5 Cal. App. 5th 154
Cal. Ct. App.2016Background
- Goonewardene sued Altour and ADP entities alleging unpaid wages, wrongful termination, discrimination, and related causes; ADP provided payroll services to Altour and produced plaintiffs’ pay statements.
- After multiple amendments, the trial court sustained a demurrer to the fifth amended complaint (5AC) without leave to amend as to many claims and entered dismissal; plaintiff proposed a sixth amended complaint (6AC).
- The 6AC alleged ADP prepared paychecks/earnings statements, maintained payroll records, applied wage-law rules, and miscalculated or omitted overtime/double-time and required itemizations.
- Plaintiff sought to hold ADP liable on employer-based theories (Labor Code, FLSA, FEHA, wrongful termination) and on non-employer theories (third-party beneficiary breach of contract, negligent misrepresentation, professional negligence, UCL/FAL).
- The Court of Appeal reviewed de novo whether any claims in the proposed 6AC were legally sufficient and whether the trial court abused its discretion in denying leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did court abuse discretion by denying leave to amend? | Proposed 6AC cures defects and states claims against ADP. | Demurrer properly sustained; 6AC repeats untenable employer-based theories. | Partially abused discretion: leave denied erroneously as to some claims (breach of contract as third-party beneficiary, negligent misrepresentation, negligence); denial affirmed for other claims. |
| Is ADP an "employer" for Labor Code / IWC wage-order claims? | ADP exercised control over wage calculation and payroll functions and thus was effectively employer/co-employer. | ADP merely performed payroll services; preparation of payroll is ministerial and does not establish employer status. | ADP was not plaintiff’s employer; Labor Code/wage-order claims based on employer status fail (Futrell framework). |
| Is ADP an employer under the FLSA (economic reality test)? | ADP had economic control (determined pay, maintained records) making it an employer under economic-reality factors. | ADP lacked power to hire/fire, set pay rates or control working conditions; it merely prepared payroll. | ADP not an employer under the FLSA; FLSA claims fail. |
| Can Altour employees enforce Altour–ADP contract as third-party beneficiaries? | Employees were intended beneficiaries because ADP agreed to perform wage-related duties for employees’ benefit. | ADP contends third-party-beneficiary status is not available as a matter of law here. | 6AC adequately pleads employees are at least creditor beneficiaries; breach-of-contract claim on that basis survives. |
| Does negligent misrepresentation/professional negligence lie against ADP? | ADP made positive, inaccurate pay statements and owed a duty to employees; ADP’s errors—not merely client-supplied data—caused injury. | ADP claims limited liability like secondary auditors (Bily), relying on client data; no justifiable reliance or special duty. | Negligent misrepresentation sufficiently pleaded (positive inaccurate pay statements, justifiable reliance). Professional negligence (duty) also pleaded because plaintiff is a third‑party creditor beneficiary and Bily’s auditor rationale is inapplicable on these facts. |
| Do FAL and UCL claims against ADP survive? | ADP’s advertising and representations induced injury; UCL/FAL remedies appropriate. | Plaintiff lacks reliance/standing under Proposition 64 and Kwikset; ADP derived no restitutionary benefit. | FAL fails for lack of alleged actual reliance/causation. UCL fails: employer‑based unfairness unlawful prong fails (ADP not an employer) and restitutionary relief fails because ADP did not receive benefits. |
| Can plaintiff assert aiding & abetting against ADP? | ADP knowingly assisted Altour in underpaying and terminating plaintiff. | No adequately pleaded underlying tort (e.g., conversion/theft) or facts showing substantial assistance/causation. | Aiding and abetting not pleaded in 6AC and plaintiff failed to show a viable claim or that amendment could cure defects. |
Key Cases Cited
- Futrell v. Payday California, Inc., 190 Cal.App.4th 1419 (Cal. Ct. App.) (payroll vendor that only prepared paychecks and maintained records is not employer for Labor Code/FLSA claims)
- Martinez v. Combs, 49 Cal.4th 35 (Cal.) (IWC wage‑order definition of "employ" includes control, suffer or permit, or common‑law employment test)
- Bily v. Arthur Young & Co., 3 Cal.4th 370 (Cal.) (limitations on auditor liability to third parties; duty and class of foreseeable plaintiffs)
- Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (Cal.) (UCL/FAL standing requires injury in fact and lost money/property caused by reliance on defendant’s misrepresentations)
- Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal.App.3d 1371 (Cal. Ct. App.) (appellate review may consider proposed amended complaint submitted on reconsideration)
- Del E. Webb Corp. v. Structural Materials Co., 123 Cal.App.3d 593 (Cal. Ct. App.) (oral contract may create third‑party creditor beneficiary rights)