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Date: 02-08-2019

Case Style: Sharmalee Goonew Ardene v. ADP, LLC

Case Number: S238941

Judge: Cantil-Sakauye, C. J.

Court: Supreme Court of California

Plaintiff's Attorney: Glen Robert Broemer

Defendant's Attorney: Thomas M. Peterson, Zachary S. Hill and Robert A. Lewis

Description: Opinion of the Court by Cantil-Sakauye, C. J.
Under the Labor Code, an employee who believes he or
she has not been paid the wages due under the applicable labor
statutes and wage orders may bring a civil action against his
or her employer. (See, e.g., Lab. Code, § 1194; Martinez v.
Combs (2010) 49 Cal.4th 35, 49-51; see also Lab. Code, § 2699.)
This case presents the question whether, when an employer
hires an independent payroll service provider (hereafter
payroll company) to take over all the payroll tasks that would
otherwise be performed by an internal payroll department, the
employee may bring a civil action against not only his or her
employer but against the payroll company as well.
The Court of Appeal, while agreeing with prior appellate
court decisions that a payroll company cannot properly be
considered an employer of the hiring business’s employee that
may be liable under the applicable labor statutes for failure to
pay wages that are due, held that the employee may
nonetheless maintain causes of action for unpaid wages
against the payroll company for (1) breach of the payroll
company’s contract with the employer under the third party
beneficiary doctrine, (2) negligence, and (3) negligent
misrepresentation. We granted review to determine the
validity of the Court of Appeal’s conclusions with respect to
these three causes of action.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
2
For the reasons discussed hereafter, we disagree with the
Court of Appeal’s conclusion as to each of the proposed causes
of action.
First, we conclude that the Court of Appeal erred in
holding that an employee may maintain a breach of contract
action against the payroll company under the third party
beneficiary doctrine. As explained, under California’s third
party beneficiary doctrine, a third party — that is, an
individual or entity that is not a party to a contract — may
bring a breach of contract action against a party to a contract
only if the third party establishes not only (1) that it is likely to
benefit from the contract, but also (2) that a motivating
purpose of the contracting parties is to provide a benefit to the
third party, and further (3) that permitting the third party to
bring its own breach of contract action against a contracting
party is consistent with the objectives of the contract and the
reasonable expectations of the contracting parties.
Here, we conclude that whether or not a contract
between an employer and a payroll company will in fact
generally benefit employees with regard to the wages they
receive, providing a benefit to its employees with regard to the
wages they receive is ordinarily not a motivating purpose of
the contracting parties. Instead, the relevant motivating
purpose of the contracting parties is to provide a benefit to the
employer. In addition, permitting each employee to name the
payroll company as an additional defendant in any wage and
hour lawsuit an employee may pursue would impose
considerable litigation defense costs on the payroll company
that inevitably would be passed on to the employer through an
increased cost of the payroll company’s services, a result that
would not be consistent with the objectives of the contract and
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
3
the reasonable expectations of the employer or payroll
company. Accordingly, we conclude that an employee should
not be viewed as a third party beneficiary who may maintain
an action against the payroll company for an alleged breach of
the contract between the employer and the payroll company
with regard to the payment of wages.
Second, we conclude that the Court of Appeal also erred
in determining that an employee who alleges that he or she
has not been paid wages that are due may maintain tort causes
of action for negligence and negligent misrepresentation
against a payroll company. As we explain, in light of a variety
of policy considerations that are present in the wage and hour
setting, we conclude that it is neither necessary nor
appropriate to impose upon a payroll company a tort duty of
care with regard to the obligations owed to an employee under
the applicable labor statutes and wage orders and
consequently that the negligence and negligent
misrepresentation causes of action lack merit.
Accordingly, we conclude that the decision of the Court of
Appeal should be reversed insofar as it held that plaintiff
employee in this case may proceed against defendant payroll
company on causes of action for breach of contract, negligence,
and negligent misrepresentation.
I. FACTS AND PROCEEDINGS BELOW
A. Trial Court Proceedings
In April 2012, plaintiff Sharmalee Goonewardene
(plaintiff) filed the initial complaint in the underlying
proceeding against her former employer, Altour International,
Inc. (Altour), alleging causes of action for wrongful
termination, breach of contract, violations of the Labor Code
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
4
and related causes of action. The complaint alleged that
Altour failed to pay plaintiff the wages she was due under the
Labor Code and applicable wage order and wrongfully
terminated her when she brought this failure to Altour’s
attention.
After the trial court sustained a number of demurrers
with leave to amend, plaintiff filed a fourth amended complaint
(4AC). In addition to the numerous claims against Altour, the
4AC included a new, single cause of action against ADP, LLC
(ADP), a payroll company that provided payroll services to
Altour,
1
alleging that ADP had engaged in unfair business
practices under the Unfair Competition Law based on its
alleged failure to provide plaintiff with adequate
documentation and records regarding her compensation.
After ADP demurred to the 4AC, plaintiff notified the
court that she wanted to assert additional claims against ADP,
and the court deferred ruling on ADP’s demurrer to the 4AC to
permit plaintiff to file a motion for leave to file a fifth amended
complaint (5AC). Plaintiff thereafter filed such a motion,
indicating that she intended to assert claims of wrongful
termination, breach of contract, unfair business practices, false
advertising, negligence, and negligent misrepresentation
against Altour and ADP. The trial court then sustained ADP’s
demurrer to the 4AC and its opposition to the motion for leave

1
In addition to ADP, LLC, subsequent complaints also
named as defendants the related entities of ADP Payroll
Services, Inc. and AD Processing, LLC. For convenience we
refer to all of the related payroll company defendants as ADP.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
5
to file a 5AC with regard to any claim that was based on the
premise that ADP could properly be considered a joint
employer of plaintiff but permitted plaintiff to file a 5AC on the
remaining claims.
Thereafter, plaintiff filed a 5AC, but notwithstanding the
trial court’s prior ruling, the 5AC included claims based on
ADP’s alleged status as a joint employer of plaintiff as well as
additional claims based on other legal theories. In June 2015,
the trial court sustained ADP’s demurrer to the 5AC without
leave to amend with regard to all causes of action and directed
ADP to prepare a final order reflecting its ruling.
While that order was pending, plaintiff submitted a
motion for reconsideration and for permission to file a sixth
amended complaint (6AC) that closely resembled the 5AC but
included a few additional factual allegations. In August 2016,
without explicitly ruling on the motion for reconsideration and
permission to file the 6AC, the trial court entered a final order
sustaining ADP’s demurrer to the 5AC on all causes of action
without leave to amend. The trial court subsequently entered
a judgment dismissing plaintiff’s action against ADP.
B. Court of Appeal Decision
On appeal of the dismissal of the action against ADP, the
Court of Appeal confined its review to the question whether the
trial court had erred in sustaining ADP’s demurrer to the 5AC
without leave to amend, effectively denying plaintiff the
opportunity to have the allegations contained in the proposed
6AC considered to determine whether those allegations are
sufficient to state causes of action. (Goonewardene v. ADP,
LLC (2016) 5 Cal.App.5th 154, 163-164 (Goonewardene).)
Inasmuch as plaintiff’s appellate briefs did not address the
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
6
validity of the claims raised in the 5AC, the Court of Appeal
focused its attention solely on the facts alleged in the 6AC to
determine whether they supported any of the causes of action
asserted in the 6AC. (Id. at p. 163.)
Because it is important to an understanding of the scope
of the Court of Appeal’s holding, we quote in full the Court of
Appeal’s recitation of the facts alleged in the 6AC on which its
decision was based:
2
“ADP is a payroll services provider. Since 2000, ADP’s
advertising and corporate statements have stated that it
provides payroll-related services to employers and employees.
ADP offers to ‘serve as an extension of [an employer’s] payroll
department and [to] take over all [the employer’s] payroll
tasks.’ ADP holds itself out as possessing specialized
knowledge regarding the calculation of wages under applicable
wage laws and regulations, and states that it ‘can save
employer[s] money by calculating their payroll.’ ADP’s Web
site advertises its expertise in tracking employee work hours,
determining wages, and preparing payrolls in accordance with
applicable laws. According to the Web site, ADP provides

2
In a footnote, the Court of Appeal noted with regard to its
statement of facts: “We observe that the prolix and poorly
organized 6AC ignores the rule that ‘the complaint must
contain a statement of the facts in ordinary and concise
language . . . .’ [Citation.] In such cases, we ‘disregard any
defects in the pleading which do not affect the substantial
rights of the parties,’ and assess whether ‘there are averments
of ultimate facts sufficient to constitute a cause of action . . . .’
[Citation.]” (Goonewardene, supra, 5 Cal.App.5th at p. 164,
fn. 3.)
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
7
‘ “self-service tools” ’ allowing employees to view their
attendance, vacation benefits, and time card approvals.
“At some point, ADP entered into an unwritten contract
with Altour, which provides travel-related services. Under
that agreement, ADP calculated payrolls, maintained employee
records, offered legal advice, and provided other wage-related
services for the benefit of Altour and its employees. According
to the 6AC, ADP entered into ‘a partnership or joint venture
with Altour for the purpose of handling Altour’s payroll and
maintaining records and confidential information regarding
Altour’s employees.’ (Underscoring omitted.)
“[Plaintiff’s] ethnicity is Sinhalese and her nationality is
Sri Lankan. In November 2005, [plaintiff] began her
employment with Altour. She answered telephones, made
airline, automobile, and hotel reservations, and issued
electronic tickets and refunds. Because she worked on teams
that provided services ‘24 hours a day 365 days of the year,’
she accrued overtime hours. [Plaintiff] ‘logged directly into an
ADP system to track her earnings.’
“From 2005 to 2012, [plaintiff] did not receive the
compensation due her, including overtime compensation, and
she was denied meal and rest breaks required under Labor
Code section 226.7. . . .
“Under ADP’s agreement with Altour, the 6AC alleges,
ADP maintained [plaintiff’s] earnings records, added the hours
on her time cards, calculated her earnings, and provided her
with an earnings statement. ADP also was responsible for
determining whether appellant was to receive, inter alia,
overtime or double time (that is, overtime reflecting a doubled
hourly rate of pay), in accordance with applicable labor laws.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
8
ADP alone was responsible for maintaining [plaintiff’s] records
relating to her compensation, adding the hours shown on her
time cards, and applying the labor laws to determine her
wages.
“ADP failed to act with ‘even scant care’ in calculating
[plaintiff’s] wages. (Underscoring omitted.) Her earnings
statements provided by ADP never contained a breakdown of
her regular hours, overtime hours or double overtime hours,
and did not reflect data regarding meal and rest breaks.
Although her time cards reflected facts requiring the payment
of double-time compensation, she received no such payment.
She was paid twice a month on a basis that was intentionally
confusing and did not comply with the wage orders of the
Industrial Welfare Commission (IWC). According to the 6AC,
Altour and ADP knew that [plaintiff] was not being paid in
accordance with California law.
“[Plaintiff] reasonably relied on the earnings statements
provided to her. In 2010, she noticed disparities between her
own bookkeeping and her hours worked, as shown on her
paychecks. In January 2012, she was terminated. According
to the 6AC, she was terminated ‘on a pretext and in retaliation
for [her] efforts to be paid fairly and to receive those benefits to
which she was legally entitled.’ ” (Goonewardene, supra,
5 Cal.App.5th at pp. 164-166, fn. omitted.)
After setting forth these facts, the Court of Appeal
initially held that insofar as any of plaintiff’s proposed causes
of action against ADP in the 6AC rested on the theory that
ADP could properly be viewed as a joint employer of plaintiff,
the causes of action were without merit. (Goonewardene,
supra, 5 Cal.App.5th at pp. 166-171.) In this regard, the Court
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
9
of Appeal relied upon the appellate court decision in Futrell v.
Payday California, Inc. (2010) 190 Cal.App.4th 1419, which
held that a payroll company could not properly be found to be
an employer of the hiring company’s employees either for
purposes of California wage orders and labor statutes or under
the federal Fair Labor Standards Act (FLSA). (Goonewardene,
supra, 5 Cal.App.5th at pp. 166-170.)
The Court of Appeal went on to hold, however, that “the
proposed 6AC adequately pleads claims [against ADP] for
breach of contract, negligent misrepresentation, and negligence
based on allegations that [ADP] performed payroll services for
[plaintiff’s] benefit in an inaccurate and negligent manner.”
(Goonewardene, supra, 5 Cal.App.5th at p. 162.)
As explained more fully below, the Court of Appeal’s
conclusion that the 6AC adequately states a cause of action by
plaintiff against ADP for breach of contract rested on its
determination that the allegations were sufficient to
demonstrate that, under the governing California third party
beneficiary doctrine, plaintiff could properly be found to be a
third party beneficiary of the contract between Altour and
ADP. (Goonewardene, supra, 5 Cal.App.5th at pp. 171-174.)
The Court of Appeal stated in this regard: “[W]hen an
employer enters into a contract with a service provider by
which the provider is to take over the employer’s payroll tasks,
including the preparation of the payrolls themselves, the
employees constitute third party creditor beneficiaries of the
contract between the employer and service provider.
[Citations.] . . . The gravamen of [the 6AC’s] allegations is that
Altour engaged ADP to discharge Altour’s wage-related legal
duties to its employees, that is, Altour’s obligations under the
Labor Code and applicable wage orders to accurately calculate
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
10
employees’ wages, fully distribute those wages in a timely
manner, and provide employees with accurate earnings
statements.” (5 Cal.App.5th at p. 173.)
Thereafter, in analyzing the causes of action for negligent
misrepresentation and negligence, the Court of Appeal found
the allegations in the 6AC sufficient to support such tort
causes of action, relying in part on its prior determination that
plaintiff qualified as a third party beneficiary of the
Altour/ADP contract. (Goonewardene, supra, 5 Cal.App.5th at
pp. 177, 181-183.)
Accordingly, while the Court of Appeal affirmed the trial
court judgment in favor of ADP with regard to all causes of
action other than the causes of action for breach of contract,
negligent misrepresentation and negligence, it reversed the
trial court judgment “to the extent the trial court denied
[plaintiff] leave to file an amended complaint asserting claims
against [ADP] limited to breach of contract, negligent
misrepresentation, and negligence.” (Goonewardene, supra,
5 Cal.App.5th at p. 189.)
ADP sought review of the Court of Appeal decision
insofar as the decision held that plaintiff’s suit against ADP
may go forward with respect to the causes of action for breach
of contract, negligent misrepresentation and negligence. We
granted review to consider the validity of the Court of Appeal’s
decision regarding these three causes of action.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
11
II. UNDER CALIFORNIA’S THIRD PARTY BENEFICIARY
DOCTRINE, IS PLAINTIFF PROPERLY CONSIDERED
A THIRD PARTY BENEFICIARY OF THE CONTRACT
BETWEEN HER EMPLOYER AND ADP?
We turn first to the Court of Appeal’s conclusion that
plaintiff may maintain a cause of action for breach of contract
against ADP.
As noted, the 6AC alleges that Altour, plaintiff’s
employer, entered into an unwritten contract with ADP “for
the benefit of Altour and its employees” under which ADP was
to perform all of the payroll services for Altour, including
maintaining its employees’ earnings records, adding hours on
their time cards, calculating their wages under the applicable
labor laws, and preparing the paychecks and pay stubs for the
employees. The 6AC further alleges that ADP failed to comply
with its obligations under the contract by negligently failing to
provide plaintiff with paychecks and pay stubs that accurately
reflected the wages she was due under the applicable labor
statutes and wage orders. The Court of Appeal agreed with
plaintiff that the allegations in the 6AC are sufficient to
support a breach of contract action by plaintiff against ADP
under the third party beneficiary doctrine. (Goonewardene,
supra, 5 Cal.App.4th at pp. 171-174.)
In California, as in other jurisdictions, it is well
established that under some circumstances a third party may
bring an action for breach of contract based upon an alleged
breach of a contract entered into by other parties. Civil Code
section 1559, enacted as one of the provisions of the original
1872 Civil Code, declares: “A contract, made expressly for the
benefit of a third person, may be enforced by him at any time
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
12
before the parties thereto rescind it.” Section 1559 has not
been amended since its enactment in 1872.
As we shall see, the fact that Civil Code section 1559 was
adopted as part of the original 1872 Civil Code is quite
significant. In Li v. Yellow Cab Co. (1975) 13 Cal.3d 804 (Li),
this court explained at some length that the provisions of the
original Civil Code that were enacted in 1872 to codify the
then-existing common law rules were not intended to freeze
the common law doctrines in the form they were understood in
1872 but rather contemplated the possibility of future judicial
development of such doctrines, as was true of common law
rules generally. (Id. at pp. 814-823.) In Li, the specific
question before the court was whether Civil Code section 1714,
which set forth the common law doctrine of contributory
negligence under which a plaintiff’s negligent conduct operated
to completely bar any recovery by the plaintiff against a
negligent defendant, should properly be interpreted to preclude
this court from adopting as a common law rule the doctrine of
comparative negligence under which a plaintiff’s negligence
reduces, but does not totally bar, a plaintiff’s recovery against
a negligent defendant. This court concluded that section 1714
should not properly be interpreted to preclude this court from
adopting comparative negligence as the prevailing California
common law rule. The court explained: “[I]t was not the
intention of the Legislature in enacting section 1714 of the
Civil Code, as well as other sections of that code declarative of
the common law, to insulate the matters therein expressed
from further judicial development; rather it was the intention
of the Legislature to announce and formulate existing common
law principles and definitions for purposes of orderly and
concise presentation and with a distinct view toward
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
13
continuing judicial evolution.” (13 Cal.3d at p. 814, italics
added.)
Civil Code section 1559 — setting forth California’s third
party beneficiary doctrine — is one of the “other sections” of
the original 1872 Civil Code referred to in Li that was
declarative of the common law and was not intended “to
insulate the matters therein expressed from further judicial
development.” (Li, supra, 13 Cal.3d at p. 814.) California
decisions, applying the third party beneficiary doctrine in a
variety of circumstances since 1872, have understood section
1559 in just this fashion, and have not viewed the provision as
restricting California’s third party beneficiary doctrine to the
common law rule as it existed in 1872. (See, e.g., Martinez v.
Socoma Companies, Inc. (1974) 11 Cal.3d 394, 400-407
(Socoma Companies) [looking in part to third party beneficiary
principles set forth in subsequently adopted Restatements of
Contracts]; Lucas v. Hamm (1961) 56 Cal.2d 583, 590 [noting
effect of section 1559 is simply “to exclude enforcement by
persons who are only incidentally or remotely benefited”].)
Accordingly, we must determine whether, under the
circumstances at issue here, plaintiff is entitled to bring an
action against ADP for its alleged breach of its contract with
Altour under the common law third party beneficiary doctrine
as reflected in the current governing California decisions.
From the beginning of the twentieth century, virtually all
American courts applying common law contract principles have
recognized that it is appropriate under some circumstances to
permit an individual or entity that is not a party to a contract
to bring an action to enforce the contract. (See, e.g., Eisenberg,
Third-Party Beneficiaries (1992) 92 Colum. L.Rev. 1358, 1371-
1374 (Eisenberg).) Courts have struggled, however, to
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
14
formulate useful, general principles to identify those
circumstances in which a third party should be permitted to
maintain an action for an alleged breach of a contract to which
it is not a contracting party, as distinguished from the usual
instance in which only the contracting parties may bring an
action under the contract. (See, e.g., Crawford, Chief Justice
Wright and the Third Party Beneficiary Problem (1977)
4 Hastings Const. L.Q. 769, 771-772 [“Few areas of contract
law have consistently raised more thorny theoretical and
practical difficulties for lawyers, judges, and scholars than the
rights of nonparties to enforce contractual promises”].)
In the first Restatement of Contracts, published in 1932,
the drafters divided the cases that had found that third parties
were entitled to enforce a contract into two categories: one
involving so-called “creditor beneficiaries” and the other
involving so-called “donee beneficiaries.” (See Rest. Contracts,
§ 133 (Restatement First).)3
When the Restatement Second of

3 The classic creditor-beneficiary case involved a contract
between party A and party B, in which A, in return for some
consideration, promised party B that it would pay a preexisting
debt that party B owed to nonparty T; in that setting, if A had
not fulfilled its promise, courts permitted T to sue A to enforce
the promise. (See, e.g., Lawrence v. Fox (1859) 20 N.Y. 268 [in
contract between Holly and Fox, Fox, in return for a loan from
Holly of $300, promised to pay $300 to Lawrence in satisfaction
of a preexisting debt that Holly owed Lawrence; in subsequent
suit, Lawrence was permitted to sue Fox for the $300].) The
classic donee-beneficiary case involved a contract in which
party A, in return for some consideration, promised party B
that it would pay nonparty T a sum that B wished to give to T
as a gift; if A failed to fulfill its promise, T was permitted to
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
15
Contracts (Restatement Second) was adopted in 1979, the
drafters concluded that “the terms ‘donee’ beneficiary and
‘creditor’ beneficiary carry overtones of obsolete doctrinal
difficulties” (Rest.2d Contracts, ch. 14, Introductory Note,
p. 439) and avoided those terms. Instead, under the
Restatement Second, a third party beneficiary who is entitled
to enforce a contract entered into between other parties is
designated an “intended beneficiary.” (Rest.2d Contracts,
§ 302(1).) Although the Restatement Second retained traces of
the creditor-beneficiary and donee-beneficiary categories (id.,
§ 302(1)(a), (1)(b)), it refocused the principal inquiry regarding
whether a third party beneficiary should be considered an
intended beneficiary on the question whether “recognition of a
right to performance in the beneficiary is appropriate to
effectuate the intention of the [contracting] parties.” (Id.,
§ 302(1).)
Although our past decisions have at times referred to and
invoked the creditor-beneficiary and donee-beneficiary labels
(see, e.g., Socoma Companies, supra, 11 Cal.3d at pp. 400-401),
this court has not relied primarily on those categories or the
Restatement formulations in the numerous cases in which we

sue A to enforce the promise. (See, e.g., Seaver v. Ranson (N.Y.
1918) 120 N.E. 639 [just prior to wife’s death, husband
promised wife that if she left her house to him for his life, he
would alter his will to leave a sum of money to her niece; when
husband, after obtaining the house for his lifetime, later died
without altering his will, niece was permitted to sue the
executor of husband’s estate to enforce husband’s promise to
wife].)
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
16
have discussed and applied the third party beneficiary
doctrine.4
Instead, a review of this court’s third party
beneficiary decisions5
reveals that our court has carefully

4 A number of academic commentators have identified a
variety of problems and failings in the Restatement
formulations of the third party beneficiary doctrine. (See, e.g.,
Eisenberg, supra, 92 Colum. L.Rev. at pp. 1376-1384; Prince,
Perfecting the Third Party Beneficiary Standing Rule Under
Section 302 of the Restatement (Second) of Contracts (1984) 25
B.C. L.Rev. 919, 990-995; Summers, Third Party Beneficiaries
and the Restatement (Second) of Contracts (1982) 67 Cornell
L.Rev. 880, 891-899.)
5 See Martinez v. Combs, supra, 49 Cal.4th at p. 77
[farmworkers could not recover unpaid wages from produce
merchants who regularly purchased produce from the
farmworker’s employer on the theory that the workers were
third party beneficiaries of the employer/merchant contract];
Hess v. Ford Motor Co. (2002) 27 Cal.4th 511, 524-528
[defendant car manufacturer was not entitled, under the third
party beneficiary doctrine, to obtain the benefit of an earlier
broad contractual release of liability entered into between the
plaintiff and another potential defendant]; Garcia v. Truck Ins.
Exchange (1984) 36 Cal.3d 426, 436-438 [private doctor who
performed surgery at hospital but was not employed by the
hospital was not entitled, under the third party beneficiary
doctrine, to obtain coverage under the insurance policy issued
by insurance company to hospital]; Murphy v. Allstate Ins. Co.
(1976) 17 Cal.3d 937, 940-944 [injured claimant was not
entitled to sue tortfeasor’s insurer, under third party
beneficiary doctrine, for breach of the insurer’s duty to settle
under the insurer’s contract with the tortfeasor, in the absence
of an assignment of such a cause of action by the insured
tortfeasor to the claimant]; Socoma Companies, supra,
11 Cal.3d 394, 400-407 [plaintiffs, unemployed persons who
received government-funded job training from defendant
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
17
examined the express provisions of the contract at issue, as
well as all of the relevant circumstances under which the
contract was agreed to, in order to determine not only
(1) whether the third party would in fact benefit from the
contract, but also (2) whether a motivating purpose of the
contracting parties was to provide a benefit to the third party,
and (3) whether permitting a third party to bring its own
breach of contract action against a contracting party is
consistent with the objectives of the contract and the
reasonable expectations of the contracting parties. All three

companies but failed to obtain promised employment, were not
entitled to bring suit for damages against defendants, under
third party beneficiary doctrine, for defendants’ alleged breach
of their contract with the federal government to provide such
job training and employment]; Lucas v. Hamm, supra, 56
Cal.2d 583, 589-591 [intended beneficiaries of a will, who failed
to obtain inheritance due to alleged negligence of attorney who
drafted the will, were entitled to sue the attorney, under the
third party beneficiary doctrine, for attorney’s alleged breach of
contract with testator]; Brown v. Superior Court (1949) 34
Cal.2d 559, 564-565 [where husband and wife agreed to make
mutual wills in favor of intended devisees, those devisees were
entitled, under third party beneficiary doctrine, to bring suit to
enforce agreement]; Hartman Ranch Co. v. Associated Oil Co.
(1937) 10 Cal.2d 232, 244-249 (Hartman Ranch) [adjacent
landowner, whose subsurface oil was improperly drained by
sublessee’s drilling, was entitled to sue sublessee, under third
party beneficiary doctrine, for sublessee’s alleged breach of its
obligations under the lease and sublease]; Calhoun v. Downs
(1931) 211 Cal. 766, 770-771 [broker was entitled, under third
party beneficiary doctrine, to enforce promisor’s agreement to
assume promisee’s obligation to pay broker’s commission].
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
18
elements must be satisfied to permit the third party action to
go forward.
With regard to the second element, we note that our past
cases have sometimes referred to this element of the third
party beneficiary doctrine as a requirement that the “purpose”
of the contract be to benefit the third party (see, e.g., Lucas v.
Hamm, supra, 56 Cal.2d at pp. 589-590) and sometimes as a
requirement that there be “an intent to benefit” the third party
(see, e.g., id. at p. 591; Murphy v. Allstate Ins. Co., supra,
17 Cal.3d at p. 944; Garcia v. Truck Ins. Exchange, supra,
36 Cal.3d at p. 436.) Because of the ambiguous and potentially
confusing nature of the term “intent” (see Eisenberg, supra,
92 Colum. L.Rev. at p. 1378), this opinion uses the term
“motivating purpose” in its iteration of this element to clarify
that the contracting parties must have a motivating purpose to
benefit the third party, and not simply knowledge that a
benefit to the third party may follow from the contract. To
avoid any possible confusion, however, we emphasize that our
intent-to-benefit caselaw remains pertinent in applying this
element of the third party beneficiary doctrine.
With regard to the third element, we observe that
academic commentators have pointed out that the parties to a
contract are typically focused on the terms of performance of
the contract rather than on the remedies that will be available
in the event of a failure of performance (see, e.g., Eisenberg,
supra, 92 Colum. L.Rev. at p. 1388), and that our cases have
not required a showing that the contracting parties actually
considered the third party enforcement question as a
prerequisite to the applicability of the third party beneficiary
doctrine. (See, e.g., Lucas v. Hamm, supra, 56 Cal.2d at
pp. 589-591; Hartman Ranch, supra, 10 Cal.2d at pp. 244-246.)
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
19
Accordingly, the third element does not focus upon whether the
parties specifically intended third party enforcement but
rather upon whether, taking into account the language of the
contract and all of the relevant circumstances under which the
contract was entered into, permitting the third party to bring
the proposed breach of contract action would be “consistent
with the objectives of the contract and the reasonable
expectations of the contracting parties.” (Ante, p. 17.) In other
words, this element calls for a judgment regarding the
potential effect that permitting third party enforcement would
have on the parties’ contracting goals, rather than a
determination whether the parties actually anticipated third
party enforcement at the time the contract was entered into.
Furthermore, the requirement in the third element that
third party enforcement be consistent with “the objectives of
the contract” is comparable to the inquiry, proposed in
Professor Eisenberg’s article, regarding whether third party
enforcement will effectuate “ ‘the contracting parties’
performance objectives,’ ” namely “those objectives of the
enterprise embodied in the contract, read in the light of
surrounding circumstances . . . .” (Eisenberg, supra, 92 Colum.
L.Rev. at p. 1385, original emphasis; see also Rest.2d
Contracts, § 302(1) [“a beneficiary of a promise is an intended
beneficiary if recognition of a right to performance in the
beneficiary is appropriate to effectuate the intention of the
parties”].) And the additional requirement in this element that
third party enforcement be consistent as well with “the
reasonable expectations of the contracting parties” reflects the
teaching of prior California decisions that have denied
application of the third party beneficiary doctrine when
permitting the third party to maintain a breach of contract
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
20
action would not be consistent with the reasonable
expectations of the contracting parties. (See, e.g., Socoma
Companies, supra, 11 Cal.3d at pp. 402-403; Hess v. Ford
Motor Co., supra, 27 Cal.4th at pp. 526-528; Garcia v. Truck
Ins. Exchange, supra, 36 Cal.3d at pp. 436-438; see also
Eisenberg, supra, 92 Colum. L.Rev. at pp. 1375-1376, 1386-
1387.)
Perhaps this court’s two most prominent third party
beneficiary decisions are Lucas v. Hamm, supra, 56 Cal.2d 583,
and Socoma Companies, supra, 11 Cal.3d 394.
The issue in Lucas v. Hamm, supra, 56 Cal.2d 583, was
whether the intended beneficiaries of a will could sue the
attorney who had contracted with the testator to prepare the
will, when, after the testator’s death, the beneficiaries had not
obtained their intended inheritance because of the attorney’s
alleged failure to fulfill his contractual obligation to properly
prepare the will. In holding that the intended beneficiaries of
the will could sue the attorney for breach of contract under a
proper interpretation of California’s third party beneficiary
doctrine (and overruling an earlier decision that had reached a
contrary result), the court stated: “Since, in a situation like
those presented here . . . , the main purpose of the testator in
making his agreement with the attorney is to benefit the
persons named in his will and this intent can be effectuated, in
the event of a breach by the attorney, only by giving the
beneficiaries a right of action, we should recognize, as a matter
of policy, that they are entitled to recover as third-party
beneficiaries.” (56 Cal.2d at p. 590, italics added.) Because,
after the testator’s death, the testator was no longer available
to bring a breach of contract action against the attorney, it was
consistent with the objectives of the contract and the
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Opinion of the Court by Cantil-Sakauye, C. J.
21
reasonable expectation of the contracting parties to permit the
intended beneficiaries of the will to bring such an action at
that time to enforce the attorney’s alleged breach of the
contract. (See Eisenberg, supra, 92 Colum. L.Rev. at pp. 1393-
1394.)
On the other hand, in Socoma Companies, supra,
11 Cal.3d 394, our court, after reviewing the terms and the
circumstances underlying the formation of the government
contract at issue, concluded that the plaintiffs in that case,
who had participated in a job training program that had been
provided under the government contract but had not obtained
the promised employment contemplated by the contract, were
not entitled, under California’s third party beneficiary
doctrine, to bring a breach of contract action for damages
against the defendant companies that provided the job training
services. Although acknowledging that the plaintiffs “were
among those whom the Government intended to benefit
through defendants’ performance of the contracts” (id. at
p. 401), this court nonetheless concluded that the plaintiffs
were not entitled to sue the defendants for the defendants’
alleged breach of the contract because it would be inconsistent
with the objectives of the contract and the reasonable
expectations of the contracting parties to permit such third
party lawsuits. In reaching this conclusion, the court relied in
large part on a provision of the government contract that
established a specific administrative process through which
alleged breaches of the contract could be raised and resolved,
as well as on the inclusion of a liquidated damages clause in
the contract that restricted the defendant companies’ potential
liability under the contract. The Socoma Companies court
explained that “the contracts’ provisions for retaining the
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Opinion of the Court by Cantil-Sakauye, C. J.
22
Government’s control over determination of contractual
disputes and for limiting defendants’ financial risks indicate a
governmental purpose to exclude the direct rights [by
beneficiaries of the job training program] against defendants
claimed here.” (11 Cal.3d at p. 402; see Eisenberg, supra,
92 Colum. L.Rev. at pp. 1410-1412.)
With these precedents in mind, we examine the Court of
Appeal’s conclusion that the allegations of the 6AC are
sufficient, under California’s third party beneficiary doctrine,
to support a cause of action by plaintiff against ADP for ADP’s
alleged breach of its contract with Altour.
To begin with, it is important to note that in this case we
do not have before us the specific terms of the actual contract
between Altour and ADP. The 6AC simply alleges, on
information and belief, that Altour and ADP entered into an
unwritten contract under which ADP agreed to perform payroll
tasks for Altour for the benefit of both Altour and its
employees. Because of the present procedural posture of the
case — an appeal of a dismissal of the action against ADP after
the trial court sustained ADP’s demurrer to the 5AC without
leave to amend — we must assume the properly pleaded facts
contained in the 6AC are true. (See, e.g., Garton v. Title Ins. &
Trust Co. (1980) 106 Cal.App.3d 365, 375.) The 6AC does not
claim, however, that plaintiff was privy to the unwritten
contract allegedly entered into between Altour and ADP, and
the general allegation in the 6AC that the contract was for the
benefit of Altour’s employees as well as Altour leaves unclear
in what sense the contract was intended to benefit the Altour
employees.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
23
In its opinion, the Court of Appeal referred to allegations
in the 6AC relating to statements on ADP’s website indicating
that ADP’s data processing system would make it possible for
employees easily to obtain information regarding their work
hour history, vacation benefits, and other employment related
data. If this is the benefit that the parties to the contract
allegedly intended to afford Altour’s employees, the 6AC does
not assert that plaintiff was denied such a benefit, and
plaintiff’s alleged failure to receive the wages she was due is
unrelated to this promised benefit. Accordingly, although the
Court of Appeal accurately observed that a third party’s rights
under the third party beneficiary doctrine may arise under an
oral as well as a written contract (see, e.g., Del E. Webb Corp.
v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 606;
Lawrence v. Fox, supra, 20 N.Y. at p. 275), here the 6AC’s
allegations concerning the alleged benefit that the unwritten
contract between Altour and ADP allegedly conferred upon
Altour’s employees are too vague and conclusory to support the
proposition that the parties to the Altour/ADP contract
expressly or impliedly authorized Altour’s employees to
maintain a breach of contract action for unpaid wages against
ADP.
The Court of Appeal, in concluding that plaintiff may
maintain a breach of contract action against ADP on a third
party beneficiary theory, relied instead on the allegations that,
under ADP’s contract with Altour, ADP agreed to “take over”
all of Altour’s ordinary payroll tasks, including calculating the
wages Altour is obligated to pay each employee under the
governing labor statutes and wage orders and issuing
paychecks and pay stubs that reflect the correct wages.
(Goonewardene, supra, 5 Cal.App.5th at p. 173.) The Court of
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Opinion of the Court by Cantil-Sakauye, C. J.
24
Appeal stated that ADP’s obligations in this regard rendered
each employee of Altour a creditor beneficiary of the
Altour/ADP contract, on the theory that ADP’s role under the
contract was “to discharge” Altour’s wage obligations to its
employees. (Ibid.)
We conclude that the Court of Appeal erred in
characterizing plaintiff as a creditor beneficiary of the
Altour/ADP contract and permitting the breach of contract
action to go forward on this theory under the third party
beneficiary doctrine. Unlike past creditor beneficiary cases, in
which one party to the contract (the promisor) agreed to pay a
sum of money to a third party to discharge a preexisting debt
of the other party to the contract (the promisee) (see, e.g.,
Lawrence v. Fox, supra, 20 N.Y. 268; accord Calhoun v. Downs,
supra, 211 Cal. at pp. 770-771), here there is nothing to
suggest that ADP agreed to pay the wages that Altour owes to
its employees out of ADP’s own funds. Instead, as in most
employer/payroll company agreements,
6
it appears that ADP,

6 The Internal Revenue Manual describes a “payroll
service provider” in the following terms:
“1. A payroll service provider (PSP) is a third party that
can help an employer administer payroll and employment
taxes on behalf of an employer.
“2. An employer may enter into an agreement with a
PSP under which the employer authorizes the PSP to perform
one more of the following acts on the employer’s behalf:
“• Prepare the paychecks for the employees of the
employer.
“• Prepare Forms 940 and 941 for the employer using
the employer’s EIN.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
25
under its contract with Altour, simply agreed to assist Altour
by calculating the amount of wages that Altour owes to each
employee in light of the applicable labor statutes and wage
order and providing the ministerial services of making out
paychecks and delivering the required pay information to each
employee. In the absence of an allegation to the contrary, we
must reasonably infer that the employees’ wages were paid by

“• File Forms 940 and 941 for the employer, which are
signed by the employer.
“• Make federal tax deposits (FTDs) and federal tax
payments and submit this information for the taxes reported
on the Forms 940 and 941.
“• Prepare Form W-3 and Forms W-2 for the employees
of the employer using the employer’s EIN.
“3. A PSP is not liable for an employer’s employment
taxes as either an employer or an agent.
“4. An employer’s use of a PSP does not relieve the
employer of its employment tax obligations or liability for
employment taxes.” (Internal Revenue Service, Internal
Revenue Manual 5.1.24.4.2 (Mar. 2018)
[as of Feb. 5,
2019].) (All internet citations in this opinion are archived by
year, docket number, and case name at
.)
See also Fogg, In Whom We Trust (2010) 43 Creighton
L.Rev. 357, 384 [“A typical contract between a payroll tax
provider and a small business entity might have the payroll
tax provider preparing payroll, paying payroll, preparing the
quarterly Form 941 form, and paying the Form 941 taxes. The
payroll provider typically has an agreement allowing it to
withdraw the necessary funds from the entity’s bank
account.”].)
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
26
funds provided by their employer, Altour, rather than ADP.
A payroll company’s provision of the type of assistance relied
upon by the Court of Appeal is quite distinct from agreeing to
“discharge” the obligations that Altour owes to its employees
under the applicable labor statutes and wage orders, as that
term has been used in prior third party beneficiary decisions.
(Cf. Rest.2d, Contracts, § 302(1)(a) & com. b, pp. 439-440.) For
this reason, we conclude that plaintiff is not properly viewed as
a creditor beneficiary of the Altour/ADP contract within the
meaning of the third party beneficiary doctrine.
We turn to the question whether plaintiff may bring its
breach of contract action under the three elements of
California’s third party beneficiary doctrine that we have
discussed above. (Ante, pp. 16-20.)
Even if we assume, without deciding, that an employer’s
hiring of an independent payroll company will in fact generally
benefit employees with regard to the wages they receive,
7 as

7 Even in the absence of the hiring of a payroll company,
an employee is entitled to receive the wages and wage
statements that are required under the applicable labor
statutes and wage orders and may sue his or her employer if
he or she does not receive them. (See, e.g., Lab. Code, § 1194.)
Although it is possible that a specialized payroll company may
do a better job than a small company in complying with the
applicable legal requirements, if the payroll company makes
the employer aware of applicable exceptions, restrictions or
other legal rules that were not known to the employer and that
operate to reduce the employer’s wage obligations to its
employees, the hiring of the payroll company may not in fact
benefit employees with regard to the wages they receive. Thus,
there may be some question whether such a contract will in
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
27
we have explained the fact that the employees will generally
obtain a benefit from the contract is not sufficient in itself to
authorize the employees to sue the payroll company under
California’s third party beneficiary doctrine. In addition, a
motivating purpose of the contracting parties must be to
provide such a benefit to employees. (See, e.g., Garcia v. Truck
Ins. Exchange, supra, 36 Cal.3d at p. 436 [“A putative third
party’s rights under a contract are predicated upon the
contracting parties’ intent to benefit him]”; Neverkovec v.
Fredericks (1999) 74 Cal.App.4th 337, 348 [“The circumstance
that a literal contract interpretation would result in a benefit
to the third party is not enough to entitle that party to demand
enforcement. The contracting parties must have intended to
confer a benefit on the third party”].)
When an employer hires a payroll company, providing a
benefit to employees with regard to the wages they receive is
ordinarily not a motivating purpose of the transaction.
Instead, the relevant motivating purpose is to provide a benefit
to the employer, with regard to the cost and efficiency of the
tasks performed and the avoidance of potential penalties.
Although the employer intends that the payroll company will
accurately calculate the wages owed to its employees under the
applicable labor statutes and wage orders, in situations in
which it may be unclear or debatable as to how the applicable
rules should be interpreted or applied, the employer would
reasonably expect the payroll company to proceed with the

fact generally provide a benefit to employees with regard to the
wages they receive.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
28
employer’s interest in mind. In short, the relevant motivating
purpose of the contract is simply to assist the employer in the
performance of its required tasks, not to provide a benefit to its
employees with regard to the amount of wages they receive.
Moreover, even if a motivating purpose of such a contract
were to provide a benefit to employees with regard to wages
they receive, it still would not follow that the employees would
be entitled to sue the payroll company for breach of contract
under the third party beneficiary doctrine. As this court’s
decision in Socoma Companies, supra, 11 Cal.3d at pages 401-
402, teaches, even if a motivating purpose of the contracting
parties is to provide a benefit to the employees, it still may be
inconsistent with the objectives of the contract and the
reasonable expectations of the contracting parties to permit the
employees to sue the payroll company for an alleged breach of
the contract. (See Geis, Broadcast Contracting (2012) 106
Nw.U. L.Rev. 1153, 1195 [“There is an important analytical
distinction between contracting for a benefit to an outsider and
granting a right to sue for breach to that outsider”].)
In the present case, unlike in Lucas v. Hamm, supra,
56 Cal.2d 583, there is no need to permit a third party
employee to bring suit to enforce an alleged breach by ADP of
its obligations under the contract, because Altour is available
and is fully capable of pursuing a breach of contract action
against ADP if, by failing to comply with its contractual
responsibilities, ADP renders Altour liable for any violation of
the applicable wage orders or labor statutes. Simply put,
permitting an employee to sue ADP for an alleged breach of its
contractual obligations to Altour is not necessary to effectuate
the objectives of the contract.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
29
Further, if a typical contract between an employer and a
payroll company were interpreted to authorize each of the
employer’s employees to sue the payroll company for any
alleged wage violation, such an interpretation would clearly
impose substantial additional costs on the payroll company in
light of the significant legal expense that would be entailed in
defending the numerous wage and hour disputes that regularly
arise between employees and employers. As a result, such an
interpretation would likely lead a payroll company to pass
these additional litigation costs on to the employer through a
higher price for its payroll services, an increased cost that an
employer would typically prefer to avoid. Thus, permitting
employees to sue a payroll company for alleged wage violations
would ordinarily be inconsistent with the reasonable
expectations of the employer as well as the payroll company
and also unnecessary because employees retain the right to
obtain full recovery for unpaid wages from their employer.
Accordingly, we conclude that a contract between an employer
and a payroll company should not be understood to permit the
employer’s employees to sue the payroll company for an alleged
breach of its obligations under its contract with the employer.
(Accord Lake Almanor Associates L.P. v. Huffman-Broadway
Group, Inc. (2009) 178 Cal.App.4th 1194, 1204 [where county
hires a consultant to prepare an environmental impact report
regarding a proposed development, the developer is not
entitled, under the third party beneficiary doctrine, to sue the
consultant for an alleged breach of contract in failing to timely
prepare the report].)
In sum, because providing a benefit to employees is
ordinarily not among the motivating purposes of a contract
between an employer and a payroll company, and because it
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
30
would be inconsistent with the objectives of the contract and
the reasonable expectations of the contracting parties to permit
the employees to sue the payroll company for an alleged breach
of its contract with the employer, we conclude that the Court of
Appeal erred in finding that the allegations of the 6AC are
adequate to state a cause of action for breach of contract by
plaintiff against ADP under the third party beneficiary
doctrine.
III. MAY PLAINTIFF MAINTAIN TORT CAUSES OF ACTION
AGAINST ADP FOR NEGLIGENCE
AND/OR NEGLIGENT MISREPRESENTATION?
In addition to finding that the allegations of the 6AC
supported plaintiff’s cause of action against ADP for breach of
contract under the third party beneficiary doctrine, the Court
of Appeal concluded that the allegations of the 6AC supported
causes of action against ADP for negligence and negligent
misrepresentation. The Court of Appeal identified no case
from California or any other jurisdiction in which an employee
has been permitted to maintain a tort cause of action for
negligence or negligent misrepresentation against a payroll
company hired by his or her employer, and, for the reasons
discussed hereafter, we conclude that neither of the proposed
negligence-based tort causes of action against ADP is valid.
A. Negligence Cause of Action
In Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 397
(Bily), we explained that “[t]he threshold element of a cause of
action for negligence is the existence of a duty to use due care
toward an interest of another that enjoys legal protection
against unintentional invasion. [Citations.] Whether this
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Opinion of the Court by Cantil-Sakauye, C. J.
31
essential prerequisite to a negligence cause of action has been
satisfied in a particular case is a question of law to be resolved
by the court.” The existence or nonexistence of a common law
legal duty of care is a question of policy that, depending upon
the context, may turn on a court’s consideration of a variety of
factors. (See, e.g., Rowland v. Christian (1968) 69 Cal.2d 108,
113; Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja).)
As this court observed in Dillon v. Legg (1968) 68 Cal.2d 728, a
judicial conclusion that a legal duty exists in a particular
context is “ ‘only an expression of the sum total of those
considerations of policy which lead the law to say that the
particular plaintiff is entitled to protection.’ ” (Id. at p. 734,
quoting Prosser on Torts (3d ed. 1964) pp. 332-333.)
The threshold question here is whether ADP owed
plaintiff, an employee of Altour with whom ADP had no
contractual relationship, a common law duty of care with
respect to the loss that plaintiff allegedly sustained as a result
of ADP’s alleged negligence in the performance of its
contractual obligations to Altour.
In Biakanja, supra, 49 Cal.2d 647 — the initial decision
in which this court held that it may be appropriate to impose
tort liability in favor of a third party for a contracting party’s
negligent performance of a contract (see 6 Witkin, Summary of
Cal. Law (11th ed. 2017) Torts § 1327, p. 622) — the court
described some of the factors that may properly be considered
in deciding whether to recognize a tort duty of care to a third
party in the absence of privity of contract. We stated: “The
determination whether in a specific case the defendant will be
held liable to a third person not in privity is a matter of policy
and involves the balancing of various factors, among which are
the extent to which the transaction was intended to affect the
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
32
plaintiff, the foreseeability of harm to him, the degree of
certainty that the plaintiff suffered injury, the closeness of the
connection between the defendant’s conduct and the injury
suffered, the moral blame attached to the defendant’s conduct,
and the policy of preventing future harm.” (49 Cal.2d at
p. 650.) Subsequent California cases have identified other
policy considerations that may appropriately be considered in
determining whether a tort duty of care should be recognized
or imposed in the absence of privity of contract. (See, e.g., Bily,
supra, 3 Cal.4th at pp. 399-406 [considering whether
recognition of a duty of care on the part of auditors to potential
third party investors would (1) impose liability out of
proportion to fault, (2) be unnecessary in light of the prospect
of private ordering, and (3) would likely have an adverse effect
on the availability of audit services].)
Plaintiff argues that many of the factors identified in
Biakanja support imposing on a payroll company a duty of care
to an employee in this context because if a payroll company is
negligent in failing to properly calculate an employee’s wages
pursuant to the applicable labor statutes and wage orders, the
employee will suffer a foreseeable, direct, and readily
ascertainable economic loss and will be denied the protection
afforded by those remedial labor statutes and wage orders.
Plaintiff points out that California cases have repeatedly
emphasized the important role that such labor statutes and
wage orders play in protecting the rights of workers (see, e.g.,
Dynamex Operations West, Inc. v. Superior Court (2018)
4 Cal.5th 903, 952-953; Industrial Welfare Com. v. Superior
Court (1980) 27 Cal.3d 690, 702-703), and maintains that
therefore California’s public policy calls for the recognition in
this context of a tort duty of care on the part of a payroll
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
33
company to the employees of the company that hired the
payroll company.
Plaintiff is correct that employees unquestionably have
an important and fundamental interest in the accurate and
timely payment of wages as required by the applicable labor
statutes and wage orders. As we explain, however, we
conclude that a variety of policy considerations weigh against
the imposition upon a payroll company of a tort duty of care to
employees in this context.
First and perhaps most significantly, plaintiff’s argument
ignores the fundamental point that whenever a payroll
company’s negligence in calculating an employee’s wages
results in a violation of the applicable labor statutes or wage
orders, California law already provides the employee with a
full and complete remedy for any wage loss the employee
sustains as a result of the payroll company’s negligent conduct.
An employee’s interest in this regard is fully protected by the
employee’s well-established right under the labor statutes to
recover in a civil action against the employer the full wages
and other significant remedies (including attorney fees and
potential civil penalties) that are authorized under those
statutes. (See, e.g., Lab. Code, §§ 1194, 1197.1, 2699; Martinez
v. Combs, supra, 49 Cal.4th 35.) Given the employer’s clear
and direct liability for any wage loss caused by the payroll
company’s negligence in calculating the wages that are due,
the imposition of a separate tort duty of care on a payroll
company is generally unnecessary to adequately protect the
employee’s interests. (Cf. Cedars-Sinai Med. Center v.
Superior Court (1998) 18 Cal.4th 1, 11-13 [concluding
recognition of tort action for spoliation of evidence is
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
34
unwarranted in part because of the availability of adequate
alternative remedies].)
Second, imposing tort liability upon the payroll company
is not needed as a means of deterring negligent conduct on the
part of the payroll company. Under its contract with the
employer, the payroll company is already obligated to act with
due care in ensuring that the employer fulfills its obligations to
its employees under the labor statutes and wage orders. The
payroll company presumably will be liable to the employer if
the payroll company’s negligence in failing to comply with the
applicable labor statutes or wage orders results in the
employer being held liable in a suit brought by an employee
against the employer. Imposing on a payroll company a tort
duty to the employee will not appreciably increase the payroll
company’s incentive to avoid negligent conduct with respect to
its compliance with the applicable labor statutes and wage
orders.
Third, unlike other situations in which a tort duty of care
to third parties has been imposed (see, e.g., Heyer v. Flaig
(1969) 70 Cal.2d 223, 228-229), the payroll company has no
special relationship with the employer’s employees that would
warrant recognition of such a duty of care. (Accord Goodman
v. Kennedy (1976) 18 Cal.3d 335, 343-344.) As we have already
determined, under California’s third party beneficiary doctrine
plaintiff is not entitled to maintain even a breach of contract
action against defendant payroll company. (Ante, pp. 11-30.)
Given this conclusion, it would clearly be anomalous to impose
tort liability, with its increased potential damages (see, e.g.,
Ehrlich v. Menezes (1999) 21 Cal.4th 543, 550-551), upon the
payroll company based upon its alleged failure to perform its
obligations under its contract with plaintiff’s employer.
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Opinion of the Court by Cantil-Sakauye, C. J.
35
Fourth, the imposition on a payroll company of a duty of
care to an employee may improperly distort the payroll
company’s performance of its contractual obligations to the
employer in at least some circumstances. As already noted
(ante, pp. 27-28), in the wage and hour context, the respective
interests of an employer and an employee regarding the proper
interpretation and application of the applicable labor statutes
and wage orders are at times in conflict. When the meaning or
scope of a labor statute or wage order is ambiguous or
uncertain, imposing on the payroll company a tort duty of care
to an employee may adversely affect the payroll company’s
fulfillment of its contractual obligations to the employer. This
risk is particularly substantial because, as noted, the type of
damages that are generally available in a tort action include
items that are unavailable in a contract action, and, in
instances in which the meaning of a provision of a labor statute
or wage order is uncertain, the potential of greater liability
may induce the payroll company to place the employee’s
interests above those of the employer with whom the payroll
company has directly contracted.8

8
In a variety of contexts, California courts have held that
a professional or other business entity that enters into a
contract to provide services to an individual or entity does not
owe a tort duty of care to a third party with respect to an
economic loss allegedly incurred by the third party when
recognition of such a duty of care to the third party would
create a potential conflict of obligations for the professional or
business entity in light of its responsibility to the individual or
business with which it has contracted. (See, e.g., Summit
Financial Holdings, Ltd. v. Continental Lawyers Title Co.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
36
Fifth and finally, imposition of a tort duty of care on a
payroll company is likely to add an unnecessary and
potentially burdensome complication to California’s increasing
volume of wage and hour litigation. Because an employee who
fails to receive what he or she believes is the proper amount of
wages due under the applicable labor statutes and wage orders
will generally have no way of knowing whether the
underpayment is due to the actions of the employer, the payroll
company, or both the employer and the payroll company, the

(2002) 27 Cal.4th 705, 716 [escrow holder did not owe duty of
care to third party when imposition of duty would subject
escrow holder to conflicting obligations]; Goodman v. Kennedy,
supra, 18 Cal.3d at p. 344 [attorney who advised client on stock
sale owed no duty of care to third parties who purchased stock
from the client]; Lake Almanor Associates L.P. v. HuffmanBroadway
Group, Inc., supra, 178 Cal.App.4th at pp. 1205-
1206 [environmental consultant hired by county to prepare
environmental impact report owned no duty of care to
developer of proposed project]; Ratcliff Architects v. Vanir
Construction Management, Inc. (2001) 88 Cal.App.4th 595, 606
[construction manager hired by school district to oversee
project owed no duty of care to third party architect who also
worked on the project]; Sanchez v. Lindsey Marden Claims
Services, Inc. (1999) 72 Cal.App.4th 249, 253 [independent
claims adjuster hired by an insurer to assess claimed loss owed
no duty of care to the insured claimant]; Burger v. Pond (1990)
224 Cal.App.3d 597, 605-606 [husband’s divorce attorney owed
no duty of care to husband’s subsequent wife]; Sooy v. Peter
(1990) 220 Cal.App.3d 1305, 1314 [attorney owed no duty of
care to another attorney representing a third party in armslength
transaction with attorney’s client]; Goldberg v. Frye
(1990) 217 Cal.App.3d 1258, 1269 [attorney representing
administrator of estate owed no duty of care to legatees of
will].)
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
37
payroll company is likely to be joined as an additional party in
virtually every wage and hour lawsuit, rendering such
litigation more complicated and more difficult to settle.
Inasmuch as an employee can obtain a full recovery for his or
her economic loss in a wage and hour action against the
employer alone, the substantial burden to the judicial system
that would result from the addition of a tort action against the
payroll company is likely to outweigh any potential benefit.
Considering the “ ‘sum total’ ” of the relevant
considerations of policy (Dillon v. Legg, supra, 68 Cal.2d at
p. 734), we conclude that it is not appropriate to impose upon a
payroll company a tort duty of care to an employee with
respect to the obligations imposed by the applicable labor
statutes and wage orders. Accordingly, we conclude that the
Court of Appeal erred in determining that plaintiff’s negligence
cause of action could go forward.
B. Negligent Misrepresentation Cause of Action
In addition to upholding plaintiff’s negligence cause of
action, the Court of Appeal held that the allegations of the 6AC
are adequate to support plaintiff’s proposed cause of action for
negligent misrepresentation. We conclude that the Court of
Appeal erred in this respect as well.
The numerous policy considerations that we have
discussed above in concluding that it is not appropriate to
impose on ADP a duty of care to support plaintiff’s negligence
cause of action are applicable as well to plaintiff’s cause of
action against ADP for negligent misrepresentation. Insofar as
ADP’s conduct in issuing to plaintiff inaccurate paychecks and
pay stubs would otherwise support an action for negligent
misrepresentation, any economic loss suffered by plaintiff can
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
38
be remedied in a statutory wage and hour cause of action
against her employer, and recognition of a negligent
misrepresentation cause of action against ADP is not needed to
deter the alleged negligent conduct on the part of ADP because
ADP already has a comparable incentive by virtue of its
potential contractual liability to plaintiff’s employer that would
result from such negligence. Further, permitting plaintiff to
pursue a negligent misrepresentation cause of action against
ADP in this context would have the same potential distorting
effect on ADP’s performance of its contractual obligations to
plaintiff’s employer and would introduce an unnecessary and
burdensome complication in virtually all wage and hour
litigation.
To our knowledge, the only case that has indicated that a
negligent misrepresentation cause of action may be permissible
even though a negligence cause of action has been rejected
because the relevant policy considerations weigh against the
recognition of a duty of care is Bily, supra, 3 Cal.4th 370. In
Bily, the court concluded, based upon a number of policy
considerations, that “an auditor’s liability for general
negligence in the conduct of an audit of its client[’s] financial
statements is confined to the client, i.e., the person who
contracts for or engages the audit services” and that the
auditor owes no duty of care to third parties who may have
relied on the audit report and thus such third parties may not
maintain a negligence action against the auditor. (3 Cal.4th at
p. 406.) At the same time, however, the court in Bily held that
a narrow class of third party users of audit reports may sue the
auditor for negligent misrepresentation so long as they “are
specifically intended beneficiaries of the audit report who are
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
39
known to the auditor and for whose benefit it renders the audit
report.” (Id. at p. 407.)
In permitting a negligent misrepresentation action to be
brought by persons who “are specifically intended beneficiaries
of the audit report who are known to the auditor and for whose
benefit it renders the audit report” (Bily, supra, 3 Cal.4th at
p. 407), the Bily decision clearly affords no support for
plaintiff’s proposed cause of action for negligent
misrepresentation in the present case. As our discussion of
plaintiff’s third party beneficiary claim explains, ADP’s
contract with Altour was not entered into for the benefit of
plaintiff or Altour’s other employees and plaintiff was not an
intended beneficiary of ADP’s services. (Ante, pp. 22-30.)
Thus, even under the narrow category of negligent
misrepresentation claims authorized in Bily, plaintiff’s
negligent misrepresentation claim lacks merit.
Accordingly, we conclude that the Court of Appeal erred
in permitting plaintiff’s cause of action for negligent
misrepresentation to go forward.
GOONEWARDENE v. ADP, LLC
Opinion of the Court by Cantil-Sakauye, C. J.
40
IV. CONCLUSION
For the reasons set forth above, the judgment of the
Court of Appeal is reversed insofar as it held that the trial
court erred in dismissing the causes of action for breach of
contract, negligence, and negligent misrepresentation without
leave to amend. The matter is remanded to the Court of
Appeal with directions to affirm the trial court judgment in
favor of ADP in its entirety.
CANTIL-SAKAUYE, C. J.
We Concur:
CHIN, J.
CORRIGAN, J.
LIU, J.
CUÉLLAR, J.
KRUGER, J.
IRION, J.*

* Associate Justice of the Court of Appeal, Fourth Appellate
District, Division One, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Goonewardene v. ADP, LLC
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 5 Cal.App.5th 154
Rehearing Granted
__________________________________________________________________________________
Opinion No. S238941
Date Filed: February 7, 2019
__________________________________________________________________________________
Court: Superior
County: Los Angeles
Judge: William P. Barry
__________________________________________________________________________________
Counsel:
Glen Broemer for Plaintiff and Appellant.
Morgan Lewis & Bockius, Robert A. Lewis, Thomas M. Peterson and Zachary S. Hill for Defendants and
Respondents.
Kevin C. Young for Pay-Net, Payroll World, Inc., Erie Custom Computer Applications, Inc., Task HR-VA
LLC, HCM Centric LLC, Adminasource, Inc., QTS Payroll Services, Inc., Promerio, Inc., and Payality,
Inc., as Amici Curiae on behalf of Defendants and Respondents.
Dowling Aaron Incorporated and Stephanie Hamilton Borchers for Payroll People, Inc., The Payroll Group
and Independent Payroll Providers Association as Amici Curiae on behalf of Defendants and Respondents.
Greines, Martin, Stein & Richland, Alana H. Rotter and Marc J. Poster for National Payroll Reporting
Consortium and American Payroll Association as Amici Curiae on behalf of Defendants and Respondents.
Foley & Lardner, Eileen R. Ridley, Yesenia Garcia Peres and Anthony James Dutra for Paychex, Inc., as
Amicus Curiae on behalf of Defendants and Respondents.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Glen Broemer
347 Union #2
Jersey City, NJ 07304
(805) 351-9857
Robert A. Lewis
Morgan Lewis & Bockius
One Market Street, Spear Tower
San Francisco, CA 94105
(415) 442-1000

Outcome: For the reasons set forth above, the judgment of the Court of Appeal is reversed insofar as it held that the trial court erred in dismissing the causes of action for breach of contract, negligence, and negligent misrepresentation without
leave to amend. The matter is remanded to the Court of Appeal with directions to affirm the trial court judgment in favor of ADP in its entirety.

Plaintiff's Experts:

Defendant's Experts:

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