Allstate Insurance Co. has received nothing but kudos from analysts for the boldness and vision of its Good Hands Network-the name the Northbrook, Ill.-based carrier gave its integrated call center, Internet and agent sales strategy.But some agents don't like Allstate's multichannel strategy-especially the part that cost them their jobs. On August 1, 27 current and former agents filed a class-action lawsuit in federal district court in Philadelphia, charging Allstate with nine violations, including breach of contract, breach of fiduciary duty, intentional age discrimination and retaliation in violation of federal laws.
Allstate's reorganization plan-announced in November 1999-included terminating 6,400 employee agents and offering them enhanced severance packages and the option of converting to independent contractors.
In exchange, the agents were required to sign a waiver and release of all claims, including those under Title VII, the Age Discrimination in Employment Act and the Americans with Disabilities Act. The bulk of the terminations occurred in June 2000.
Unique factors
This case is unique for two reasons, says Michael Wilson, plaintiff attorney at Zevnik Horton LLP, based in Washington, D.C. First, Allstate terminated the employee agents while at the same time offering them continued service with the company-only without benefits.
Also, Allstate required the agents to sign a release and waiver of their rights under federal law in order to do so.
Allstate denies all the charges and will respond to them in court, says Michael Trevino, a spokesperson for the carrier. Allstate's position is that it treated the agents fairly, and offered them an economic interest in their books of business, which they did not have as employees, he says.
In a memo sent August 3 to Allstate agencies, Jeff Kaufman, vice president, sales and agency operations, stated: "These allegations are false. The restructuring of our agent programs . . . was done to better position the company and the agency force to more effectively compete in the marketplace. It was done as part of a comprehensive multi-access business strategy which included investing in new desktop technology to support Allstate agencies, offering customers access to Allstate via the Internet and 1-800-Allstate, and the implementation of our strategic risk management initiative."
The U.S. Equal Employment Opportunity Commission (EEOC) became involved in the situation after several agents (now 400) filed complaints with the commission against the carrier for retaliation and age discrimination. According to the agents' lawsuit, which can be downloaded at the Web site, www.allstatecase.com, 89% of the employee-agents were 40 or older.
The EEOC has not commented on the age discrimination complaints, but it issued a determination last fall finding that Allstate had retaliated against its agents under equal employment laws by requiring them to sign the release in order to be retained as independent contractors or to receive enhanced benefits.
The benefits question
When Allstate announced its multi-channel strategy nearly two years ago, the carrier promised its shareholders that it would reduce its expenses by some $600 million annually to fund its investment in direct access and Internet channels, competitive pricing, new agent and claim technology and enhanced marketing and advertising.
According to Wilson, internal communication obtained by his firm indicates that Allstate later explained that approximately $325 million of these savings would come from the field realignment, including the reorganization of the employee agent program. Allstate's Trevino could not confirm that information.
Futhermore, the lawsuit states, "the large majority of the savings-likely in excess of $200 million annually-resulted from the elimination of Allstate's continuing obligation to provide employee benefits."
The employee benefits issue has caught the interest of the U.S. Department of Labor (DOL). The DOL's Pension and Welfare Benefits Administration is investigating the termination of the agents for possible violation of Section 510 of the Employee Retirement Income Security Act, Wilson says, which prohibits employers from firing people with the intention of interfering with their benefits. The DOL could neither confirm nor deny the investigation.
In one of the worst cases of channel conflict, it remains to be seen if and when Allstate's multichannel strategy will pay off as expected. The agents are seeking relief in the hundreds of millions of dollars. What's more, the Internet accounts for only about 1% of all personal property/casualty lines sales, according to Conning & Co., Hartford, Conn.
