When Allstate Insurance Co. announced its aggressive new business approach in November 1999, analysts praised the company for its bold leadership in the New Economy.

Roughly two years later, however, the business model analysts held up as a beacon for the industry has produced a legal quagmire for the Northbrook, Ill.based carrier.

Several lawsuits have been filed against the company since it began implementing its reorganization late in 1999 (see box), including the most recent one filed by the U.S. Equal Employment Opportunity Commission (EEOC) on December 27 in U.S. District Court in Philadelphia.

The EEOC charges the carrier illegally converted its agents to independent contractors and violated federal age discrimination and civil rights laws.

The EEOC suit comes after more than a year of unsuccessful negotiations between Allstate and the agency to rectify what the EEOC determined in late 2000 was unlawful retaliation by the company.

Release and waiver

Specifically, when Allstate terminated 6,400 agents in June 2000 as part of its reorganization, the company offered the agents the option of converting to independent contractor status, selling their books of business, or receiving enhanced severance packages. In order to receive these enhanced benefits, however, agents were required to sign a release and waiver of their rights under the Age Discrimination in Employment Act (ADEA) of 1967, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA) and the Employee Retirement Income Security Act.

Agents who refused to sign the release received smaller severance payments.

The bone of contention in the EEOC lawsuit is the release and waiver agents were required to sign.

"Such policy violates the nonretaliation requirements of Title VII, the ADEA and the ADA, and also constitutes unlawful interference, coercion and intimidation in the exercise and enjoyment of rights granted by the ADA," the EEOC lawsuit states.

Not surprisingly, the company has another view. "Allstate is disappointed by the EEOC's decision to take this action, and we certainly don't believe we've done anything wrong," says Bill Mellander, a company spokesperson.

Allstate maintains that releases are used routinely in the American workplace when businesses reorganize, and the practice has been consistently upheld in court.

But the release and waiver Allstate used is different from those routinely used in business reorganizations, argues Michael Wilson, attorney for the 29 Allstate agents represented in the class-action suit filed in August (see box, page 6).

It's different because Allstate required the agents to sign it in order to continue working with the company and to preserve their investments in their agencies, he says. "That's the economic coercion involved here."

Contrary to the plaintiffs' arguments that agents have suffered as a result of the carrier's actions, Allstate claims its agents have benefited from its new business approach. For example, according to the company, it has increased the agents' commission structure, provided commissions to agents from direct sales channels, enabled agents to purchase agencies, and offered them a stock bonus plan.

Allstate's actions also have raised the ire of the AARP Foundation-a Washington, D.C.-based organization representing 35 million members over age 50-which on December 20 formally joined as co-counsel in the class-action suit agents have pending against the company.

"We think what was done here was wrong," says Thomas Osborne, an AARP attorney working on the case. "We still have to prove our case to the court," he notes. "But hopefully, (the lawsuit) will send the message to other companies that they had better think twice before doing something like this."

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