Kreidler: Zenefits' free software offer illegal under state law

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Dec. 1, 2016

OLYMPIA, Wash. – Insurance Commissioner Mike Kreidler ordered Zenefits to cease free distribution of its employee benefits software, noting the tactic violates Washington state insurance law against inducements.

Washington is the first state to take action against the company for violating inducement laws. Under an agreement with Kreidler, Zenefits can challenge the order within 90 days.  

California-based Zenefits began operations in Washington in 2014, selling online human resources services to businesses. As part of its free software offer, Zenefits provided certain features with a paid commission. To access these premium features, the company required the client to designate Zenefits as its broker of record, then collected the commissions associated with the insurance product sold.

“The inducement law in Washington is clear,” Kreidler said. “Everyone has to play by the same rules.”

The law permits a licensed producer to offer no more than $100 per person during a consecutive period of 12 months.

Zenefits markets software's value at $29,100 to $45,000 per year. The company will determine what fee to charge its Washington customers starting Jan. 1, 2017, in accordance with the order.

Kreidler also fined Zenefits $100,000 in October 2016 for employing unlicensed producers to sell insurance in Washington. The company allowed unlicensed employees to complete 179 insurance transactions between Jan. 1, 2014 and Nov. 30, 2015. Washington is among a handful of states, most recently California, to fine Zenefits for allowing unlicensed producers to sell insurance.

Both actions resulted from a two-year investigation of Zenefits by Kreidler’s office.

Kreidler’s investigation also found:

  • Zenefits offered individual clients up to $2,000 in cash for referring companies through a program called “Friends with Zenefits.” Zenefits paid at least one individual $250 for two referrals.
  • At least 25 state residents chose Zenefits as thier insurance broker after a demonstration of the company’s software.

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