Zenefits Under Investigation In California

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The hits just keep on coming at the embattled cloud human resources software provider Zenefits, as the California Department of Insurance has begun an investigation into its licensing practices.

The company, whose chief executive, Parker Conrad, resigned earlier this week, has faced a series of investigations into potentially criminal misconduct after a searing BuzzFeed investigative report late last year. BuzzFeed first reported the news earlier today.

At the heart of the investigation lies a tool called, benignly, “the Macro,” which allowed users to pad the hours they said they committed for pre-certification in the state of California. The brokers still had to take, and pass, a broker exam.

However, by not committing the allotted time to pre-licensing classes, several of the company’s brokers in its biggest market of California could be disqualified.

“We are communicating and cooperating fully with regulators with regards to this issue that we discovered and self-reported to them,” Kenneth Baer, a Zenefits spokesperson, told TechCrunch.

David Sacks, the company’s new chief executive, sent a memo to employees saying Zenefits intended to fully cooperate with the commissioner’s investigation.

“We are committed to full remediation and ensuring complete compliance with all licensing requirements,” Sacks wrote in the internal memo provided to TechCrunch by a source.

The memo continues.

Many of our California sales representatives received access to a software tool called a “Macro” that may have allowed them to complete mandatory online pre-licensing education courses offered by a third-party test preparation provider in less than the legally required 52 total hours. The Macro functioned to keep a person logged into the course and prevented the person from being logged out for inactivity.  The Macro did not advance through the required material or quizzes in the education course — the Macro only kept the person logged in.  The Macro only pertained to the prelicensing education course and did not affect the broker exam taken later.  Use of the Macro enabled — but did not cause — a person to spend less than the 52 hours of required time in the prelicensing course.

The company said it launched an internal investigation into the use of the Macro and, based on the results, had already informed the California Department of Insurance about it.

Further, the internal memo said the company has fired the leaders who created, propagated and encouraged the use of the Macro and that it will look to take additional disciplinary steps if necessary.

Needless to say, the use of Macro on the company’s network or on company-issued devices has been disabled. And Zenefits is developing a new remediation and retraining program for licensed employees who used the Macro to get licensed in California in concert with the Department of Insurance.

A contrite Sacks said his company took full responsibility for its actions in the deployment of “the Macro”.

“We must be — and I know we can be — strictly compliant in being properly licensed, for the benefit of our customers and our regulators,” Sacks wrote in the email. “As I told you on Monday, in order for us to move forward as a company, we cannot seek to hide or downplay our broker licensing issues. We must be transparent and admit it and remediate it as soon as possible.”

Here’s the full memo:

All-

As you may have seen, the California Department of Insurance has begun an investigation of licensing issues at Zenefits that we self-reported.  We welcome this announcement and intend to fully cooperate with the Commissioner’s investigation. We are committed to full remediation and ensuring complete compliance with all licensing requirements.

I want to share with you a serious issue that we self-reported to the Department. Many of our California sales representatives received access to a software tool called a “Macro” that may have allowed them to complete mandatory online pre-licensing education courses offered by a third-party test preparation provider in less than the legally required 52 total hours. The Macro functioned to keep a person logged into the course and prevented the person from being logged out for inactivity.  The Macro did not advance through the required material or quizzes in the education course — the Macro only kept the person logged in.  The Macro only pertained to the prelicensing education course and did not affect the broker exam taken later.  Use of the Macro enabled — but did not cause — a person to spend less than the 52 hours of required time in the prelicensing course.

The company launched an internal investigation of the use of the Macro within the company.  Based on the results of that ongoing investigation, we have already taken the following actions:

1) We informed the California Department of Insurance about the Macro issue.  Again, we welcome the Department’s investigation and will be fully cooperating  with that process.

2) We have terminated leaders who created, propagated and encouraged the use of the Macro, and we will take additional disciplinary steps as necessary to address the issue.

3) We have disabled the use of iMacros on the Zenefits network or on Zenefits-issued devices.

4) We are developing a comprehensive remediation and retraining program for all licensed employees who obtained and used the Macro in connection with their California resident broker license.  We will work with the Department of Insurance on the development of those remedial measures.

The company takes full responsibility for its actions regarding the Macro.  As I said in my email to you on Day 1, the company did not have in place the proper systems, processes, and culture to ensure broker licensing compliance.  While we are taking the appropriate disciplinary action against the leaders in this Macro issue, the company is focused on remediation rather than discipline with all of the other employees who used the Macro at the direction of the company.  As part of our commitment to our employees, we are hiring an attorney to provide counseling and advice to individual employees on these licensing issues.

Ultimately we will will work closely with the California Insurance Commissioner, as our lead regulator, as to the appropriate consequences or sanctions.

Moving forward, any Zenefits employee who commits a licensing violation or does not promptly comply with our remediation steps will result in immediate disciplinary action, up to and including termination.

We must be — and I know we can be — strictly compliant in being properly licensed, for the benefit of our customers and our regulators.

As I told you on Monday, in order for us to move forward as a company, we cannot seek to hide or downplay our broker licensing issues. We must be transparent and admit it and remediate it as soon as possible. Then we can regain our positive focus on building our business and better serving customers, employees, partners, and regulators.  Together with you and our new Board, we are quickly executing on the vision we described on Day 1.

David