Goonewardene v. ADP
B267010M
| Cal. Ct. App. | Nov 29, 2016Background
- Goonewardene sued Altour and ADP (three ADP entities) alleging unpaid wages, wrongful termination, discrimination, and various torts; trial court sustained demurrer to claims against ADP without leave to amend and entered judgment for ADP.
- ADP provided payroll services to Altour (timekeeping, payroll calculation, earnings statements); plaintiff alleged ADP calculated wages, maintained records, and provided employee-facing tools.
- Plaintiff’s proposed sixth amended complaint (6AC) alleged ADP miscalculated overtime/double-time, issued deficient paystubs, and thereby underpaid and harmed plaintiff; she sought to plead claims against ADP as (1) employer, and alternatively (2) third‑party beneficiary and tortfeasor.
- The trial court refused leave to amend; the Court of Appeal reviewed de novo whether the 6AC stated causes of action and whether denial of leave to amend was an abuse of discretion.
- Court held most employer-based claims (Labor Code, FLSA, FEHA, wrongful termination) fail because ADP was a payroll-service provider, not plaintiff’s employer; but reversed as to three claims — breach of contract (third‑party beneficiary), negligent misrepresentation, and professional negligence — and remanded to allow those claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ADP was plaintiff’s employer for Labor Code/FLSA/FEHA/wrongful termination claims | ADP took over payroll functions and control over wage calculation, so it effectively employed or co‑employed plaintiff | ADP only performed payroll ministerial functions; it lacked hiring/firing power or authority to set rates; therefore not an employer | Not an employer; employer‑based claims dismissed (Futrell persuasive) |
| Whether Altour employees are third‑party beneficiaries of Altour–ADP contract (breach of contract) | ADP agreed (verbally) to perform Altour’s wage obligations (calculate wages, provide statements) for the benefit of employees, so employees are creditor beneficiaries | ADP contends third‑party beneficiary status is unsupported as a matter of law | Held: 6AC adequately alleges employees are third‑party beneficiaries; breach of contract claim may proceed |
| Whether ADP’s earnings statements/supporting communications support negligent misrepresentation | Earnings statements were positive assertions that were inaccurate (omitted overtime/double‑time, failed section 226 items); plaintiff reasonably relied until 2010 | ADP argues statements were based on employee‑supplied data and ADP had no primary role; also challenges reliance | Held: Negligent misrepresentation claim adequately pleaded (ADP allegedly created inaccurate statements, plaintiff justifiably relied) |
| Whether ADP owed a duty of care for professional negligence to plaintiff (no privity) | As an express third‑party creditor beneficiary, plaintiff is the practical equivalent of a contracting party; Biakanja factors and facts support duty | ADP relies on Bily limiting auditors’ duty to clients and argues no duty to third parties | Held: Professional negligence claim stated — duty exists here (third‑party beneficiary + Biakanja factors; Bily factors inapplicable) |
Key Cases Cited
- Futrell v. Payday California, Inc., 190 Cal. App. 4th 1419 (payroll vendor that only prepared paychecks is not an employer under Labor Code and FLSA tests)
- Martinez v. Combs, 49 Cal.4th 35 (IWC wage order definition of "employ" incorporates three alternative meanings and common‑law control test)
- Bily v. Arthur Young & Co., 3 Cal.4th 370 (limits auditors’ tort duty to clients; discusses third‑party beneficiary as potential exception)
- J’Aire Corp. v. Gregory, 24 Cal.3d 799 (Biakanja factors for imposing duty to nonprivity third parties)
- Del E. Webb Corp. v. Structural Materials Co., 123 Cal. App. 3d 593 (third‑party creditor beneficiary may enforce oral contract made to benefit them)
- Soderberg v. McKinney, 44 Cal. App. 4th 1760 (third‑party beneficiary status can be satisfied where contract benefits a class including plaintiff)
- Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (Proposition 64 standing: UCL/FAL plaintiff must plead injury in fact and loss of money or property caused by reliance on misrepresentations)
- Cel‑Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163 (UCL’s unfair prong must be tethered to public policy/statute in many contexts)