Zenefits To ADP: You Can't Shut Us Up

A month ago, Zenefits founder Parker Conrad fought against ADP’s lawsuit with some pretty strong words.

“ADP is trying to compete with us. Good freaking luck to them,” he said in an interview at the time with LinkedIn.

Now, the cloud-based software platform for managing human resources is backing up Conrad's words with its own legal action.

Late last night, Zenefits filed a motion to the U.S. District Court to forcibly dismiss ADP’s lawsuit. Using a California statute called “anti-SLAPP,” Zenefits is claiming that ADP only filed the defamation lawsuit to throw expensive litigation at the growing startup and silence criticism. ADP’s gripe with Zenefits goes back to an incident last month when ADP deactivated Zenefits accounts within their payroll system due to alleged security concerns. Zenefits responded to the cut-off access with a statement to affected clients that alleged ADP terminated access out of competitive concerns. It was then that ADP filed the defamation suit against Zenefits.

For David Sacks, the COO of Zenefits, ADP’s actions are simple: They want Zenefits to “shut up.” In an interview with LinkedIn, Sacks pointed out that ADP didn’t just sue Zenefits, they sued Zenefits CEO and founder Parker Conrad personally. To him, this is another sign that ADP’s actions are predatory in nature. But rather than allow the Fortune 500 company to silence them with what the startup perceives to be classic scare tactics, Zenefits is challenging their claims head on.

“You almost never see corporations suing each other for defamation,” said Sacks, who was previously the COO of PayPal and the founder of Yammer. “It really is just an intimidation tactic by large companies to silence their critics…  ADP’s actions are not in the interest of customer choice and therefore are anti-competitive. Rather than answer those claims and discuss them on their merits, ADP would rather shut us up.”

It’s clear that Zenefits and ADP see the underlying issue that led to the lawsuit differently. A statement from ADP provided to LinkedIn stated:

Legal action against Zenefits was not undertaken lightly, and came only after ADP made attempts to resolve these issues directly and amicably with Zenefits. Those efforts were rebuffed and Zenefits embarked on a public campaign of false statements and outright defamation, which they continued to engage in even after the filing of the lawsuit. ADP has a long history of partnering with third parties, including those who could be considered ‘competitors’
The notion that Zenefits was blocked to stifle such competition is simply wrong.

Yet Sacks claims that Zenefits tried to resolve the security issue with ADP multiple times and the company has “a shifting series of rationales for why they did what they did.” Sacks went on to say that Zenefits has reiterated its willingness to talk to ADP executives and resolve the issue, but it is difficult to do so when ADP resorts to legal action.

Regardless of which side of this quarrel you are on, Zenefits is not the only startup facing similar issues.  Sacks pointed to Uber, Airbnb and Tesla who all have competitors that have used litigation and regulation as a way to curb competition. While Uber is facing contentious legal problems over its UberPOP service in France, until recently Telsa was prohibited from selling its cars directly to consumers in New Jersey.

Sacks, who says he is a friend of Elon Musk, says he has watched Musk’s reaction to issues in New Jersey and said there is only one way to respond: Speak out.

“When they see a large corporation bullying innovators by throwing up these legal and regulatory roadblocks... All we can really do is speak out about it, which is exactly what ADP doesn’t want us to do," he said. 

Sacks doesn’t claim to be able to predict the future, but he did face similar regulatory fights with competitors as COO of PayPal from 1999 to 2002. Ultimately, PayPal was found to be operating within the constructs of the law and he says it’s only a matter of time before the law catches up to Zenefits and others who are disrupting the marketplace.

“The level of intensity of these fights, these old economy vs. new economy fights, does seem to be higher," he said. "The current generation of companies are very innovative and very disruptive to some of these old companies and they feel threatened by this.”

Update: At ADP's request, this post has been updated to include the full statement provided to LinkedIn.

For more news from LinkedIn's New Economy Editor Caroline Fairchild, click the follow button at the top of this post and follow her on Twitter here.