A recent decision by the Supreme Court of California declares that workers don’t have the right to sue a payroll company with which their employer has a contract. This ruling is a reversal of a decision in a lower court. If that decision had been affirmed, employees would have been empowered to sue payroll companies for tort and breach of contract claims.
The case was Goonewardene v. ADP. Plaintiff Sharmalee Goonewardene sued her employer over unpaid wages. Later, her complaint was amended to include Automatic Data Processing, or ADP, which has a contract with her employer for payroll services. Goonewardene alleged that ADP had violated wage orders and the California Labor Code, effectively asserting that she was a joint employee of her employer and ADP.
Goonewardene accused ADP of negligent misrepresentation, professional negligence and breach of contract. However, a trial court dismissed these claims. Goonewardene appealed, and the appeals court decided that she didn’t have the right to sue ADP under the California Labor Code. Nonetheless, the court found that she could sue ADP for other claims such as breach of contract and negligence because she was a third-party beneficiary of the contract between her workplace and ADP. This appeals court opinion made it possible for workers across the state to jointly sue their employer and their employer’s payroll processor.
The Supreme Court of California was called upon to review the case. This court disagreed that the plaintiff was a third-party beneficiary of the contract. The decision was based on the theory that any employer’s agreement with a company like ADP is for their benefit rather than the benefit of employees. Moreover, imposing liability on a payroll services company was judged to be against the expectation of the two parties to the contract.
With this Supreme Court decision, it is clear that a payroll company is not a joint employer with its clients, nor does such a company owe a duty of care to the employees of clients. This is likely to minimize the number of lawsuits that would have proliferated if the appeals court decision had been sustained.
If you are an California employer or business owner with questions about any legal issue feel free to contact me, attorney Richard Oppenheim at 818-461-8500 or via the Contact form on this page.