Zenefits is one step closer to operating legally in Utah today. The Utah House and Labor Committee has voted in favor of a bill to help fix the regulatory problems the cloud HR startup faced late last year. Now that it has passed committee, that bill will soon go before the State Senate
The Utah Department of Insurance claimed Zenefits violated the states anti-rebating statute because it gave HR services away for free to Utah companies. Utah Insurance Commissioner Todd Kiser (an insurance broker himself) claimed this put other insurance brokers at a disadvantage. He made a preliminary decision last November to ban the startup from operating in the state or face nearly $100,000 in fines.
Anti-rebating laws exist in almost every state to prevent insurance firms from offering inducements to sweeten the insurance deal. This is in order to prevent the firm from facing bankruptcy just to keep up with an offer. A broker can’t offer an expensive television set as part of the deal for an insurance policy, for example.
The Utah Department of Insurance interpreted the free offerings from Zenefits as an inducement in exchange for the sale of insurance, although there is no requirement for a company to sign up for third-party insurance to use the free HR software. According to Zenefits, about 85 percent of its customers base uses the free services without signing up for other paid offers.
Though similar cases went up in Texas, Wisconsin and Washington, Utah is the only state where insurance regulators interpreted the free offerings to be the same as an inducement. However, the language surrounding what constitutes inducement is a bit more strongly worded in Utah than in the other states.
“The spirit of the law is not in line with the purpose of the language around insurance inducements in Utah,” explained Utah House Representative John Knotwell.
Zenefits shot back at the Utah Department of Insurance that this interpretation sent a message that, “Utah insurance regulators are hostile to innovation.”
State legislators quickly jumped in to respond to the issues facing the tech startup and Rep. Knotwell put forth HB141 to clarify rules around the insurance regulatory issues Zenefits is facing in the state.
The bill modifies Utah’s insurance codes to allow Zenefits and others to provide goods and services at less than fair market value under certain circumstances. This would cover the free services offered by the HR startup.
The bill now moves to the Utah House floor next week. State Senator Curt Bramble has already agreed to sponsor the bill in the Senate, should it pass the House.