Employer can’t sue software company for payroll mistakes
Case dismissed! If you use commercial payroll software, beware. A federal trial court has ruled that an employer that incurred CPA and attorneys’ fees related to erroneous tax filings with the IRS made by commercial payroll software couldn’t sue the software provider to recover those amounts. Instead, the employer’s damages were limited to the amount it paid to license the software. (Jouett Investments, Inc., v. Intuit, Inc., No. 3:14-cv-01803, N. Tx., 2015)
Software glitch leads to tax levy. An employer licensed commercial payroll software for $2,000 a year. Due to glitches in the software, the IRS issued a levy notice against the employer’s assets. The mistakes were eventually sorted out, and the tax penalties abated and the levy withdrawn, but not before the employer spent $25,000 to hire a CPA, $5,000 in attorneys’ fees and $16,000 in “executive management time.”
The license agreement limited the software company’s liability to the amount a licensee paid for the software. Nevertheless, the employer sued the software company for damages related to breach of contract and breach of express and implied warranties. Software company: The license agreement is the only relevant document. That agreement limits the employer’s recovery to the amount it spent to license the software.
Caveat emptor, licensee. A federal trial court ruled in the software company’s favor. Court: The employer’s claims for breach of contract and breach of warranties are based on the software company’s payroll services, which include its tax filing services. Accordingly, the court concluded, the license agreement was applicable to, and covered, the employer’s claims. The employer’s recovery, therefore, was limited to the $2,000 it paid to license the software.
KNOW BEFORE YOU CLICK: This company’s license agreement was typical. By clicking through a payroll software program or website, you’re agreeing to the terms of the license agreement. Commercial payroll software doesn’t operate on autopilot or eliminate the need for an outside CPA to review your books. So, it’s up to you to ensure that the company’s payroll administration remains on a smooth course. You can do this by requesting a copy of the company’s business tax transcript from the IRS on a regular basis.
