CRITICAL ISSUE REPORT
If Allstate is successful [in its lawsuit], it could change employer-employee relationships significantly, not only in the insurance industry but also throughout the entire business community.
By Phil Zinkewicz
Some months ago, we wrote about legal disputes between Allstate Insurance Company and segments of its distribution system. About three years ago, Allstate, as part of its $600 million cost-cutting program, decided to offer its captive agent work force an "option" of either becoming independent contractors or not. Those who chose to go the independent route were promised certain incentives to offset the loss of benefits they enjoyed with the company and the loss of future pension contributions. Those who chose not to become independent contractors were "released," according to a canned statement by Allstate, sent out to insurance industry trade publications-- "released" being a euphemism for "fired."
We reported last time that, as the result of Allstate's "ultimatum" to its then captive producers, the insurer was hit with lawsuits on two fronts--those who joined the plan and now claim that Allstate reneged on its promises to them regarding how the insurer would "assist" them in their new "independent" ventures, and those who believe the entire "option" approach offered by Allstate was illegal under the law.
The resolutions of these lawsuits in the courts may be a long time in coming, but legal experts believe that, if Allstate is successful, it could change employer-employee relationships significantly, not only in the insurance industry but also throughout the entire business community. A victory for Allstate, legal experts say, would strip employees in any business relationship of their rights to sue their employers when dismissed.
First, let's take the agents who accuse Allstate of reneging on its promises. A federal lawsuit was filed last year in Florida by the National Association of Professional Allstate Agents (NAPAA), the organization representing these now independent contractors, alleging breach of contract by Allstate with its independent contract agents. Ron Mathison, former Allstate agent and current director of agent affairs for NAPAA, says that Allstate promised the agents who agreed to go independent greater financial interest in the business, more autonomy and increased flexibility. Instead, according to Mathison, Allstate unilaterally increased production requirements, has restricted sales of books of business to existing and future Allstate agents, has been paying less than full commission on forwarded customer calls, and mandated business practices that conflict with the agents' status as independent contractors.
Mathison says that the agents who accepted Allstate's original dictum did so because they were given no choice. It was either go with the flow, or get out, he says. "When Allstate representatives first approached the agents, they were all smiles and promises--verbal promises," says Mathison. "Verbal promises were made about assisting agents in owning their own businesses. Once agents were all signed up, those promises were either not kept or altered significantly," he says. Hence, the lawsuit by NAPAA, but it should be remembered that this is a breach of contract lawsuit.
The second lawsuit by the independent contractors alleging that Allstate's actions were illegal under the law is quite different in that these agents are claiming age discrimination, among other allegations. Whether they succeed has wide reaching ramifications.
All of the agents who became independent contractors had to sign waivers, saying that they would not sue Allstate. Most of the 6,400 agents who became independent contractors, were older than 40 years of age. Those who were in this position went to the Equal Employment Opportunity Commission (EEOC), alleging they were discriminated against because of age. The EEOC tried for more than a year to settle these accusations and, eventually, filed a lawsuit against Allstate in behalf of these 6,400 agents.
However, frustrated at all the time this was taking, the agents filed their own lawsuit, alleging age discrimination and illegal denial of benefits. A Washington, D.C. law firm, Sprenger & Lang, is representing the agents in this matter. In an interview with Michael Lieder, attorney for the law firm, Lieder said that the firm has filed for class action status in this case and that Allstate has filed a motion to dismiss that filing. At the time of this writing, the issue was not yet resolved, but there's more.
"Allstate itself has filed a countersuit against the agents who are suing, saying they are barred from suing Allstate because of waivers they were forced to sign prior to dismissal," says Lieder.
Lieder says that the issue here is whether an employer--any employer-- can abrogate an employee's right to sue once that person has been dismissed. He says that this is exactly what Allstate is trying to do. "It's usual, when a company is forced because of financial problems to have mass reductions of personnel, for that company to offer some kind of dollar incentive to the employee being let go and then ask the employee to sign a waiver saying that he or she will not sue. But in the Allstate situation, there was no incentive offered. It was either accept the deal or get out. Now Allstate is saying they have no right to sue. If that is accepted by the courts, then all employees in any business will be in danger of losing their rights," says Lieder.
That view is apparently shared by a legal eagle at Harvard University writing for a school publication called the Harvard Crimson. Stephen E. Sachs of that publication notes that, under U.S. anti-discrimination laws, corporations aren't supposed to retaliate against the workers who sue them. "The idea is pretty simple," Sachs writes. "Without this protection, companies could break the law and then fire any protesting employees. That would send the message to workers that 'if you want to keep your job, don't try to enforce your rights.'"
"Yet," continues Sachs, "the Allstate Insurance Company has recently discovered a way to avoid these pesky restrictions. In 1999, the company fired a group of 6,400 home and auto insurance agents--90% of whom were over the age of 40. Allstate then offered them the possibility of getting rehired as 'independent contractors' with slightly higher pay but a significant loss in health and pension benefits. What's more, the company required the 'independent contractors' to waive their rights to sue Allstate for, among other things, age discrimination."
Of course, Allstate has denied unfair discrimination against these agents. Nevertheless, Sachs says, "Allstate's strategy of 'fire first, sign waivers later' seems new and if it succeeds, it could undermine basic protections for American workers."
Sachs says that Allstate has now tried a similar tactic on 750 life insurance agents, 80% of whom are over the age of 40. The EEOC is now suing in behalf of them, he says. Sachs says that whether any of these agents will win their cause is "iffy," given the unpredictability of the courts in matters such as this. He says that the federal government should play a role in protecting the American worker.
"The very reason why we have anti-retaliation laws is to prevent employers from leveraging their power in order to escape their obligations under the law," Sachs writes. "It may be one thing for a company to offer an extra severance package to those who sign a waiver, but it's quite another to tell them that, if they don't sign, they're out of work. And if the government and the legal system don't step in to protect them, American workers may also be out of luck."
It's clear from all of this that the Allstate-independent contractors controversy is bound to continue for some time and, while these contractors are still writing business for Allstate, morale has got to be at an all-time low. *
The author
Phil Zinkewicz is an insurance journalist with some 25 years' experience covering the international insurance and reinsurance arenas. He was the insurance editor of the Journal of Commerce for a number of years, handling all their domestic and international supplements. In addition, he reularly writes for a number of London publications.