Court: 3rd-Party Payroll Processor Not Liable for Paycheck Errors

From Payroll

February 7, 2019

By Christine Pulfrey

Third-party payroll processors may not be held liable by employees for paycheck errors, the California Supreme Court said Feb. 7.

The state high court said an appeals court was wrong in ruling that employees may bring a lawsuit for unpaid wages against a payroll provider for breach of contract with the employer, negligence, and negligent misrepresentation. The high court said the payroll provider may not be properly considered to be an employer.

Employees are not third-party beneficiaries who may bring a claim against a payroll company for a breach of contract between the processor and the employer regarding wage payments, the high court said in its opinion. The case did not address employer liability.

The issues addressed by the high court arose after a worker who had brought claims including missed overtime and breaks and wrongful overtime against her former extended her claim to include the employer’s payroll processor, ADP LLC. By failing to provide accurate paychecks, ADP had engaged in unfair business practices, she said.

A state appeals court ruled that ADP owed the employee as a third-party beneficiary of the employer’s contract with the payroll-processing company. The court said the employee could file a lawsuit for breach of contract and negligent misrepresentation, the court said. The errors related to

The California Labor Code does not allow employers to assign to third parties the duty for accurate wage statements, so an employee claim of improper wages belongs with the employer, not a third-party processor, an attorney for ADP claimed.

Among the 15 briefs filed in support of ADP, were briefs filed by Paychex Inc., the National Payroll Reporting Consortium, and American Payroll Association.

The case is Goonewardene v. ADP, LLC, Cal., No. S238941, opinion 2/7/19 .

To contact the reporter on this story: Christine Pulfrey in Washington at cpulfrey@bloombergtax.com

To contact the editors responsible for this story: Michael Baer at mbaer@bloombergtax.com; Michael Trimarchi at mtrimarchi@bloombergtax.com

Copyright © 2019 The Bureau of National Affairs, Inc. All Rights Reserved.


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