ADP and Zenefits call truce in defamation suit over ‘misinformation’

ZENEFITS Insurance Broker, Parker Conrad
Pickup Armin Harris
Photograph by Jim Wilson—The New York Times/Redux

Zenefits and ADP have set aside their legal differences to compete in the marketplace, and not in the courtroom.

Payroll giant ADP sued human resources software startup Zenefits for alleged defamation in June following critical remarks by Zenefits co-founder and CEO Parker Conrad on the company’s blog. He accused ADP of trying “to spread fear, uncertainty and doubt about the new market entrant.”

The two companies previously had a “complex but friendly” relationship, according to Zenefits. It used payroll information from ADP (ADP) as part of its health insurance and employee benefits services to small businesses.

But Zenefits said that the relationship hit the rocks after ADP allegedly cut off access to its data without warning. ADP cited security concerns, but at the time, Conrad suggested an ulterior motive—that ADP was preparing a competitive service.

ADP promptly sued against what it later described as a “campaign of misinformation.” Zenefits filed to dismiss the case, citing a California law for preventing large companies from using defamation lawsuits to shut down smaller competitors.

The matter has been relatively quiet since late July. However, the two companies headed for a settlement after a September hearing in federal court in San Francisco, during which the judge suggested there was little evidence to support ADP’s defamation case. (You can read a transcript of the hearing here.)

The settlement announced Tuesday walked back claims that the two companies have made about each other. According to a statement from Zenefits, ADP has “confirmed that it has no reason to believe Zenefits has any problem with the security of its software.” Zenefits, meanwhile, has “confirmed that it has no reason to believe that ADP is unethical nor any reason to dispute ADP’s integrity.”

In its own statement, ADP said it believes that the settlement “sets the record straight” about its business practices. To quote part of it:

At the core of our dispute were accusations that questioned our ethics and integrity. These are meaningful values to ADP and core to our culture. All we have ever wanted was for Zenefits to retract the baseless public statements they made. We withdrew the lawsuit after Zenefits satisfied that demand.

And so, this David versus Goliath tale reverts back to the commercial marketplace, where Zenefits is hoping to quintuple its sales this year from $20 million in 2014. As of May, the software startup, which has 10,000 customers, has been valued at nearly $4.5 billion.

Follow Heather Clancy on Twitter at @greentechlady or via her RSS feed. And please subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.


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