calls with Californians than California had in protecting its own citizens' privacy:

failure to apply California law in this context would impair California's interest in protecting the degree of privacy afforded to California residents by California law more severely than the application of California law would impair any interests of the State of Georgia.

Federal law first addressed monitoring phone calls in the Electronic Communications Privacy Act of 1986 (ECPA).  ECPA prohibits the interception of any wire, oral or electronic communication subjecting the offender to various civil and criminal penalties.  ECPA provides a "business exception" when monitoring is undertaken in the ordinary course of business.  Monitoring is "in the ordinary course of business" if it is a routine activity of the business in furtherance of a legitimate business goal.

Later courts applying ECPA in the Internet era held that a party reading e-mail stored on a server did not violate the act because it was not being intercepted during a communication, but rather retrieved from storage.  The concept of interception during a communication has proved key to understanding how to apply the law to post 1980s communications technology.

While employers are allowed to monitor "business calls" they are generally not allowed to monitor an employee's personal calls.  Under federal law, once the employer realizes that a phone call is personal, it must immediately stop monitoring the call and that monitoring a call once the employer knows it is personal removes the monitoring from the "ordinary course of busienss."  Watkins v. L.M. Berry & Co. 704 F.2d 577 (11th Cir. 1983).

Watkins also held that merely because an employee accepted employment with the company and knew of a monitoring policy, she did not actually consent to the interception of this particular phone call.  In Watkins, the court held that the employee consented to the monitoring of sales calls, but not personal calls and so the company's purposeful monitoring of a personal call went beyond the scope of the employee's consent.  The court noted that where a worker knows that a phone line is constantly monitored or recorded, for example, this would constitute implied consent.

Some cases have held that where an employer notifies employees not to make personal phone calls from specific business phones, but provides others for personal use, the employee takes the risk that calls on those phones may be monitored and gives implied consent to be monitored.

Employers that provide employees with a privacy policy that clearly discusses what regular monitoring to expect are less likely to be found in violation of ECPA.  Generally, if the employee has no expectation of privacy, then an invasion of this "non-privacy" violates neither ECPA, nor California Penal Code Section 632.  But if an employee learns that an employer has monitored her phone calls, e-mail, or other communications and the company has no written policy regarding such monitoring, it may be possible for the employee to recover damages and attorneys fees.