## Facts

- Sharmalee Goonewardene worked for Altour International, Inc.
- Altour contracted with ADP, LLC, an independent payroll provider, to perform payroll functions such as calculating wages and issuing paychecks and wage statements.
- Goonewardene alleged her paychecks and wage statements did not accurately reflect wages legally owed.
- She sought to hold ADP liable under: (1) breach of the payroll services contract as an intended third-party beneficiary, and (2) tort theories of negligence and negligent misrepresentation based on alleged payroll inaccuracies.

## Issues

1. Whether an employee may sue the employer’s payroll provider for breach of the payroll services contract as an intended third-party beneficiary.
2. Whether the payroll provider owes the employee a tort duty of care for purely economic loss from alleged wage underpayment.
3. Whether the employee may sue the payroll provider for negligent misrepresentation based on alleged inaccuracies in paychecks or wage statements connected to alleged unpaid wages.

## Decision

- The Supreme Court of California reversed the Court of Appeal insofar as it allowed the breach of contract (third-party beneficiary), negligence, and negligent misrepresentation claims against ADP to proceed.
- The court held the employee was not an intended third-party beneficiary of the payroll services contract and therefore lacked standing to sue for breach.
- The court held the employee could not maintain negligence or negligent misrepresentation claims against the payroll provider for economic loss tied to alleged unpaid wages.
- The dismissal of these causes of action against ADP was reinstated.

## Legal Principles

- A nonparty may sue for breach of contract as a third-party beneficiary only by showing: (1) the contract likely benefits the third party, (2) a motivating purpose of the contracting parties was to provide that benefit, and (3) allowing suit is consistent with the contract’s objectives and the contracting parties’ reasonable expectations.
- In ordinary payroll outsourcing arrangements, employees are typically incidental beneficiaries; the payroll contract’s purpose is to serve the employer’s payroll administration needs rather than to confer enforceable rights on employees.
- For alleged unpaid wages, California’s statutory wage scheme places responsibility and remedies primarily on the employer; recognizing tort liability against payroll vendors for wage underpayment would conflict with that allocation.
- Negligence and negligent misrepresentation claims cannot be used to impose wage-payment liability on a payroll provider where statutes do not treat the provider as the employee’s employer.

## Conclusion

The court held that an employee alleging unpaid wages must pursue wage recovery from the employer and may not proceed directly against the employer’s independent payroll company on third-party beneficiary, negligence, or negligent misrepresentation theories arising from payroll processing.


Goonewardene v. ADP, LLC, 6 Cal. 5th 817 (Cal. 2019)