ADP Automatic Data Processing Inc

By Deborah Gage 

Payroll-processing giant Automatic Data Processing Inc. has dropped its lawsuit for defamation against Zenefits Inc., a three-year-old Silicon Valley startup that was valued in May at $4.5 billion. ADP's market cap, by contrast, is about $42 billion.

The companies, which are potential competitors, agreed to a settlement conference on September 24 at the end of a hearing in U.S. District Court in San Francisco.

According to a court transcript, Zenefits attorney Annette Hurst of Orrick, Herrington & Sutcliffe said that while Zenefits "may have gotten funding [the company has raised $596 million], its revenues aren't that great. It really is the David to this Goliath, Your Honor. We would like this case to be over."

ADP sued Zenefits in June after blocking Zenefits, which offers access to human resources software, from accessing its payroll information on behalf of Zenefits' customers.

Zenefits offers businesses free employee-benefits tools in the hope of selling them health insurance. About 600 Zenefits customers were also using an ADP product called ADP RUN that combined payroll processing with free human-resources benefits administration, Zenefits said in June.

ADP claimed that Zenefits and its co-founder Parker Conrad had defamed ADP and tried to drive away ADP's clients. Mr. Conrad said the claims were untrue.

ADP was also concerned that Zenefits was overloading ADP's computer systems with digital traffic and was connecting in a way that threatened to expose social security numbers and other sensitive employee data that was shared among the Zenefits and ADP systems. Zenefits said no personal information was exposed.

At the hearing, U.S. District Judge Vince Chhabria said, "It seems clear to me that ADP has no claim for defamation."

The companies also agreed to drop any legal claims against each other and made a joint statement.

Zenefits Chief Executive Parker Conrad said in his statement that his company is "gratified by the legal victory [and is] more pleased that we now can move forward and focus on serving our small business customers. At times, this may mean competing with ADP, and at times, it may mean working with ADP. In either case, we at Zenefits are committed to making the hard work of administering HR as effortless and painless as possible."

ADP, meanwhile, said it "continues to believe we took appropriate action to protect clients and the systems they rely on. ADP has a well-earned reputation in the marketplace for its ethical business practices, and, as an organization, values integrity immensely. We believe this settlement sets the record straight in this regard."

Also, ADP said it just wanted Zenefits to retract the public statements it made and that it withdrew the lawsuit after Zenefits satisfied that demand.

Write to Deborah Gage at Deborah.Gage@dowjones.com

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(END) Dow Jones Newswires

October 27, 2015 21:26 ET (01:26 GMT)

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