Zenefits wants ADP’s defamation suit dismissed

Zenefits Chief Executive Officer Parker Conrad Interview
Parker Conrad, chief executive officer of Zenefits, speaks during a Bloomberg West Television interview in San Francisco, California, U.S. on Tuesday, June 3, 2014. Zenefits, a year-old startup that makes human resources software, is valued at $500 million after its latest found of fundraising, according to people familiar with the matter. Photographer: David Paul Morris/Bloomberg via Getty Images
David Paul Morris/Bloomberg—Getty Images

One would never describe Zenefits as timid when it comes to legal matters.

Last night, the well-funded human resources software startup filed an official response to the defamation lawsuit filed in early June by $12 billion payroll giant ADP. Its motion for dismissal describes ADP’s suit as a “frivolous” attempt to silence a competitor.

As its defense, Zenefits cites a California statute that was enacted to prevent large companies from using defamation lawsuits to shut down smaller competitors that criticize them publicly.

The filing in the U.S. District Court for Northern California notes:

When an old economy giant fails to innovate quickly enough, it has two choices. 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 access to the data, and then when Zenefits brought that practice to light, ADP filed this suit to shut Zenefits up about it.

ADP went to court in early June after the two companies “complex but friendly relationship” turned sour. According to Zenefits’ account of what happened, ADP allowed Zenefits to pull data from its payroll service for two years in order to serve customers. That changed in late May, when ADP abruptly stopped sharing that access, citing security and server bandwidth issues as the rationale.

Things went from bad to worse after Zenefits went public with its criticism, and the ADP suit followed shortly thereafter. (The case is officially known in the docket as ADP v. YourPeople, Inc. DBA Zenefits Insurance Services and Parker Conrad.)

Just as intriguing but not all that surprising is the revelation that ADP apparently is preparing an insurance and human resource benefits service that would directly compete with what Zenefits offers. How does Zenefits know? It has seen an email purportedly sent to one of its customers by ADP describing the service.

“We have no issue competing with ADP,” said Zenefits co-founder and CEO Parker Conrad in a statement. “We do, however, have an issue with a Fortune 500 company using its army of lawyers to stop us from telling the truth to our customers, and fighting for the right to use whomever they want to help administer their payroll, benefits and HR.”

Zenefits is no stranger to the courts or controversy. Last year, it challenged an outmoded law in Utah that banned the company from giving its software away for free. More important, it won.

The startup is backed with plenty of funding to defend is business model. After a $500 million in early May, the company was valued at more than $4.5 billion.

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