Dive Brief:
- Zenefits, the San Francisco-based 2013 health benefits start-up, is now being fined $7 million by the California Department of Insurance--one of the largest penalties the agency has ever levied.
- The fine is the latest and by far the largest among fines from several states that have investigated the company for licensing issues including Tennessee, Arizona, and Minnesota.
- Given remedial actions already underway at the company, Zenefits may only have to pay half the fine. The second half has been suspended and may be waived pending a compliance review in 2018.
Dive Insight:
While Zenefits has not taken a huge hit from the fines, the company has seen significant upheaval as a result of the investigations, as well as a reduction in its valuation in June from $4.5 billion to $2 billion.
Its model was to offer companies free online HR services and then get their business as an insurance broker. It ran into trouble when it was accused of circumventing employee licensing education requirements, and letting unlicensed employees sell insurance. The company also failed to meet its internal financial projections in 2015 and underwent massive layoffs.
Much of California's investigation was centered around training software that allowed staff to improperly fast track their coursework, the Wall Street Journal reported, which resulted in the February resignation of company founder and former CEO Parker Conrad, who had written the software.
Zenefits has since been working toward a major overhaul under its new CEO, David Sacks. His changes have included executive layoffs and reorganization and banning alcohol at the office. It also launched a new version of the company's product, according to Business Insider.