Is Allstate Misclassifying All of Their Exclusive Independent Contractor Insurance Agents?

According to a recent $15 million lawsuit by a 40-plus year veteran agent and the recent Court of Appeal decision in Arnold v Mutual of Omaha… they might.

In Arnold v. Mutual of Omaha (Cal.Ct.App. No. A131440, Dec. 30. 2011), the Court of Appeal found that certain insurance company agents qualified as independent contractors, not employees. The case was heralded as creating a roadmap for insurance companies on how to treat agents so that they maintain their status as independent contractors rather than employees.

But Allstate appears to have taken a wrong turn.

To recap:

Ms. Arnold was a non-exclusive insurance agent of Mutual of Omaha.

  • Arnold could decide to solicit customers for Mutual, or for other insurance companies;
  • Arnold could decide to engage in training, or not; and
  • Arnold was only required to submit a request for Mutual’s insurance materials once every 180 days (although she could choose to do so more often).

The Court held that the existence of each factor in the independent contractor “control” test was a question of fact.

The Result?

Arnold was an independent contractor and could not recover business expenses and waiting time penalties for unpaid final wages from Mutual (as an employee might).

…but what about Allstate’s insurance agents?

Well for starters, in 1999 Allstate Insurance began terminating its W-2 employment contracts with every one of its agents.

Allstate allowed those agents to stay if any only if they signed a nonnegotiable exclusive independent contractor agency agreement with Allstate, according to a recent complaint filed in U.S. District Court.

For those who refused, Allstate made “absurd production demands” and “systematically attempted to force” those veteran agents to give up their books of insurance business. The Plaintiff in this recent lawsuit, Larry Stevens, had built his book of insurance business for over 40 years and wasn’t planning to go quietly into the night.

When Mr. Stevens refused, Allstate terminated its long-held agreement with him and told him he had three options:

  1. “enter into an exclusive agent independent contracted agreement and continue to sell Allstate insurance and related products, but that he do so an independent contractor;”
  2. “temporarily become an independent contractor for the purpose of the (sale) of [Mr. Steven's] book of business; or”
  3. “accept a forced severance.”

And even when Mr. Stevens gave in to Allstate’s new exclusive independent contractor agreement, Allstate again severed their agreement with him and tried to get ahold of his sizable book of insurance business.

Mutual of Omaha versus Allstate Insurance Company

So let’s compare Ms. Arnold at Mutual to Mr. Stevens at Allstate. Both of whom were classified as independent contractors by their respective insurance companies and signed agreements to that effect.

Exclusive or Non-Exclusive

  • According to the Court of Appeal, Ms. Arnold could decide to sell insurance from any company (a non-exclusive insurance agent).
  • But Mr. Stevens was forced to be an agent for Allstate and only Allstate.  Even its own careers website bears out that you are to be an Allstate Exclusive Agent. (http://www.allstate.com/careers/agents.aspx)

…Strike one for Allstate.

Training

  • According to the Court of Appeal, any training for Ms. Arnold was not mandatory.
  • But Allstate Exclusive Agents take one full year of “Exclusive Agent Training”.

…Strike two for Allstate.

Control

  • According to the Court of Appeal, Ms. Arnold had minimal required contact with and little to no supervision by Mutual of Omaha.
  • According to the complaint filed by Mr. Stevens in U.S. District Court on June 29th, there was constant oversight and interference by Allstate (apparently but allegedly for the purpose of co-opting Mr. Stevens 40-plus years of insurance contacts and clients).

…Strike three?

As with Mutual of Omaha, or any alleged worker relationship, it often comes down to each factor in the applicable independent contractor “control” test.

Right now, Allstate only has to contend with a $15 million lawsuit in U.S. District Court, filed by Mr. Stevens, for breach of contract and fraud.

But does this case bring into question their entire “Exclusive Independent Contractor Agent” business practice?  And is this yet another instance where misclassified independent contractors can cost companies dearly? Or just a disgruntled former employee turned former independent contractor?

For more information on assessing the legality of your independent contractor engagements and avoiding worker misclassification penalties and lawsuits, go to ICon.

Click here for the full Larry Stevens and Stevens, Inc. v. The Allstate Corporation and The Allstate Insurance Company (E.D. Ky., No. 0:2012cv00060, June 29, 2012) complaint, analysis, and an analysis of Arnold v. Mutual of Omaha.

 

 

 

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