Corporate employers rely on human resources (“HR”) software for tasks like applicant selection, timekeeping, payroll, benefit management, and productivity monitoring. When that software causes or contributes to wage theft or employment discrimination, employers have been largely unsuccessful at obtaining indemnification or contribution from software companies. This article reveals how software-related actors have evaded liability under both state and federal law through (1) statutory coverage limitations under the Fair Labor Standards Act (“FLSA”) and Title VII of the Civil Rights Act (“Title VII”); (2) case law precluding indemnification under FLSA and Title VII; (3) judicial enforcement of limitation of liability provisions in software contracts; and (4) judicial application of the economic loss doctrine to tort claims.
Because HR software companies rarely incur liability for their role in employment law violations, they have little incentive to invest in precautions that would reduce the likelihood of harm. Closing any of the loopholes described above would force software companies to internalize the costs the software imposes on workers.