Allstate Agents to Fight Contractor Status

Allstate Insurance Co. agents who learned recently that they will soon become independent contractors, losing benefits such as health and life insurance and reimbursement for expenses, are planning a legal challenge to block the change.

Allstate, one of the largest insurance companies in the state, has decided to terminate all 1,656 California agents effective May 1 and make them independent contractors.

About half those agents have joined together to fight the decision, hiring a San Francisco law firm, Wilson, Shryock & Bolton.

“This is one of the cruelest stunts I’ve ever seen a company pull,” said Gregory Wilson, an attorney with that law firm. “They’re taking people who have 30 years with the company and telling them, ‘You’re terminated in 90 days.’ ”

But Allstate representatives say it is a sound business decision prompted in part by a class-action lawsuit by an employee who was upset that the company would not pay for some major expenses. California law requires employers to pay employees’ work-related expenses. On Jan. 4, Allstate tentatively agreed to pay $25 million to about 2,400 current and former employees to settle the case.

“Any business must have the ability to manage its costs as best it can,” Allstate spokesman Al Orendorff said.

Agents say most are unhappy about the change, which gives them an additional 2% in commissions but eliminates valuable benefits. Even those likely to break even say they prefer the security they now enjoy.

“I think if you talk to any agent out there, they would prefer to stay the way they are,” said one agent who has been with the company for nearly two decades and whose father also worked for Allstate. “It’s going to be a worse deal for most people.”

Allstate’s benefits package includes health and life insurance coverage, retirement benefits and profit-sharing plans. As independent contractors, employees will have to pay for those benefits. Their Social Security taxes will double and they will have to pay their own office expenses.

“We’re going from having benefits and a retirement plan and the works to nothing,” said another agent, adding that his wife is panicky about the change and his colleagues have been losing sleep since learning about it. “We’re talking bone-dry and we’re responsible for everything. It’s a shock, to be honest with you.”

Most Allstate employees would not give their names, saying company policy prohibits individual agents from speaking with the news media.

Allstate representatives say customers generally should see no difference in rates or service as a result of the change.

The move reflects an industrywide trend toward using independent contractors to control costs, said Steve Goldstein, a spokesman for the Insurance Information Institute, a New York public relations firm for the property and casualty insurance industry.

Agents for two other major insurers in the state, State Farm Insurance Co. and Farmers Insurance Group, already operate as independent contractors.

Since 1989, Allstate has been switching to independent contractors in other states. “For the most part, the agents who are in the program like it,” Allstate spokesman Orendorff said.

The company had been trying to persuade California agents to become independent contractors for the last six years, but less than 50 had done so, said Wilson, the agents’ attorney.