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Terminated Allstate agents still can’t advance ADEA disparate impact, ERISA claims

By Kathleen Kapusta, J.D.

In this long-running litigation over Allstate’s 1999 conversion of its insurance agents to independent contractors, a federal district court in Pennsylvania found that while the company’s transition may not have been a model of employer communications, there was no evidence its business decision was a pretext to conceal a motivating reason to discriminate based on age or to eliminate future pension benefits. Accordingly, the court granted Allstate’s motion for partial summary judgment against the plaintiffs’ ADEA disparate impact claims as well as against their ERISA Section 510 claims (Romero v. Allstate Insurance Co., April 27, 2017, Kearney, M.).

After announcing, in 1999, a program under which all of its “captive agency force” would be reorganized into an independent contractor program, Allstate terminated the employment of over 6,000 agents, 90 percent of whom were over the age of 40. Not included in this group were “R3000″ agents who had already signed contracts agreeing to remain employees for a temporary 18-month term before becoming independent contractor agents.

In connection with their termination, agents were offered four options, three of which required them to execute a release of all statutory and common law claims. Some former agents who had signed the release nonetheless filed lawsuits against Allstate. The EEOC also brought its own action against Allstate, and the suits were consolidated.

Disparate impact. At issue here was the legality under the ADEA and ERISA of Allstate’s 1999 transition away from employee agents. The plaintiffs argued that Allstate’s decision not include the R3000 employee agents in the transition program, while including other employee agents, created a disparate impact on older employees as the R3000 group tended to be younger.

Allstate argued that the R3000 agents did not constitute a comparable population because, unlike the other full-time employees with indefinite agreements, the R3000 agents had temporary 18-month employment contracts. The court, however, disagreed. The R3000 agents were responsible for selling and servicing the same Allstate products as the other agents and all they all had to follow the same underwriting rules. Further, all were entitled to some measure of employee benefits. Thus, given the similarities between the two groups, they constituted comparable populations for purposes of the plaintiffs’ disparate impact claim.

There was also sufficient statistical evidence demonstrating a significant age disparity between the R3000 agents and the other employee agents, said the court, noting that overall, the median age of R3000 agents was 37, while the median age of the other employee agents was 50.

Reasonable factors other than age. Although the plaintiffs established a prima facie case, Allstate demonstrated that it based its differentiation on reasonable factors other than age. Specifically, it instituted the program to end indefinite employment arrangements in favor of independent contractor agreements. Absent the program, the other agents would have continued working as employees indefinitely. Allstate did not subject R3000 agents to the transition program because they had temporary 18-month employment agreements, after which they could seek to become independent contractor agents (R3001 agents). Allstate provided training opportunities to R3000 agents with the goal of transitioning them to R3001 agents if they performed successfully under the R3000 agreement. Including R3000 agents in the program would have been counterproductive because these agents were already on the path to becoming R3001 agents, the court explained.

Reasonable. Allstate’s decision to exclude R3000 agents from the program was reasonable, said the court, observing that the R3000 agents, at the conclusion of their 18-month term, they would either part ways with Allstate or convert to independent contractors. Rather than prematurely forcing them to become R3001 agents before the end of their temporary employment agreements, Allstate chose to wait. This decision was reasonable.

Instead of challenging the reasonableness of Allstate’s decision to exclude R3000 agents from the program, the plaintiffs challenged the reasonableness of Allstate’s decision to adopt and implement the program, observed the court, noting that these arguments missed the point. Because the plaintiffs contended the unlawful practice was Allstate’s decision to exclude R3000 agents from the program, their arguments should have been directed at the reasonableness of Allstate’s decision to exclude the R3000 agents. The reasonableness of Allstate’s decision to adopt and implement the program was not relevant to this issue, the court concluded.

ERISA claim. The plaintiffs also argued that the November 1999 decision to transition all of its agents to independent contractors violated Section 510 of ERISA. Here, the court observed that in a 2005 decision, the Seventh Circuit, in Isbell v. Allstate Insurance Co. found that Allstate offered legitimate nondiscriminatory reasons for eliminating its employee agent force in favor of an independent contractor force. In Isbell, the appeals court, examining the same conduct at issue here, affirmed the district court’s finding that the employee agents “were dismissed as part of restructuring of its agent sales force – a legitimate non-discriminatory reason.”

Agreeing, the court here found that after years of discovery, there was little or no evidence of Allstate deciding to proceed with the program in fall 1999 to eliminate pension benefits. Its internal documents instead describe almost a decade of opposing a transition to an exclusive sales force of independent contractor agents even though Allstate knew the independent contractor agent worked better with Allstate’s goals. When a new CEO took over in 1999, he announced a business transition to allow direct access to the consumer through, among other channels, call centers, internet sites and advanced technology. As part of this new direct access business model, Allstate decided to change its decades of employees agents to better align the sales goals. There was simply no evidence its business reasons were pretext for illegally interfering with the attainment of pension or other benefits, said the court.