allstatecase

Initiation of the Lawsuit

On August 1, 2001, 27 named plaintiffs filed a Complaint commencing the class action lawsuit in Philadelphia, Pennsylvania in the United States District Court for the Eastern District of Pennsylvania (the federal trial court in Philadelphia). A First Amended Complaint was filed on October 18, 2001, which increased the number of named plaintiffs to 29 and refined and expanded several of the allegations in the original Complaint.

According to the First Amended Complaint, Allstate betrayed about 6,400 of its insurance sales agents – comprising virtually its entire work force of “captive employee agents” – when it terminated their employment contracts between November 10, 1999 and December 31, 2000. In the suit brought by 29 of those terminated agents on behalf of all 6,400, the plaintiffs claim that Allstate's “group reorganization,” in reality a “Mass Termination Program,” violated the Employee Retirement Income Security Act (“ERISA”), the Age Discrimination in Employment Act (“ADEA”) and Allstate's contractual and fiduciary duties to the employee agents.

According to the First Amended Complaint, during the course of their employment relationship with Allstate, almost all of these employee agents had brought enormous value to the company by investing at least a decade of exclusive service to Allstate and, at Allstate’s behest and/or compulsion, hundreds of thousands of dollars of their own money to expand the company’s customer base. They made these investments in a business they did not own, because Allstate had promised that they could be terminated only for “good cause” and that they would receive a “guaranteed income” and lifetime “financial security” largely through their participation in a “superior” package of pension and other benefits that Allstate touted as the best the industry had to offer.

The First Amended Complaint alleges that, wishing to get out from under the financial burden of these promises, Allstate strove throughout the 1990s to persuade its employee agents to convert to independent contractor status by telling them that such status would give them “entrepreneurial freedom” and the capacity for much greater earning power. Despite its best efforts, however, Allstate was unable to induce more than a tiny fraction of its employee agent work force to give up their employment status and the generous employee benefit package that came with it.

Having failed in its decade long effort to persuade its employee agents to voluntarily relinquish their benefits, the plaintiffs claim, Allstate decided to dictate that result through coercive and unlawful measures. To this end, Allstate announced in November 1999 that essentially all employee agents would be terminated and that the terminated employee agents would be permitted to remain with Allstate as “independent contractors” only if they signed a Release waiving their statutory and common law rights (“Forced Conversion Option”). To ensure that the terminated employee agents would not be able to reacquire their pension and other benefits by obtaining reemployment with the company in some other capacity, Allstate also imposed a one-year moratorium on rehiring them, regardless of their qualifications.

The First Amended Complaint further alleges that, in its public pronouncements, Allstate justified the forced conversion of its employee agents to independent contractor status as a measure designed to promote “entrepreneurial freedom” and, thereby, to “re-energize” its insurance sales force. Allstate knew, however, that, in reality, the converted agents would be performing the exact same services that they had always performed and would be subject to no less control than they had been subject to for the past decade or more as Allstate employees.

The true reasons underlying Allstate’s adoption of the Mass Termination Program were twofold, according to the First Amended Complaint. First and foremost, Allstate instituted that program to rob thousands of employee agents of pension and other benefits to which they were or might become entitled. Indeed, the plaintiffs allege, the Mass Termination Program was the central feature of a “field realignment” that Allstate said would save the company approximately $325 million each year – the majority of which consisted of savings arising out of the elimination of the expenses of maintaining Allstate’s employee benefit programs.

The other major reason, the plaintiffs contend, why Allstate instituted the Mass Termination Program was as a means of “re-energizing” its sales force with younger agents. As Allstate had ceased hiring new employee agents in 1990, that segment of its workforce had grown progressively older. By October 1999, approximately 90 percent of the employee agents were over the age of forty and the median age had reached fifty. The First Amended Complaint alleges that Allstate’s senior managers stereotypically viewed these older agents as lacking in energy, drive, initiative and entrepreneurial spirit. Correctly reckoning that about two thousand employee agents would leave the company before accepting an option they had rejected for the last decade, they saw the Mass Termination Program as giving Allstate the opportunity to replace these older agents with younger agents and employees who were viewed as being more “energetic” and “productive.”

The plaintiffs claim that Allstate’s severance of the employment contracts of 6,400 employee agents in order to deprive them of employee benefits and to purge older workers from its ranks blatantly violated Allstate’s statutory obligations under ERISA and the ADEA, as well as of its common law contractual and fiduciary obligations. The moratorium Allstate placed on their re-hire also violated ERISA.

To evade accountability for conduct that it well understood to be unlawful, the plaintiffs also allege, Allstate presented its employee agents with an ultimatum at the time it announced the Mass Termination Program: (a) sign a Release waiving their right to challenge the legality of Allstate’s conduct and be permitted either to remain with Allstate as “independent contractors” or to retire and receive certain specified payments; or (b) not sign the Release and have their ties with Allstate severed entirely. Faced with this “Hobson’s choice,” only 19 of some 6,400 employee agents elected not to sign the Release.

According to the First Amended Complaint, Allstate was able to strong-arm well over 99 percent of its employee agents to sign the Release by exploiting their financial vulnerability and betraying the confidence that they had reposed in Allstate over a relationship that spanned at least a decade. Not only had Allstate aggressively encouraged them to invest substantial financial resources to build the company’s business, but it had also precluded them from selling any other companies’ insurance or pursuing any other business during that entire period. Moreover, the First Amended Complaint alleges, Allstate had imposed severe restrictions on their ability to develop any competing business in the event they should ever be terminated. Thus, those agents were left so vulnerable to overreaching by Allstate that they had no other choice but to sign the Release. Recognizing as much, the Equal Employment Opportunity Commission has issued a determination in which it found that Allstate had engaged in “threats, coercion, and intimidation,” and that forcing the agents to sign the Release in order to continue in the service of Allstate violated the ADEA. Plaintiffs similarly allege in the First Amended Complaint that the Release is invalid and unenforceable and constitutes unlawful retaliation in violation of ERISA and the ADEA.

The First Amended Complaint expands upon this summary of plaintiffs’ allegations in considerable detail. As plaintiffs obtain “discovery” from Allstate, they may add to or otherwise modify the allegations in the First Amended Complaint. In that event, they will file another amended complaint, which will immediately be posted to this site.