Dive Brief:

• According to the Silicon Valley Business Journal, payroll giant ADP has sued fast-growing startup Zenefits, claiming that the smaller San Francisco-based firm defamed ADP.
• In a complaint filed in the U.S. District Court in San Francisco, ADP said Zenefits started a “manipulative and malicious public relations campaign, ignoring its own conduct, to defame ADP and drive away ADP’s clients.”
• ADP also stated Zenefits “alleged that ADP intentionally sought to cause harm to ADP’s clients solely to gain an unfair competitive advantage against Zenefits.”

Dive Insight:

Since the suit went public, there have been posts and counter-posts in a game of blame tag between the two entities.

Zenefits sees itself as the Uber or AirBnB of the HR/group insurance industry. It entices small- and medium-sized employers with free software to manage their payroll and benefits. It makes its money by selling the insurance products used in benefit plans.

With the litigation, Zenefits is at risk of losing an estimated 10 percent of its customers, the ones who use ADP to manage their payroll. The $39 billion business outsourcing giant said it blocked Zenefits because the startup was "pulling sensitive information, including unmasked Social Security numbers and employee banking information, in a manner that did not comply with ADP’s standards for data security."

For its part, Zenefits CEO Parker Conrad told the Business Journal that the company is contacting all affected customers and recommending they switch to another payroll provider such as Zenpayroll, Intuit, or Paychex. It's no doubt going to get interesting.