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This month’s key California employment law cases involve reporting time pay and potential liability of payroll companies for wage-and-hour violations.
Goonewardene v. ADP, LLC, 6 Cal. 5th 817, 243 Cal. Rptr. 3d 299 (2019)
Summary: Employee should not be viewed as third party beneficiary who can maintain action against payroll company for alleged breach of contact between employer and payroll company regarding payment of wages.
Facts: Plaintiff brought suit against ADP, a payroll services provider, which had entered into an unwritten contract with plaintiff’s former employer to provide wage processing services. Plaintiff’s suit alleged wrongful termination, violations of state and federal labor laws, breach of contact, unfair business practices, false advertising, professional negligence, and negligent misrepresentation, premised in part on the theory that ADP was plaintiff’s employer and the allegations that plaintiff was terminated from her employment in retaliation for her efforts to be paid fairly and to receive benefits to which she was legally entitled. The trial court sustained ADP’s demurrer without leave to amend. Plaintiff appealed.
The California Court of Appeal reversed, holding that plaintiff could proceed with claims for breach of contract, negligent misrepresentation, and negligence against ADP based on allegations that ADP negligently performed payroll services. In concluding that plaintiff’s breach of contract claim could proceed, the court held that plaintiff could be a third party beneficiary of the contract between ADP and plaintiff’s employer.
Court’s Decision: The California Supreme Court reversed, holding that, as a matter of law, plaintiff could not be considered a third party beneficiary of the contract between her employer and ADP. Providing a benefit to employees is not ordinarily among the motivating purposes of a contract between an employer and a payroll services provider, and it would be inconsistent with the objectives of the contract and the reasonable expectations of the contracting parties to permit employees to sue the provider for an alleged breach of its contract with the employer. The court also declined to create a cause of action for negligence or negligent misrepresentation under these circumstances, noting that payroll services providers do not owe a duty of care to employees.
Practical Implications: Payroll service providers cannot be held liable for errors they make in issuing paychecks to workers of companies they contract with, and they do not owe a duty of care to employees to ensure that wage laws are followed. That burden falls squarely on the shoulders of the employer that is providing information to the payroll provider.
Ward v. Tilly’s, Inc., 31 Cal. App. 5th 1167, 243 Cal. Rptr. 3d 461 (2019)
Summary: Employees scheduled for on-call or call-in shifts may be entitled to reporting time pay even when they do not physically report to work.
Facts: Plaintiff filed a wage-and-hour class action against defendant employer, Tilly’s, alleging that she and other employees were entitled to reporting time pay for their on-call shifts under Industrial Welfare Commission (“IWC”) Wage Order No. 7, which applies to the mercantile or retail industries. Plaintiff alleged that defendant scheduled its employees for a combination of regular and on-call shifts. Employees were expected to report to their stores for their regular shifts, but were also required to contact their stores by phone two hours before the start of their on-call shifts to find out whether they would need to report to work. Failure to call could lead to discipline. Defendant demurred to plaintiff’s complaint, which the trial court sustained. Plaintiff appealed.
Court’s Decision: The California Court of Appeal reversed and remanded, holding that if an employer directs employees to present themselves for work by telephoning two hours prior to the start of a shift to determine whether work is available, the reporting time pay requirement is triggered by the telephonic contact. The key issue addressed was what it means to report for work in Wage Order No. 7. Defendant argued that report for work can only mean physically showing up at the work site, thereby excluding on-call shifts. Plaintiff argued that report for work encompasses any kind of reporting, whether in person, telephonic or otherwise. The court sided with plaintiff, interpreting report for work broadly to mean presenting oneself as ordered. Report for work is defined by the party who directs the manner in which the employee is to present himself or herself for work – that is, by the employer. If an employer directs employees to present themselves for work by physically appearing at the work site, then reporting time is triggered when the employee reports but is sent home. If, however, the employer directs employees to present themselves for work by telephoning in, then reporting time is triggered when the employee calls and is told not to come in. In reaching this conclusion, the court found important defendant’s practice of inconveniencing employees by narrowly restricting their activities during the window of time they were required to call, and disciplining them if they did not, all to benefit how it staffed its stores.
Practical Implications: Employers that require their employees to call in prior to a shift should carefully analyze their practices to determine whether the call triggers reporting time pay if work is not available.