Zenefits files motion to strike ADP defamation lawsuit

Zenefits, not a company known for rolling over in the face of legal pressure, is striking back at rival ADP, the payroll giant that has tried to squash Zenefits’ business.

Zenefits on Tuesday filed a motion in the U.S. District Court for the Northern District of California to strike and dismiss the defamation lawsuit brought by ADP in June. The filing signals the spat between startup Zenefits, a two-year-old San Francisco software firm, and ADP, a 60-year old, Fortune 500 company, is a loooooong way from over.

“When an old economy giant fails to innovate quickly enough, it has two choices,” Zenefits’ court filing says. “It can let the marketplace decide, or it can use outmoded and anti-competitive lock-in tactics to tie consumers to their data. This case is an example of the latter — when challenged by Zenefits, ADP’s Small Business Services division first blocked access to the data, when Zenefits brought that practice to light, ADP filed this suit to shut Zenefits up about it.”

The dispute started last month, when ADP blocked Zenefits from accessing payroll information on behalf Zenefits’ customers, which use the company as a middleman for ADP’s payroll services. According to Zenefits, ADP “systematically de-activated Zenefits accounts within ADP … locking out approximately 670 small businesses from services they were counting on to timely pay their employees.”

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 without the company’s permission, according to ADP, and that caused security concerns. Zenefits had exposed sensitive customer information such as social security numbers, ADP said. Zenefits has, not surprisingly, hotly rejected ADP’s claims.

After it kicked Zenefits off its payroll system, ADP then quickly 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. It has been marketing the service, called Opum, to customers.

Zenefits’ filing alleges that ADP’s defamation suit violates California’s “anti-SLAPP (Strategic Lawsuits Against Public Participation)” statute, a law that prevents large companies from using defamation lawsuits and costly litigation to silence criticism from smaller competitors.

“This frivolous lawsuit is about one thing, and one thing only,” said Parker Conrad, co-founder and CEO of Zenefits. “Just to try to hurt a potential competitor.”

Interestingly, Zenefits had been integrating with ADP’s payroll service for about two years before the companies had their fallout. Zenefits, whose revenue hinges on selling health benefits, doesn’t necessarily need ADP to sell its software. But if Zenefits wants to continue to market its product as an all-in-one suite for HR functions, payroll is an essential part of that — and ADP is the dominant payroll processor in the country.

Photo: Zenefits co-founder and CEO Parker Conrad, courtesy Zenefits


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  • RJS

    “Almost in the same breath, ADP launched a competing product to try and replace Zenefits. It has been marketing the service, called Opum, to customers.”

    No, they are not. Do your homework Heather. That sales rep misspelled Optum (Optum Insight), which isn’t new by any means.