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Payroll company protected from liability to its client’s employees

February 7, 2019

In Goonewardene v. ADP, LLC, the Supreme Court today holds that an employee can sue her employer for unpaid wages, but not the independent company that the employer hired to perform payroll services. The court’s unanimous opinion by Chief Justice Tani-Cantil Sakauye rejects both contract and tort liability theories that the employee proposed.

The employee cannot sue as a third-party beneficiary of the contract between her employer and the payroll company because, the court finds, “providing a benefit to [the] employees with regard to the wages they receive is ordinarily not a motivating purpose of the contracting parties.” She also has no negligence or negligent misrepresentation cause of action because “it is neither necessary nor appropriate to impose upon a payroll company a tort duty of care with regard to the obligations owed to an employee under the applicable labor statutes and wage orders.” Apparently, this is not one of those cases where it’s appropriate to impose an “exceptional” common law tort duty to third parties.

The court reverses the Second District, Division Four, Court of Appeal.

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