ALLSTATE TO TERMINATE AGENTS IN CALIFORNIA.

Byline: Russ Britt Daily News Staff Writer

Allstate Insurance Co. plans to fire its 1,600 California agents and offer them agreements as independent contractors with reduced benefits, company officials said Thursday.

Under a preliminary settlement of a class action lawsuit brought by employees, Allstate would terminate its agents in order to avoid paying all of their expenses - benefits the company contends other major carriers do not offer.

Some agents said they stand to lose more than $50,000 in annual benefits and reimbursed expenses if the agreement reached Thursday in Alameda County Superior Court stands.

The agents will be told Monday by managers of their pending termination - which would be effective May 1 - and subsequent rehiring at various meetings throughout the state. One meeting is scheduled to be held in Woodland Hills.

"I'm going from being an employee to being self-employed overnight," said one San Fernando Valley agent who asked not to be identified. "It's not nice. It's just not nice. That's all I can say."

The lawsuit that led to Allstate's action centers around a 1930s-era California law that requires employers in the state to pay all expenses incurred by employees. Allstate said other states have no such requirement.

The 1992 lawsuit, spearheaded by agents no longer with Allstate, charged that the company refused to pay major expenses, such as computers and rent on buildings, and thus was in violation of California law.

But Allstate general counsel Robert Pike said agents were given a budget based on performance. Agents were free to spend the operating budget however they saw fit and those that went over it ended up incurring those expenses themselves.

"We happen to believe the Labor Code never intended for this to apply," Pike said. "We don't have any other option other than to turn our agency system into independent contractors."

"We would prefer not to have done this," Pike said. "The litigation posed an unacceptable risk to our shareholders."

Pike pointed out that California-based agents for two other major carriers, 2,000 at State Farm Insurance Co. and 4,000 at Farmers Insurance Co., are independent contractors who have agreements to sell policies for those two companies exclusively. None of those 6,000 agents are employees of their respective companies.

Although Judge Joseph Carson approved the preliminary settlement agreement, it is expected to be challenged by a group of dissident agents. The $25 million settlement would pay unreimbursed expenses to the 1,600 current and 300 former Allstate agents, but $7.5 million would go to cover attorney fees.

Carson did not return phone calls. A final court hearing on the settlement is scheduled for Feb. 29.

By putting agents on independent, yet exclusive contracts, Allstate stands to save an estimated $40 million a year in expenses, attorneys for the agents said. Pike disputed that, saying the savings in expenses would be offset by higher commissions that are paid to independent agents.

Pike said Allstate would not impose the independent contracts on agents outside California.

The money that agents have contributed to their pension fund would be frozen and doled out, based on years of service, Pike said.

Agents who are protesting the deal say the settlement was negotiated entirely by former company employees who have nothing to lose if current Allstate policy sellers are terminated. Attorneys for current agents say they will lose pensions, be forced to fund their own health insurance and pay for many general expenses they otherwise would not have to incur, such as advertising.

"This is a fantastic bargain for Allstate," said Greg Wilson, who represents about 455 agents who plan to challenge the settlement. "The current agents are absolutely outraged."

Wilson said current agents were not kept informed of the pending settlement negotiations. The first notices of a possible settlement were circulated last month: one which told of a tentative January hearing date, the other telling that the hearing date was canceled and that the judge would approve the settlement.

The agents' attorneys who negotiated the settlement - Patrick Grannan in Los Angeles and Melanie Piech in San Francisco - did not return phone calls.

The number of agents disgruntled over the settlement agreement is growing rapidly, according to Wilson.

Many agents refused to discuss the settlement, saying the company has notified them about Monday's meeting but has not said what is on the agenda. They said Allstate has ordered agents not to discuss the case.

"They told us they will terminate us if we talk to the press," one agent said.

Pike said he knew of no mandate ordering agents not to talk to the members of the media.

Another agent who asked not to be identified said he stands to lose $52,000 a year in expenses that have been paid by Allstate. It will be more difficult to make up that difference now that the company is not writing homeowners policies in California due to the Jan. 17, 1994, earthquake.

Wilson said Allstate would require agents to waive their right to sue if they choose to become independent contractors. Those who opt out of the settlement agreement still can challenge it but will be terminated from Allstate.