Payroll Provider ADP Sues Startup Zenefits Over Defamation

Gavel, symbol of judicial decisions and justice

In what some commentators paint as a David vs. Goliath feud, payroll services provider ADP is suing recent startup Zenefits for “defamation” and the “intentional interference with prospective economic relations.”

USA Today reports that last month, ADP filed a lawsuit against Zenefits after it accused the company of infringing on its services. ADP, one of the most prominent payroll services providers in the United States, has provided human resources (HR) services such as payroll calculations, onboarding, and insurance processing to medium- and small-sized businesses since 1949. Zenefits, which offers similar services by using ADP and other payroll providers, was founded two years ago in Silicon Valley.

Over 85% of certified public accountants recommend small businesses use independent HR services such as ADP and Zenefits.

Given the difference in establishment and size, critics of ADP (including, obviously, Zenefits) claim it is bullying Zenefits into submission because they are, in the words of a petition the latter recently launched, “the new kids on the block.”

“ADP…has cut thousands of their small business customers off from using Zenefits to automate their time-consuming payroll administration work,” the petition reads.

In early June, ADP de-activated Zenefits accounts within its system, claiming that the accounts drew an “unusual and alarming demand for data” that was “far out of proportion to the number of clients who have allowed them access to our system.” When Zenefits released a statement saying ADP had agreed to the integration, ADP filed a lawsuit against in the U.S. District Court Northern District of California on June 9th.

The startup was named by Forbes as one of the “Hottest Startups of 2014” and seemed to have good relations with ADP during its inception. Though it is no longer on good terms with ADP, it recently raised $500 million from Fidelity Management and TPG, boosting its valuation to a whopping $4.5 billion.

Zenefits is unique in (HR) services in that its services are free to small businesses. The company makes a profit by earning commissions from selling insurance from different providers. It also shares revenue if it directs its clients to other HR companies.

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