Vicarious Liability in Telemarketing: Why Your Vendor’s Mistake Could Be Your Problem

If you’re a business using third-party telemarketing services to promote your products or services, a recent ruling in Texas should be a wake-up call. In Salaiz v. VSC Operations, a Texas Federal Court found that a product provider can be held liable for a vendor’s failure to register as a telemarketer, even if the provider itself did not directly make any calls. This case sets a precedent for vicarious liability, which is holding businesses accountable for their third-party telemarketing partners’ compliance failures and highlights the importance of vetting vendors thoroughly.

The Salaiz v. VSC Operations Case

In Salaiz v. VSC Operations, the defendant, VSC Operations, which administers vehicle warranty products, faced legal action because its telemarketing agent failed to register as a telemarketer in Texas. The Texas Business and Commerce Code § 302.101 mandates that telemarketers must register with the state, but VSC’s third-party vendor did not meet this requirement.

VSC argued that it should not be held liable since it did not directly make the calls. However, the court disagreed, ruling that because the telemarketing agent was acting on behalf of VSC, the company could be held responsible for ensuring the vendor’s compliance with registration requirements. This ruling highlights a compliance risk for businesses using third-party telemarketing services: they may be held liable for their vendors’ regulatory failures, even if they do not engage in the telemarketing activities directly.

Why This Ruling Matters

The ruling in this case is significant for several reasons:

1. Precedent for Liability: This is one of the first cases where a product provider has been held potentially liable specifically for a third-party telemarketer’s failure to register with a state. It sets a legal precedent that could impact similar cases in other states.
2. Vicarious Liability: The court’s decision emphasizes the concept of vicarious liability in telemarketing compliance. Even if a company does not directly engage in telemarketing activities, it can still be held liable for the actions of its agents if they are acting on its behalf.
3. State Registration Requirements: Approximately 34 states, plus Washington D.C., require telemarketers to register before making sales calls. These requirements vary, with some states offering specific exemptions. However, this case shows that businesses cannot rely solely on exemptions or assume that their vendors are compliant.

What This Means for Businesses Using Telemarketing Services

The common theme in these types of cases is the emphasis on due diligence. Businesses cannot simply assume that their third-party telemarketing vendors are complying with the specifics of state telemarketing laws like registration requirements. Instead, they must take proactive steps to verify compliance, including:

1. Vendor Screening: Before entering into a contract, conduct a thorough background check on telemarketing vendors to ensure they are registered in all states where they plan to operate.
2. Compliance Audits: Regularly audit telemarketing vendors for compliance with state and federal telemarketing laws. This includes checking registration status and ensuring adherence to Do Not Call (DNC) lists and consent requirements.
3. Contractual Safeguards: Include clauses in contracts with telemarketing vendors that require compliance with all applicable telemarketing laws. Consider adding indemnification clauses to protect your business from potential legal action.
4. Ongoing Monitoring: Compliance is not a one-time event. Implement a system to continually monitor your vendors’ registration status and adherence to legal requirements.

Conclusion

The Salaiz v. VSC Operations case is a warning for businesses: you are responsible for the actions of your telemarketing partners. Failing to verify whether your vendors are properly registered can lead to significant legal and financial consequences. As telemarketing regulations continue to tighten and professional plaintiffs continue utilizing various tactics in lawsuits, businesses must prioritize compliance and thoroughly vet all third-party partners to mitigate risks.

By implementing rigorous compliance measures, you can protect your company from costly litigation and maintain a strong reputation in the marketplace. In an environment where professional plaintiffs and regulators are increasingly vigilant, staying proactive is the best defense against TCPA and state telemarketing law violations.

CompliancePoint’s Telemarketer Registration Support Service (TRSS) provides a convenient way for companies to become registered in necessary states while helping navigate the complexities of the different state requirements and processes. If you have any questions about telemarketing registration or other concerns, please contact us at connect@compliancepoint.com.