Title: Goonewardene v. ADP, LLC

State: california

Issuer: California Supreme Court

Document:

IN THE SUPREME COURT OF 
CALIFORNIA 
 
SHARMALEE GOONEWARDENE, 
Plaintiff and Appellant, 
v. 
ADP, LLC, et al., 
Defendants and Respondents. 
 
S238941 
 
Second Appellate District, Division Four 
B267010 
 
Los Angeles County Superior Court 
TC026406 
 
 
February 7, 2019 
 
Chief Justice Cantil-Sakauye authored the opinion of the court, 
in which Justices Chin, Corrigan, Liu, Cuéllar, Kruger and 
Irion, J.* concurred. 
 
 
                                        
*  
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. 
 
 
1 
 
GOONEWARDENE v. ADP, LLC 
S238941 
 
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 
GOONEWARDENE v. ADP, LLC  
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 
GOONEWARDENE v. ADP, LLC  
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 
GOONEWARDENE v. ADP, LLC  
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 
GOONEWARDENE v. ADP, LLC  
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. 
GOONEWARDENE v. ADP, LLC  
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. Huffman-
Broadway 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 arms-
length 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