ADP Lawsuit: 401(k) Fees, Background Checks, and Data Breach

ADP, the payroll and HR services giant, has been sued over a wide range of conduct: mismanagement of its own employees’ $7.8 billion retirement plan, background check reports that wrongly branded job seekers as criminals, an HR platform inaccessible to blind workers, payroll and tax processing failures, and its role as a co-employer through its TotalSource PEO division. The ADP lawsuits summarized below include cases still moving through the courts, settlements with undisclosed terms, and appellate rulings that have shaped what employees, clients, and job applicants can and cannot recover from the company.

The $7.8 Billion 401(k) Fee Class Action

The largest active case against ADP concerns its own employees’ retirement plan. In May 2020, participants in the ADP TotalSource Retirement Savings Plan sued in the U.S. District Court for the District of New Jersey, alleging that ADP breached its fiduciary duties under ERISA by mismanaging the $7.8 billion plan. The case is Berkelhammer v. ADP TotalSource Group Inc., No. 2:20-cv-05696.¹

Participants alleged the plan paid recordkeeping fees of $80 to $124 per person between 2014 and 2018, roughly four times what they said was reasonable for a plan that size.² They also challenged the plan’s investment lineup as underperforming and overly expensive, and accused ADP of allowing recordkeeper Voya to use participant data to market IRAs, life insurance, and other non-plan products to plan members.¹

ADP defended the plan, arguing that a multiple employer plan serving thousands of client-employers carries inherently higher administrative costs than a typical single-employer plan, that ERISA does not require the cheapest index funds, and that no one had shown actual harm from the alleged marketing.¹ In 2022, the court dismissed the participant-data claims but allowed the excessive fee and imprudent investment claims to proceed.²

In February 2025, U.S. District Judge Esther Salas certified a class of more than 50,000 plan participants, with ADP agreeing to certification. Schlichter Bogard LLC was appointed class counsel.³⁴ Court records show the case has since been terminated, though the public docket does not indicate whether resolution came through a settlement or another procedural route.⁵

Background Check Errors Under the Fair Credit Reporting Act

ADP Screening and Selection Services has been sued repeatedly under the Fair Credit Reporting Act for reports that allegedly cost applicants jobs.

Mott: Job Seeker Falsely Reported as a Convicted Murderer

In August 2023, a Washington, D.C.-area applicant received a conditional job offer that fell apart after an ADP background check identified the applicant as a convicted murderer. According to a December 2023 complaint, the conviction belonged to a different, incarcerated person. The applicant had never used an alias and had a different Social Security number, age, and address history than the person with the murder conviction.⁶

The suit alleged ADP failed to use “reasonable procedures to assure the maximum possible accuracy” of its reports, as required by the FCRA, and sought damages for lost wages, correction costs, and emotional distress. Mott v. ADP Screening and Selection Services, Inc. was resolved and dismissed with prejudice on July 12, 2024, by Judge Beryl A. Howell in the U.S. District Court for the District of Columbia. Settlement terms were not disclosed.⁷⁸

ADP had settled a separate proposed class action in November 2023 involving a report that falsely identified a candidate as a convicted drug dealer, reportedly because of a birth date match error by a third-party vendor. That settlement amount was also undisclosed.⁶

Grijalva: Old Adverse Information and a Split Ninth Circuit Ruling

A separate class action asked whether ADP could include adverse information more than seven years old in its reports. The plaintiff, an Arizona resident, alleged that a 2020 ADP report disclosed a 2011 nursing license revocation, leading to her termination, and that the FCRA’s seven-year limit on non-criminal adverse information barred that disclosure.⁹

In August 2025, the Ninth Circuit issued a split ruling. Reporting Grijalva’s ongoing exclusion from federal health care programs did not violate the FCRA, the court held, because that exclusion was a continuing event rather than a stale one. But disclosing the specific reason for the exclusion, the 2011 license revocation, did violate the statute, because that revocation was an event “fixed in time” more than seven years before the report. ADP could have reported the exclusion without naming the decade-old revocation.¹⁰

ADP still won. Under the FCRA, a plaintiff must prove at least negligence, and the Ninth Circuit found the statutory language “less than pellucid” and ADP’s reading not objectively unreasonable, so no reasonable jury could find ADP liable.¹⁰

Accessibility Settlement With LightHouse for the Blind

In September 2020, the San Francisco LightHouse for the Blind and Visually Impaired sued ADP TotalSource and its parent in the U.S. District Court for the Northern District of California, alleging that ADP’s cloud-based HR platform, Workforce Now, was unusable for blind employees relying on screen readers. Staff members said they could not clock in and out, request time off, or manage benefits enrollment.¹¹ The case was brought under California’s Unruh Civil Rights Act and unfair competition law rather than the federal ADA.¹²

A settlement was reached by October 2021. ADP agreed to hire a third-party accessibility expert, bring its web and mobile applications into substantial compliance with WCAG 2.1 AA, integrate accessibility into product development and testing, and train customer service staff on assisting screen reader users.¹¹ The agreement expressly rejected accessibility “overlay” products from vendors like AudioEye and AccessiBe as sufficient to meet its requirements.¹³ The court dismissed the case with prejudice but retained jurisdiction through October 2024 to enforce the terms.¹²

Can Employees Sue ADP Over Paycheck Mistakes?

In California, generally no. The California Supreme Court settled that question in 2019 in Goonewardene v. ADP, LLC. Sharmalee Goonewardene, a former employee of Altour, sued ADP as her employer’s payroll provider for wage violations. After Labor Code claims against ADP were dismissed because a payroll company is not an employer, she sued for breach of contract as a third-party beneficiary of the payroll agreement and for professional negligence and negligent misrepresentation.¹⁴

The California Supreme Court unanimously rejected all of it. Payroll contracts are designed to benefit the employer, and any benefit to individual workers is incidental, the court held. It also rejected the negligence claims, reasoning that employees already have a full remedy against their employers under wage and hour laws, that no special relationship exists between a payroll company and its client’s employees, and that layering payroll-provider liability onto that framework would create conflicts and drive up costs.¹⁴¹⁵

Goonewardene effectively bars California employees from suing payroll companies over paycheck errors. It does not, however, shield ADP from claims by its own clients. In Plaza Home Mortgage Inc. v. Automatic Data Processing Inc. (2021), a federal court in the Southern District of California allowed a mortgage company to proceed with breach of contract and indemnity claims against ADP after payroll software allegedly failed to account for the extra hour of pay California law requires when employees miss meal breaks. The error reportedly triggered a separate class action against the mortgage company by its own employees.¹⁶

Co-Employer Liability Through the TotalSource PEO

The rule shielding ADP as a straight payroll processor does not necessarily reach its professional employer organization business. Through TotalSource, ADP enters co-employment arrangements with client companies, taking on HR, benefits, and payroll in a more integrated way, and that deeper role can create liability.

In Perez v. The Dermatology Group, P.C., ADP TotalSource II, Inc., and ADP, LLC, plaintiff Stephanie Perez alleged pregnancy discrimination, failure to accommodate, and retaliation after her 2018 termination. ADP TotalSource moved for summary judgment on the ground that it was not her employer. In October 2019, New Jersey Superior Court Judge Keith E. Lynott denied the motion, finding enough evidence that TotalSource was a co-employer under the New Jersey Law Against Discrimination for the 2017 tax year. The court cited that ADP TotalSource appeared as the employer on Perez’s W-2, was listed as an HR contact in the company manual, and helped create the company’s leave policies.¹⁷

Payroll Tax Dispute: Precision Standard v. ADP

Clients suing ADP over tax filings can also run into pleading barriers. Precision Standard, Inc. paid ADP roughly $250,000 for payroll and tax services between 2020 and 2022, then sued, alleging ADP failed to properly file and pay payroll taxes. Rather than pleading breach of contract, Precision Standard brought claims for breach of fiduciary duty and statutory conversion.¹⁸

In August 2024, Oakland County Circuit Judge Victoria A. Valentine dismissed both claims, holding that ADP’s alleged failures all arose from its contractual obligations and that no independent legal duty supported the tort claims. The court gave Precision Standard 14 days to refile on a breach of contract theory, but no amended complaint appears in the record. A December 2024 order denied reconsideration and closed the case.¹⁹

2016 Data Breach

In 2016, ADP disclosed a cyberattack that exploited a weakness in an online registration portal, allowing unauthorized access to employee tax information including W-2 data. U.S. Bancorp confirmed it was among the affected companies, becoming aware in April 2016. ADP said exposure was limited to individuals whose personal information had already been compromised elsewhere. A class action investigation was opened, though no formal filing or resolution appears in the available record.²⁰

1
NAPA-Net. ADP Responds to Excessive Fee, Participant Data Usage Suit
2
ASPPA-Net. Participant Data Claims Dismissed in Excessive Fee Suit
3
Law360. ADP Agrees to Massive Class in Suit Over 401(k) Fees
4
UseLaws. ADP 401(k) Plan Participants Secure Class Certification
5
CourtListener. Berkelhammer v. ADP TotalSource Group Inc.
6
HR Dive. ADP Background Check Job Seeker Convicted Murder FCRA
7
HR Dive. ADP Background Check Error
8
PACER Monitor. Mott v. ADP Screening and Selection Services Inc.
9
ClassAction.org. ADP Includes Outdated Adverse Information in Consumer Background Checks
10
FindLaw. Grijalva v. ADP Screening and Selection Services Incorporated
11
Disability Rights Advocates. LightHouse for the Blind and Visually Impaired v. ADP TotalSource
12
Civil Rights Litigation Clearinghouse. LightHouse for the Blind v. Automatic Data Processing Inc.
13
LFLegal. ADP Settlement
14
SHRM. ADP Isn’t Liable for Employers’ Alleged Wage Violations
15
Advocate Magazine. ADP Screwed Up Your Paycheck
16
Bloomberg Law. ADP Must Face Lawsuit Over Alleged Failure to Catch Missed Meals
17
New Jersey Employment Lawyers Blog. New Jersey Court Finds That ADP Can Be Held Liable for Discrimination as a Professional Employer Organization
18
Michigan Courts. Precision Standard Inc. v. ADP Tax Service Inc. – August 2024
19
Michigan Courts. Precision Standard Inc. v. ADP Tax Service Inc. – December 2024
20
Top Class Actions. ADP Payroll Scammers Breach Security, Consumers at Risk