Are Payroll Providers Really the Best Option to Protect Employers Against Wage Claims?

On March 28, 2019, China Grill Inc. (“China Grill”) sued its payroll provider, ADP, LLC (“ADP”), after it was forced to settle a class and collective action filed against it by four employees, who alleged that they had not received pay statements or been properly paid overtime wages in accordance with applicable law.  In the new lawsuit, China Grill asserts that it “believed, and had been told, that ADP’s payroll services complied with existing law and were otherwise adequately performed.”  However, after performing an investigation of the claims levied against it in the underlying class and collective action, China Grill determined that ADP failed to comply with existing labor laws, including the WTPA, in several material respects.  

While it is too early to conclude whether or not China Grill will be successful in its attempt to be indemnified by ADP for these labor law violations, the China Grill lawsuit raises a bigger question: are payroll providers really the best option to protect employers against wage claims?  The below Client Alert examines this question and provides details on the potential liability faced by employers who rely solely on payroll providers to comply with federal, state and local wage & hour laws.