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 decisions5reveals 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) 

<https://www.irs.gov/irm/part5/irm_05-001-024r> [as of Feb. 5, 

2019].) (All internet citations in this opinion are archived by 

year, docket number, and case name at 

<http://www.courts.ca.gov/38324.htm>.) 

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. 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