Jun 10, 2015 · 8 minutes

To say that all-in-one human resources software company Zenefits and payroll software industry titan ADP have had a bit of a misunderstanding recently would be a massive understatement.

Zenefits, which offers a variety of free services, including a way to integrate HR software with payroll tools, sent out an email to customers on Friday informing them that ADP had suddenly cut off ties with Zenefits, leaving thousand of customers in payroll limbo.

The email from Zenefits CEO Parker Conrad, part of which was posted on Y-Combinator's Hacker News is posted in full at the bottom of this article. The email informed users that without their permission, ADP had "systematically deactivated these accounts—accounts that you set up, in your payroll system, to allow Zenefits to work on your behalf."

In the email, Conrad speculates on the payroll giant's motives. "ADP believes it can one day build software to compete with Zenefits, and in the meantime they would like to do anything they can to impede Zenefits," he wrote.

In the email, Zenefits CEO Parker Conrad didn't pull any punches, going so far as to call ADP's behavior "unethical" and saying that the company is using Zenefits' customers as "pawns in their corporate chess game." He goes so far as to offer those effected $1000 and an opportunity to switch to Intuit's payroll system.

ADP quickly responded with a PDF outlining Zenefits' claims and dismissing them while explaining why they cut ties with Zenefits.

ADP didn't seem to hold any of its opinions back in the response, claiming that it never gave access to Zenefits in the first place:

We have never integrated with Zenefits in any sense and have never authorized their method of extracting data from our RUN payroll system. They gained access to our systems by convincing clients to give them administrative access to our platform. Despite having many legitimate ways to integrate with ADP properly, Zenefits chose an unsecure and indirect approach.
Specifically, ADP claimed that Zenefits was accessing its system by a seemingly back channel method. It also said that there was a specific incident that led to it cutting off Zenefits' connection to its system:
On June 4, we disabled Zenefits access to ADP’s RUN small business solution due to unusual and alarming demand for data from Zenefits far out of proportion to the number of clients who have allowed them access to our system. Despite Zenefits serving less than 0.25% of the clients on our system, they had been responsible for up to 25.0% of the total user traffic (in other words, a hundred-fold times ordinary user traffic).
According to ADP, Zenefits had become a security and data theft threat, claiming that the spike in traffic also coincided with unprecedented access to private ADP user information.
The Zenefits approach was not only putting excessive and unnecessary demand on ADP’s servers, but it 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. We would have been happy to discuss a solution with Zenefits, but they never reached out to us or responded to our requests to resolve the issue.

Instead, they chose to impugn our motives and integrity in a public forum. Not being one to take the attack lightly, Conrad wrote a blog post today saying that "Since the day these small business accounts were turned off, we’ve done everything we could to work with ADP to restore access, but have been met with resistance every step of the way."

The Zenefits CEO also pointed out that attempts in their attempts to contact ADP, they've been pointed to the payroll company's lawyers. As Conrad explained:

At the end of the day, this dispute is about customer choice. We want small businesses to be able to choose who they want to use to help administer their payroll — whether it be Zenefits, or any other bookkeeper, accountant, or HR outsourcing firm. We’re willing to fight for that belief because we believe in standing up for competition and for small businesses — even in the face of ADPs legal threats.
In an interview with Conrad this afternoon, the CEO said "Isn't this crazy, ADP has been around for about fifty years and here they are torn up over this two-year old company."

He said that Zenefits initially found out that something strange was going on with ADP in the last couple of weeks in May, when customers were reporting that they weren't able to integrate their new Zenefits accounts with ADP's payroll system, something that hadn't been a problem for two years. The timing of this is something that Conrad will go back to point out some holes in ADP's claims, specifically that it was the June 4 traffic spike that led to the action to shut off access to Zenefits.

Conrad said that on last Thursday, ADP shut off access to ADP accounts which he said that Zenefits customers had set up on their own because payroll isn't a service that it offers. In terms of the spike in activities, Conrad said that the activity logs showed now such spike on its side. "We tried to get them to send us their charts on this and asked them IT teams, and they refused, and told us to talk to their lawyers," Conrad said.

He said that when ADP told him that the spike occurred on June 4, he told ADP that they had "screwed up the timing," because its support reps had been shutting people out of ADP's system for weeks prior.

According to Conrad, the reason has more to do with ADP and Zenefits having competetive products. "Really, what I think is going on is that ADP, particularly in its small business division, serves as an insurance broker as well," Conrad said. "What I think this is ultimately about is them elbowing out a competitor. Basically they are creating a lot of need for their clients so that then when they have their own similar products, they can offer them to clients."

"The irony of all this is," said Conrad, "that a big reason that I started Zenefits in the first place was a frustration I had using ADP's system at my previous company."

I reached out to ADP's corporate communications director who said that the company didn't have anything to say to this issue beyond the PDF it put out, "The Facts about ADP & Zenefits: Response to the claims madeby Zenefits." When I asked his thoughts about Zenefits disputed timeline and account of what's happening, he said "We stand by our statement."

Both sides will probably continue to stick to their guns on this one, so it doesn't seem as if the relationship is going to be fixed anytime soon.

One point that Conrad made is absolutely spot on. That is that the companies that use both services, and their employees, could be affected by the dispute. "Unfortunately, what this means is that a lot of our mutual clients are caught in the crossfire of this."

Here is Conrad's initial email to his customers in full:

When you originally set up Zenefits, you created an Zenefits admin user in your ADP RUN payroll account to let Zenefits manage your payroll—set up new employees, manage deductions, remove departing employees—on your behalf.

Yesterday, without your permission, ADP systematically deactivated these accounts—accounts that you set up, in your payroll system, to allow Zenefits to work on your behalf. The reason for this is that ADP believes it can one day build software to compete with Zenefits, and in the meantime they would like to do anything they can to impede Zenefits.

ADP is claiming that they are taking this action for "security" reasons—but this is clearly not true. For years, ADP has let customers add third parties—a bookkeeper or an accounting firm, for example—to their payroll system to manage payroll on a company's behalf. What Zenefits does is no different. In fact, even today, ADP will let you add a third-party administrator to your payroll system unless they have a Zenefits.com email address.

What’s high-handed about their approach is that Zenefits is still completely compatible with ADP payroll. All they’ve done is make it more inconvenient for you, their customer.

By default, we will start emailing you whenever there are changes that need to be made to your payroll system. We will detail exactly the changes that need to be made, and you can make them yourself in payroll. It's less convenient this way -- and frustrating that ADP has decided to create more work for their own clients in order to attack Zenefits. But beyond this, nothing will interrupt your use of Zenefits.

We are also working on other options for restoring automated payroll. Zenefits’ mission is to make running your business as effortless as possible, and our support team will follow up shortly with additional information on how to resolve this issue.

We think it's outrageous—and unethical—that ADP is making these changes to your payroll system without your permission, and is creating this complication for you in their attempt to block Zenefits' service—essentially treating you like a pawn in their corporate chess game.

If you’re as upset with ADP as we are, you can sign this Change.org petition. In addition, if you’re interested in switching from ADP payroll to Intuit Payroll, we’re paying customers $1,000 and helping them to make the switch. We’ll include instructions for this in our follow up communication.

We remain committed to working with ADP to find a solution to make this problem go away for all our mutual clients. In the past, we’ve directed many payroll customers to ADP, because payroll is not a service we provide. We’ve tried contacting them, but so far they have refused to return our calls. If they have any genuine concerns, we are happy to resolve them, but they have yet to express them to us.