Payroll giant ADP sues Zenefits for defamation — then rolls out competing software service

Zenefits has made a new enemy, and the latest foe isn’t another health insurance broker.

A spat erupted this week between Zenefits, the San Francisco-based startup HR software company, and payroll processor ADP, one of the biggest payroll companies in the country. Zenefits offers small- and medium-size businesses cloud-based services to manage and administer a range of HR needs, such as health benefits, payroll, 401(k) plans, stock options, maternity leave and vacation time. Zenefits had been integrating ADP into its suite of services, and according to ADP, without the company’s permission.

Now, ADP has sued Zenefits, and both companies are on the offensive. ADP on Tuesday filed a lawsuit with the U.S. district court in San Francisco, accusing Zenefits of defamation. Almost in the same breath, ADP launched a competing product to try and replace Zenefits.

The dispute started when ADP blocked Zenefits from accessing payroll information on behalf Zenefits’ customers, which use the company as a middleman for the payroll provider’s services. According to Zenefits, ADP “systematically de-activated Zenefits accounts within ADP.” ADP closed the accounts for security reasons — Zenefits had exposed sensitive information such as social security numbers, ADP said — but the startup’s CEO Parker Conrad suspects that’s a lot of bologna.

“We’ve repeatedly asked to confer with their security team, only to be directed to their lawyers instead,” Conrad wrote in a blog post. “Make no mistake about it: if there are indeed true threats, we want to know about them. We want to work with the ADP security team to address them, but we have yet to be given that opportunity. … In the meantime, we have reviewed our system and practices, and we’ve identified no threats to the security of our clients’ data.”

Zenefits responded to ADP in much same way it did when Utah’s insurance commissioner briefly banned the company from operating there. It set up a petition and asked people to tweet their opposition to ADP’s move, using #ADPeeved. The hashtag got some action on Twitter, including from tech investor and entrepreneur Alexis Ohanian.

But ADP isn’t bending to the social media pressure. A statement on the company website reads:

“Zenefits’ unauthorized method of accessing ADP’s RUN solution pulled sensitive client and employee data, including Social Security Numbers and employee banking information, in a manner that does not comply with ADP’s high standards for data security.”

ADP also dedicated page to countering Zenefits allegations, stating ADP “never authorized their method of extracting data” and instead Zenefits “gained access to our systems by convincing clients to give them administrative access to our platform.” The company added that it would have been happy to partner with Zenefits if the startup had gone about the integration in the proper way, and rejected claims that ADP was threatened by the competition Zenefits presents.

ADP’s lawsuit says Zenefits and Conrad launched a “manipulative and malicious public relations campaign, ignoring its own conduct, to defame ADP and drive away ADP’s clients.” ADP also said Zenefits defamed the payroll giant when it “alleged that ADP intentionally sought to cause harm to ADP’s clients solely to gain an unfair competitive advantage against Zenefits.”

On Tuesday, an ADP sales rep, in an email to convince a Zenefits customer not to leave ADP, wrote: “We are coming out with a product to compete with Zenefits, a full service integrated online payroll and benefits solution.”

Called Opum, the service “is a free solution” like Zenefits and if the customer stayed with ADP, they’d get “the best technology of both worlds,” the sale rep wrote, adding a smiley face to close the email.

Photo: Zenefits CEO Parker Conrad speaks at his office in San Francisco, Calif., Wednesday morning, Oct. 22, 2014. By Karl Mondon/Bay Area News Group.

 

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  • Olaf Skyansian

    Tech Crunch and Business Insider reporting that Opum is a typo and the email referenced an existing offering, Optum Insight…

 
 
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