An increasingly public battle between payroll giant ADP and Silicon Valley start-up Zenefits has taken a legal turn, with ADP suing Zenefits for defamation and the “intentional interference with prospective economic relations.”
Zenefits, which Forbes listed as one of the “Hottest Startups of 2014,” offers HR services — such as payroll, onboarding and insurance processing — to small and medium-sized businesses.
ADP (ADP), which was founded in 1949, is one of several companies that Zenefits said it collaborates with to provide its businesses with payroll processing, the service at the center of the defamation lawsuit that was filed Tuesday in U.S. District Court Northern District of California.
The conflict between the San Fransisco-based startup and ADP heated up last week when ADP de-activated Zenefits accounts within ADP’s payroll system, which Zenefitssaid its clients could previously access, Zenefits said.
ADP responded to Zenefit’s claims in a statement, saying it had never integrated with Zenefits to access their payroll system.
Additionally, ADP said they disabled Zenefits’ access to the system “due to unusual and alarming demand for data from Zenefits far out of proportion to the number of clients who have allowed them access to our system.”
Zenefits saw the situation differently.
“ADP… has cut thousands of their small business customers off from using Zenefits to automate their time-consuming payroll administration work,” the company said in a statement on Change.org.
Zenefits said it has partnered with ADP “amicably” since the start-up was founded in 2013 by Parker Conrad.
On the Change.org petition, Zenefits claims that ADP cut off access to gain a leg up on the start-up, who touts itself as “the new kids on the block.”
Zenefits just raised a new $500 million round of funding from Fidelity Management and TPG, swelling its valuation to $4.5 billion. Its business model is to offer free HR services to small business clients. If these clients buy insurance through the Zenefits system, the start-up gets a commission. It also gets a share of the revenue if it sends clients to certain payroll providers. Its fast growth has pushed it into some regulatory faceoffs with the established HR industry, including insurance brokers.
“We believe that small businesses deserve better,” Zenefits said. “They – and not just the Fortune 500 – should be able to have the latest technology to make running their companies easier … Zenefits will fight this anti-competitive behavior with all we’ve got.”
ADP disputes the claim, saying that small businesses should have the latest technology, but only if it is effective and secure, a promise that they said was compromised by the Zenefits access to the system.