In what is being touted as a big win for the startup economy, Automatic Data Processing Inc., a leading payroll company, agreed to drop its defamation suit against Zenefits, a rapidly-growing Silicon Valley competitor. A federal judge dismissed the case with prejudice.
"It seems clear to me that ADP has no claim for defamation," said U.S. District Judge Vince Chhabria, the Wall Street Journal reports.
The lawsuit was borne out of a dispute sparked by ADP's decision to block Zenefits from accessing payroll data for hundreds of mutual clients. Although the two companies are competitors, they also share hundreds of clients that use ADP's payroll processing program along with Zenefits' free employee benefits tools.
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In a blog post responding to ADP's move, Zenefits accused the 57-year-old company of feverishly guarding its turf against a worthy competitor:
"ADP's business model is to offer a bundled solution to customers, and evidently they don't want small businesses using Zenefits for the HR and benefits portion of their business. Instead, we believe ADP is using a tried and true tactic in enterprise software: whenever a new, innovative company enters a market, the incumbent tries to spread fear, uncertainty and doubt about the new market entrant."
ADP justified the move by saying that Zenefits, a free cloud-based software service, was potentially compromising sensitive employee data, including social security numbers. It also said Zenefits behavior was overloading its computer system.
Shortly thereafter, ADP sued Zenefits for defamation. The lawsuit accused Zenefits of engaging in a "manipulative and malicious public relations campaign, ignoring its own conduct, to defame ADP and drive away ADP's clients."
On Tuesday, however, the two companies agreed to cease all litigation. In a statement released by Zenefits, the company stated that both firms had agreed to withdraw any allegations of unethical behavior against the other. ADP also stated that there was no reason to believe there were security issues with Zenefits' software.
"While we are gratified by this legal victory, we are more pleased that we now can move forward and focus on serving our small business customers," said Parker Conrad, co-founder and CEO of Zenefits. "At times, this may mean competing with ADP, and at times, it may mean working with ADP."
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