Employer’s lawsuit aims to hold Paylocity responsible for wage and hour settlements

Dive Brief:

  • Canned beverage manufacturer DrinkPAK sued cloud-based payroll software company Paylocity June 11, alleging it committed errors that led to it twice being sued for alleged wage and hour violations, according to the complaint (DrinkPAK LLC v. Paylocity Corp.).
  • DrinkPAK said, for example, it discovered in 2021 that Paylocity’s software failed to accurately program employees’ regular rate of pay for determining overtime, as well as meal and rest premiums. Despite multiple requests that the errors be corrected and Paylocity’s repeated assurances it would do so, the errors persisted, the lawsuit alleged. DrinkPAK was then named in two now-settled class action lawsuits, allegedly directly stemming from the software failures.
  • DrinkPAK sued Paylocity for breach of contract and breach of implied covenant of good faith and fair dealing under California law. It also argued that Paylocity should reimburse it for the settlement amounts. A Paylocity spokesperson said the company cannot comment on the specifics of pending litigation, but is “deeply committed to [its] clients’ satisfaction and focused on resolving any disputes fairly and equitably.” DrinkPAK did not respond to a request for comment.

Dive Insight:

Enforcement authorities have long cautioned employers that they remain responsible for compliance with labor and employment laws when using payroll solutions, AI hiring platforms and more.

The 2021 Kronos Private Cloud ransomware attack provides one such example. The event left employers in a wide swath of industries without payroll and timekeeping services for weeks, and the effects are ongoing.

Just last week, Frito-Lay agreed to settle a class action lawsuit by current and former employees over alleged violations stemming from the attack. The undisclosed terms of the settlement resolve, among other things, claims that from the time of the attack until early 2022, Frito-Lay paid the plaintiffs and other hourly workers an average of hours worked in previous weeks that didn’t take into account the number of hours they actually worked.

The agreement follows other settlements tied to the outage, such as those involving Cargill and UMass Memorial Health in Massachusetts, with both entities paying out millions to settle wage and hour claims.

Also, last year, UKG, Kronos’s parent company, announced a $6 million agreement that affected its customers’ employees, including a group of people whose data was stolen as a result of the attack.

Additionally, a suit filed in 2022 against Honda has yet to be resolved. An employee alleged that for at least part of the time following the outage, Honda failed to keep accurate track of his and others’ hours. Instead, the lawsuit alleges, Honda used various methods to estimate their hours, resulting in the workers being paid less than the Fair Labor Standards Act requires, especially with respect to overtime hours.

But companies have been able to move forward. A few months after the outage, UMass Memorial Health’s CFO — an exec whose 16,000-employee organization was hit hard — spoke with HR Dive about how UMass Memorial tackled the issues it faced.

To plan for similar events in the future, the CFO said the health system is working on an upgrade to its enterprise resource planning system, which has a timekeeping element that could serve as a backup. For employers, the CFO stressed the importance of joint leadership among executives in HR, IT, finance or similar operational roles who accept joint accountability.

In the DrinkPAK case, the contract allegedly required Paylocity to exercise “due care in processing” the work it did for DrinkPAK and correct errors caused by its equipment, processes or employees. DrinkPAK claimed Paylocity employees admitted on multiple occasions they were responsible for the faults in the software, including by “miss[ing] one of the steps” in the program, according to the lawsuit.

“Despite these admissions, Paylocity has refused to provide appropriate recompense for its breach of the DrinkPAK agreement and refused to acknowledge the harm caused by its willful and wanton conduct,” the complaint said.