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Allstate Insurance Faces $60 Million Lawsuit after Restructuring
June 25, 2008, Canadian Employment Law Today
Allstate Canada’s attempts to cut costs by consolidating offices has left it facing a $60 million class-action
lawsuit from some of its former agents.
On July 24, 2007, the insurance company announced it would be moving its 450 agents from 256
neighbourhood offices across Canada into 100 larger offices, beginning in May 2008. Most agents weren’t
pleased, particularly senior agents, some of whom ran the neighbourhood offices as their own businesses,
handling the hiring of staff and management of finances. However, under the consolidation, the 100 new
offices will be owned and run by Allstate.
The consolidation also outlined significant changes to the contract terms of the agents, including taking away
sales commissions on policy renewals. Allstate said it would guarantee agents’ level of pay for two years, but
most didn’t bite as the changes would result in overall pay cuts for many, some by as much as 50 per cent.
Agents tried to discuss the situation with the company but it wouldn’t budge from its position. More than 70
agents have since quit, though Allstate told the Toronto Star it had hired sufficient replacements. When some
tried to continue working with clients as independent brokers, Allstate sued them for breaching non-compete
agreements they had signed.
However, in March, the Ontario Superior Court of Justice found the agreements weren’t valid, considering the
way Allstate and changed their contract terms and ruled the company couldn’t enforce them. On May 20, three
agents, Mark Cassels of Hamilton, along with Esther Kafka and Ken Patel of Windsor, launched a class action
lawsuit on behalf of all the agents for making “substantive material changes to the employment contract terms
with all of its sales agents,” which was a breach of contract and the Employment Standards Act. They also
claimed Allstate’s guarantee of their level of income for two years was unlikely to be borne out.
The case hasn’t been heard yet, but in the March decision that struck down the non-compete agreements, the
court said there was a good chance Allstate will be found to have repudiated its employment contracts with the
changes.