In response to how Allstate Insurance Co. handled its employee-agents during its reorganization in 1999 and 2000-and to prevent other employers from repeating that action-the Employee Benefits Protection Act of 2003 was introduced in Congress in March.The Northbrook, Ill.-based carrier reorganized the company to reduce expenses by $600 million annually, to bring its agents under one program, and to integrate its agency force, direct response call centers, and the Internet. As part of that plan, Allstate terminated 6,400 employee-agents in June 2000, and offered them the option to convert to independent contractor status.
Allstate's termination of the employee-agents was a business decision intended to be beneficial to both the agents and the company, says Mike Trevino, an Allstate spokesperson. "Critics would argue that the company should not change." But "our contention is that our obligation is to continue to change the business . . . so we can reflect changes in customer habits, customer preferences, the business environment and technologies."
Rep. Carolyn McCarthy, D-N.Y., doesn't view Allstate's business decision in such a positive light. "As workers approach retirement age, it is completely wrong for any company to break a promise and deny a hard-working, long-term employee their full pension," McCarthy said, when she introduced H.R. 1397 in Congress.
Most Allstate agents who were terminated in 2000 had more than 15 years of service with the carrier, but they had not yet reached their 20th year when they could retire with full pension and benefits, according to McCarthy's office.
"Although at this point, the former Allstate employees who lost their pensions can only be helped through legal action, this legislation would prevent future Allstate's from occurring," McCarthy said.
The bill, co-sponsored by Rep. Robert Andrews, D-N.J., clarifies certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA) to ensure that employees are not improperly excluded from participation in employee benefit plans as a result of mislabeling or reclassifying their employment status.
No benefits lost
Agents did not lose their pensions, Trevino contends. "Employee-agents who were terminated did not lose benefits," he says. "Any benefits those employee agents accrued up to that point, they retained." Furthermore, he says, "the employee-agents were not reclassified; they were terminated. The employee-agent position was eliminated. Everyone was terminated. Everyone was treated exactly the same."
Trevino also notes that Allstate already had 9,000 independent agents at the time of the employee-agent terminations, and those agents were more successful than their employee-agent counterparts. What's more, the terminated agents who chose to become independent contractors acquired for the first time a sellable interest in their book of business-in some cases worth hundreds of thousands of dollars to a million dollars or more, he adds.
H.R. 1397 was introduced after a March 2 New York Times article raised publicity about a lawsuit filed in August 2001 by 29 terminated Allstate agents. The agents charge the carrier with age discrimination, breach of contract, retaliation under federal laws and other violations.
According to the suit, 89% of the employee-agents who were terminated were 40 years old or older. In addition, Allstate required that they sign a release and waiver of their rights under federal discrimination laws-including ERISA and the Age Discrimination in Employment Act of 1967-in order to convert to independent contractor status or to receive certain benefits.
At press time, the suit was awaiting a decision for class-action status from the federal district court in Philadelphia.
Allstate's Trevino minimizes the magnitude of the agent's lawsuit. "Don't forget, the lawsuit that was filed against Allstate was filed by 29 people," he says.
And, "while they are seeking class-action status and seeking to represent the 6,400 affected employee agents, that hearing has not yet been held. The merits of that proposition have not yet been determined. So at this point, it continues to be 29 people who aren't happy."
