Rippling sues payroll startup Deel for trade-secret theft in explosive corporate espionage case as controversies mount

Weeks after announcing plans to go public amid money laundering accusations, payroll startup Deel is now facing another lawsuit—this time from HR competitor Rippling, which claims Deel orchestrated a trade-secret theft using an insider.

In a complaint filed Monday in the U.S. District Court for California’s Northern District, Rippling alleged that an employee secretly passed internal company records to Deel executives and a reporter. The lawsuit accuses Deel of violating the Racketeer Influenced and Corrupt Organizations Act (RICO) and misappropriating trade secrets.

Both companies are among the most highly valued startups in the HR tech space. Investors pegged Rippling’s valuation at $13.5 billion in a funding round last year, while Deel reported a $12 billion valuation in 2023. Deel also made CNBC’s 2024 Disruptor 50 list, landing at No. 28.

However, a Deel spokesperson pushed back against the allegations, calling them a distraction.

“Weeks after Rippling is accused of violating sanctions law in Russia and seeding falsehoods about Deel, Rippling is trying to shift the narrative with these sensationalized claims,” a Deel spokesperson told CNBC in an email. “We deny all legal wrongdoing and look forward to asserting our counterclaims.”

Rippling said it uncovered the alleged breach earlier this month. According to the lawsuit, the company’s general counsel alerted Deel executives about a new Slack channel, and soon after, the suspected insider tried to access it. Rippling then served a court order to the employee at an office in Dublin, Ireland, requiring him to preserve his mobile phone data.

What happened next sounds straight out of a thriller. Rippling claims the employee lied to a court-appointed solicitor about his phone’s whereabouts, then locked himself in a bathroom—apparently to delete evidence—while being repeatedly warned that doing so would violate a court order. “The spy responded: ‘I’m willing to take that risk.’ He then fled the premises,” the complaint states.

Rippling

Rippling says it hired the individual in 2023 for a management role as competition with Deel intensified. Deel had previously used Rippling’s software, but Rippling opted not to renew the contract. The lawsuit alleges that the employee accessed sensitive data, including customer details, sales calls, internal strategy documents, and Rippling’s playbook for competing against Deel.

The situation escalated in February when a reporter from The Information contacted Rippling with internal Slack messages that the company believes were obtained by the Deel insider. Email records also suggest the employee met with Deel executives in December, according to the filing.

“We always prefer to win by building the best products and we don’t turn to the legal system lightly,” Rippling co-founder and CEO Parker Conrad wrote in a Monday post on X. “But we are taking this extraordinary step to send a clear message that this type of misconduct has no place in our industry.”

This isn’t Conrad’s first legal battle over data access. In 2015, ADP sued his previous startup, Zenefits, alleging it improperly obtained client data to offer payment processing services. The lawsuit was later dropped.

For now, Deel and Rippling’s legal fight is just beginning—and with both companies being key players in HR software, this case could have broader implications for the industry.

Deel’s Trade-Secret Lawsuit Fuels Growing Scrutiny

The latest trade-secret lawsuit adds to the mounting scrutiny surrounding the 6-year-old startup. A previous investigation by the Commodity Futures Trading Commission (CFTC) found that Deel processed more than $72 million in payments for MyForexFunds, a trading platform accused of operating a Ponzi scheme. Between late 2021 and late 2022, Deel reportedly handled over 40,000 transactions for MyForexFunds, facilitating payments for more than 15,000 of its customers.

In response, Deel stated that these transactions accounted for less than 1% of its total revenue and that it cut ties with MyForexFunds as soon as regulatory concerns were raised.

Deel was founded in 2018 by MIT alumni Alex Bouaziz and Shuo Wang. The company provides a platform designed for remote teams and businesses working with global remote contractors.  Deel’s services include localized compliance, automated payments, contract management, tax form templates, invoicing, receipts, and customer support. Deel’s promise has always been to simplify global hiring, making it easier for businesses to expand their reach.

Deel’s platform solves the largest logistical challenges that come with moving to a distributed, global workforce: payroll and compliance. Onboarding and paying workers across borders is complex, with specific currency and labor law requirements that vary by country. It can be both costly and time-consuming.