California: Payroll Service Providers Not Liable for Payroll Violations

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February 7, 2019

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In Goonewardene v. ADP, Inc., the California Supreme Court recently stated that a third-party payroll service provider could not be held liable for errors the service made in issuing paychecks to employees of the company it provides service to.  There, an employee sued both her employer and ADP, its payroll processing service, for wage and hour violations, including failure to provide adequate documentation and records, wrongful termination, breach of contract, and negligence, among others.  The former employee argued that she was a third-party beneficiary of the contract between ADP and her employer, and that ADP had been negligent in providing payroll services for her benefit.

However, the California Supreme Court stated that the plaintiff was not a third-party beneficiary of the relationship between her former employer and ADP, and therefore, plaintiff could not pursue a breach of contract claim against ADP.  The court clarified that ADP’s agreement with the employer (and the primary purpose of its contract with the employer) included services of calculating wages and issuing and delivering paychecks.  ADP’s services were not intended to benefit the plaintiff and the provider did not have a special duty of care to any given employee.  The court also analyzed and rejected the plaintiff’s claims of negligence and negligent misrepresentation for similar reasons, noting also that employees already had a remedy against their employers through existing labor statutes.

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2019 ManagEase

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