©2025 Seyfarth Shaw LLP www.seyfarth.com 2025 Cal-Peculiarities | 397 Labor Code section 226.3 as well. The PAGA reform applies to any civil action brought on or after June 19, 2024.56 16.3.6 Electronic wage statements The DLSE has advised that even though the statute refers to the wage statement as a “detachable part of the check,” employers can meet wage itemization requirements by giving employees access to electronic wage statements, provided that employees can print hard copies at no cost at nearby locations and that wage statements are electronically stored for at least three years.57 16.3.7 Special record retention requirement and employee right to a copy Many employers traditionally did not keep copies of wage statements provided to employees, because distributing those copies was the role of a third-party payroll administrator retained for that purpose. Employers now, however, must maintain copies of wage statements for up to three years.58 A copy can consist of a computergenerated record rather than an actual duplicate copy.59 Legislation enacted in 2018, purporting to state existing law, provides that employees have the right “to receive” a copy of—not just inspect or copy—their pay statements.60 16.3.8 Liability for payroll companies? Employers often contract out certain payroll functions to companies that hold themselves out as experts in the field. These payroll companies thus prepare wage statements and perform related payroll functions on behalf of the employer. In one case, an employee sued the payroll company (as well as her employer) for failing to break down her regular, overtime, and double-time hours, and for failing to provide for proper payment of her wages. The Court of Appeal held that the plaintiff could sue the payroll company on theories of contract (the employee was a third-party beneficiary of the payroll company’s contract with the employer), negligent misrepresentation (the employee reasonably relied on wage statements the payroll company prepared), and professional negligence (in that the employer had retained the payroll company to assist in discharging its legal duties to the employee).61 In 2019, the California Supreme Court took review of this decision and held 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.”62 The Supreme Court also rejected all three theories of liability against the payroll company: (1) liability to the employee, as a third-party beneficiary, for breach of the payroll company’s contract with the employer, (2) negligent calculation of wages, in breach of the payroll company’s duty of care to the employee, and (3) negligent misrepresentation to the employee by the payroll company. The contract claim failed because a third party can sue for breach of contract only if (a) the third party is likely to benefit from the contract, (b) the contracting parties intended to provide a benefit to the third party, and (c) permitting the third party to sue for breach is consistent with the contractual objectives and the contracting parties’ reasonable expectations. The contract here—between an employer and a payroll company—aimed to benefit the employer, not its employees, no matter that employees benefit in receiving proper wages.63 And the tort claims failed because it is neither necessary nor proper to impose on payroll companies a duty of care as to the labor law obligations that employers owe to employees. The Supreme Court recognized that having payroll companies defend wage suits, with the costs of defense passed on to employers through an increased cost of the payroll company’s services, would conflict with the parties’ contractual objectives and the reasonable expectations of the employer and the payroll company.64
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