The licensing compliance issues that played a role in Zenefits' Parker Conrad stepping down from the company as CEO on Monday are not likely to have immediate implications for the company's employer-clients.

Zenefits has hired an accounting and consulting firm to assess the company’s operations, processes and policies related to broker licensing compliance, the company said in a press release.

“On that singular item [broker licensing compliance], it’s unlikely the employer would have any adverse consequence relative to their health insurance coverage being at risk or their employees having any exposure to uncovered claims,” says Jim O’Connor, CEO of CBIZ Employee Services Organization, adding that the insurance contract is still between the insurance company and the employer, even if an intermediary between the insurance carrier and the employer is improperly licensed.

“And so it’s highly unlikely that any of the employers or employees covered by any of the insurance policies would have any risk or adverse consequences,” he says.

[Image: Bloomberg]
Former CEO of Zenefits, Parker Conrad
[Image: Bloomberg]

Still, the news highlights the importance of researching and vetting vendor partners, says Jon Shanahan, president and CEO of Businessolver, an employee benefits administration company. "As an employer, it’s critical to have a clear understanding of the contracts that are put in place and to verify that the company is abiding by all necessary compliance standards," he said in an email statement to EBN. "To ensure they’re selecting a vendor partner that will care for its employees and its data, employers should conduct a full RFP process. This will allow them to obtain the answers to all of the questions they have regarding not only the vendor’s offerings but ensuring the vendor is abiding by all the necessary rules and protocols."

Amy Gordon, a lawyer with McDermott Will & Emery, cautions that generally when companies hire third-party vendors to perform services on behalf of their employee benefit plan, “the employer doesn’t escape the liability that it would have been held to if it broke the law from a compliance perspective.” She adds, however, that in the case of broker-licensing compliance and commissions to nonlicensed brokers, “I don’t feel there is a compliance concern on the part of the employer-customer.”

But she cautions that "under ERISA, you are still responsible for the compliance with respect to your employee benefits plan.”

"You don’t get to hide behind the fact that you hired a service provider to do things for you."

Most RFPs will include some sort of language “to the effect that the service provider is willing and capable of performing the services in the RFP and is fully licensed and that it is legally permissible for them to perform the services contemplated,” says Gordon. “And once the parties engage, we’d even recommend that there be something in the contract to make sure the party is in full compliance.”

Zenefits would not comment on any compliance-related issues beyond what the company released in its press release.

In a Monday memo to employees, posted on the Zenefits website, the company’s new CEO David Sacks said that Zenefits is taking a series of steps to strengthen its internal policies, procedures and controls. He said that in December it brought on a Big Four auditing firm to conduct a review of its licensing procedures and that it will launch a “top-to-bottom review” to ensure its operations are in order. The company also named Joshua Stein, a former federal prosecutor and Zenefits’ vice president of legal, its chief compliance officer.

“In his new role, Stein is charged with ensuring that Zenefits is in compliance with all rules and regulations,” the company said in the press release, adding that Stein will continue to oversee a comprehensive review that Zenefits began last year by the accounting and consulting firm to assess the company’s operations, processes and policies related to broker licensing compliance.

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