September 22, 2000 – The Equal Employment Opportunity Commission determined this week that when the Allstate Insurance Company forced more than 6,000 agents to sign away their rights to sue the company in order to keep their jobs, it violated federal law.

Last year, Allstate said that it would convert its employee sales force – most of whom are over the age of 45 – into independent contractors. The move stripped the agents of their employee benefits, but the company promised them higher commissions to help cover the cost of doing business on their own.

The agents could have rejected the offer and opted instead to leave Allstate with an enhanced severance package. But either way, they were required to sign a waiver in which they pledged not to sue the company.

Infuriated by the waiver, which they viewed as the linchpin in the company’s strategy to shed its older workers, roughly 70 agents filed complaints this spring with the E.E.O.C., saying they were victims of age discrimination. After a six-month investigation, the commission ruled in favor of the agents, concluding that Allstate had coerced and intimidated them into surrendering their rights.

Allstate officials characterized the waiver as “a common and prudent business practice” and said the company had no immediate plans to change it. But while E.E.O.C. officials acknowledge that waivers are a common way of warding off litigation in the workplace, they say waivers rarely require employees to give up their rights to sue a company merely to hold onto their jobs, a violation of federal law. The commission investigators also said they viewed the Allstate case as particularly troubling because so many agents were affected, considerably more than in many of the cases it takes on.

The commission’s finding is a potential stumbling block for Allstate’s efforts to recreate itself. In the past year or so, the company has begun a major overhaul, hoping to sell its policies from call centers around the country and over the Internet, where traditional agents are considered virtually obsolete.

The company is also eager to sell more insurance through what are referred to as independent agents, who work for themselves and sell the policies of 10 or more insurance companies at the same time.

In recent years, independent agents have become an increasingly important part of the industry, responsible for roughly 40 percent of all insurance sold. But Allstate has had little success getting them to sell its policies, in no small part because of the company’s own sales force. Part of Allstate’s profits go into paying modest stipends to help its employees cover the many expenses that come with selling insurance. Not surprisingly, the independent agents, who are also scrambling for customers, have little interest in supporting their competition.

Allstate wanted to convert employees into independent contractors because employees have become considerably more expensive. For years, the agents have spent their own money to stay competitive, often without being reimbursed. But in a July settlement with agents in Montana, North Dakota and South Dakota, Allstate agreed to pay more than $2 million to reimburse a handful of its employees for the money they had spent for office rent, secretaries and advertising. Agents around the country are looking into bringing a national lawsuit, which could cost the company much more.

The waiver, which has already been signed by thousands of agents, could protect Allstate from such claims. And until a court determines that it is unlawful, the company is under no obligation to retract or alter the waiver. Allstate has indicated that it will cooperate in discussions with the E.E.O.C., a necessary precursor to litigation, but is confident that the document, drawn up by its in-house legal team of more than 700 lawyers, will stand up in court.

Commission officials, however, say they have a 90 percent success rate once they decide to take on an issue and suggest that they would take this case to a judge if necessary.