In an unusual move, Allstate Insurance Co. took the offense by filing counterclaims against agents who filed a lawsuit against the carrier last August. The agents sued the Northbrook, Ill.-based carrier for age discrimination and violation of federal civil rights laws they claim occurred when Allstate terminated them in June 2000 (see September 2001, page 8).Allstate filed its counterclaims against the agents in March in U.S. District Court in Philadelphia-charging the agents with unjust enrichment, fraud, negligent misrepresentation, and breach of duty of good faith and fair dealing. Allstate is requesting compensatory, punitive and other damages in an amount to be determined by a jury.

Supportable reasons

"We ordinarily do not file counterclaims, particularly in employment-related issues," says Michael Trevino, an Allstate spokesperson. "However, in this particular situation, we felt strongly that we had supportable reasons to file the counterclaims."

According to Trevino, the supportable reasons are cited in the lawsuit, which claims that the agents misrepresented themselves by filing their lawsuit after they signed release and waiver agreements when they were terminated.

The agreements stated they would not take legal action against the carrier. Furthermore, the lawsuit states, the agents "failed to exercise reasonable care in determining the truth or falsity of (their) representation . . . and acted with the knowledge or belief of its falsity."

Typically, employers ask the court to subtract from an award any benefits employees received when they are terminated, says Michael Wilson, plantiffs attorney at Zevnik Horton LLP, Washington, D.C.

"But (for Allstate) to go beyond that and to affirmatively accuse these individuals with the intent to defraud is pretty outrageous. It's virtually unprecedented," he says

The conflict between Allstate and the agents originated in June 2000 when the company eliminated the positions of approximately 6,400 employee-agents and offered them the option of converting to independent contractors, of selling their books of business, or of receiving enhanced severance packages. In order to exercise these options, the agents had to sign a release and waiver of all claims, including those under Title VII, the Age Discrimination in Employment Act and the Americans with Disabilities Act.

A broader reorganization

The termination of the agents was part of a broad reorganization the company announced in November 1999. The reorganization included integrating the Internet, call centers and agents; reducing expenses by $600 million per year to fund technology investments in direct-sales initiatives; and bringing the company's agency force under a single independent-contractor program.

When the reorganization was announced, analysts praised Allstate for taking a bold step to remain competitive in the changing financial services arena.

When the employee-agents were terminated, analysts then noted that Allstate was prudent to eliminate the fixed costs associated with employing thousands of agents. Exclusive agents for Allstate competitors-State Farm, Nationwide, American Family and Farmers-primarily independent contractors.

"I think Allstate is doing the right thing, but they've probably gone about it in a bad way," says Todd Eyler, senior research analyst, Forrester Research Inc., Cambridge, Mass.

He cites John Hancock as an example of a carrier that dealt effectively with agents when it introduced the Internet as a distribution channel.

"(John Hancock) told its agents, 'This is a different customer who wants to go through the Internet,'" Eyler says. "'They're very price-conscious, and they may not even be that loyal. So they're probably not very good customers for you anyway. So we'll take them off your back and deal with them directly, and you can deal with the mainstream customers that want face-to-face contact.'"

Analysts' approval of Allstate's strategy is not shared by at least 400 Allstate agents and the Equal Employment Opportunity Commission (EEOC). After the mass termination, approximately 400 agents filed complaints with the EEOC.

Signing release and waiver agreements is routine practice when employees are terminated. However, the agents argue, they were required to sign them to continue working for the company-albeit as independent contractors.

EEOC involvement

The agents' claims against Allstate were strong enough to prompt the EEOC to investigate and file a lawsuit last December against the company for age discrimination and violation of federal civil rights laws.

In February, the EEOC lawsuit was consolidated with the agents' lawsuit, and U.S. District Judge John P. Fullam denied Allstate's motion to dismiss the case.

In addition, two other lawsuits stemming from the termination and conversion of agents to independent contractors have been brought against the nation's second-largest automobile and homeowners insurer (see "Chronology of Legal Actions").

As for Allstate's counterclaims, "they are utterly frivolous and without merit," according to Wilson. "We suspect that Allstate has asserted these counterclaims as part of a larger effort to intimidate and cast a chilling effect over agents who might think about coming forward and joining (the agents') lawsuit."

Allstate's Trevino declined to comment on that accusation.

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