This week we will look at a short fact pattern and then respond to the following discussion questions (DQ’s). Do not forget to return and respond to at least two student responses, either their original response or those who posted to your response.

What are some reasons Allstate Insurance Company would want to have its employees become independent contractors? If you were a business manager for Allstate, what course of action would you decide to take, given these reasons? Why?

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Press Release: AARP Litigation Joins Age Discrimination Suit vs. Allstate as Co-Counsel*

AARP Foundation, contending that not everybody is in good hands with Allstate Insurance Company, has joined as co-counsel in a class action lawsuit charging the giant firm with violating federal age discrimination and pension laws. The suit alleges that Allstate severed employment contracts with 6,400 company agents, seeking to deprive the agents of their benefits and purge older workers from its ranks. These actions violated the company’s statutory obligations under the Age Discrimination in Employment Act (ADEA) and Employee Retirement Income Security Act (ERISA), according to the suit. “Allstate pressured thousands of loyal long-time employees to give up their benefits—and their futures,” said AARP’s Director of Policy and Strategy John C. Rother in announcing the nonprofit organization’s entrance into the case. “We joined as co-counsel to right a wrong, spotlight these blatant actions, and send a message to other employers who might consider similar actions,” Rother said.

Twenty-nine terminated Allstate agents, acting for 6,400 company agents, filed suit against the corporation in US. District Court for the Eastern District of Pennsylvania, located in Philadelphia. They charged that the company terminated their employment contracts in order to deprive them of their pensions and other benefits. The plaintiff agents also asserted that Allstate had another motive—to weed out older agents and eventually replace them with younger employees. AARP Foundation attorneys have joined with the two law firms representing the plaintiffs—Sprenger & Lang PLLC and Zevnik Horton LLP—to serve as co-counsel.

The plaintiffs argue that throughout the 1990s Allstate unsuccessfully sought to persuade its employee agents to relinquish their protected status as employees and convert to independent status. The real goal of what was actually a mass termination plan was allegedly to save the company more than $200 million annually. But the plaintiffs state that only a few agents were willing to give up their employment status—and the generous benefit package that went with it. So, in November 1999, the suit alleges, Allstate took a more direct—and illegal—approach. The company announced that the agents would basically be terminated and would only be allowed to remain with the company as “independent contractors” if they waived their right to bring a lawsuit. According to the complaint, Allstate’s actions led more than 99 percent of its employee agents to sign the release, a release that allegedly violates ERISA and ADEA and is unenforceable. The plaintiffs say that the second reason for the termination program was to transform the sales force from one in which approximately 90 percent were over 40 to one infused with younger agents and other sales personnel. The Equal Employment Opportunity Commission (EEOC) has issued a determination that Allstate engaged in “threats, coercion, and intimidation” and that forcing the agents to sign the release violated the ADEA. You will need to post before you can see the replies of others.

* Source:

http://www.aarp.org/press/2001/nr12210 1 html (Links to an external site.).

1. Is Sherron Watkins probably at at-will employee? Why does this question matter?
2. If Enron had fired Sherron Watkins, would she have had any recourse? Hint: Think about exceptions to the employment-at-will doctrine.

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ENRON TRIAL: Whistle-blower takes stand

Former Enron Vice President Sherron Watkins gave dramatic testimony about warnings she gave to her former bosses in 2001.

BY MICHAEL GRACZYK, Associated Press

Sherron Watkins, the former Enron vice president who warned higher-ups the company was a house of cards ready to fall, testified Wednesday that she discussed her concerns with founder Kenneth Lay only to learn months later her job was threatened for speaking up.

Taking the stand at the fraud and conspiracy trial of Lay and former Chief Executive Jeffrey Skilling, Watkins said she met with Lay after taking to heart his encouragement to Enron employees that they could bring any problems directly to him.

“He seemed surprised that these things could be problematic,” the 47-year-old accountant told jurors about the Aug. 22, 2001, meeting, during which she assailed the integrity of financial structures that were intended to lock in values of investments and assets.

The off-the-books structures, known as Raptors, were intertwined with partnerships run by then-Chief Financial Officer Andrew Fastow, who was Watkins’ boss. Watkins said she feared the structures would harm the company because they owed Enron hundreds of millions of dollars and contained only falling Enron stock to repay the debt.

“Accounting just doesn’t get that creative,” she said.

She said she wanted to leave Lay with one question answered: How are they going to pay for it?

The meeting came in the wake of an anonymous memo she sent days earlier to Lay. She subsequently acknowledged her authorship.

“I am incredibly nervous we will implode in a wave of accounting scandals,” she said, reading Wednesday from the memo hailed later by Congress as prescient. She also read that the business world in retrospect would consider Enron’s successes “as nothing more than an accounting hoax.”

At her meeting with him, Lay “winced” when she read him comments she received from an unnamed Enron employee (Links to an external site.)who wrote: “I wish we would get caught. We’re such a crooked company.”

That message, she said, “slapped him in the face more than anything else.”

Within two days after her session with Lay, Enron sought advice “on the consequences of terminating you,” federal prosecutor John Heuston told her.

“I found out in February 2002. It was very shocking,” she said.

Watkins also said she sold some $30,000 in Enron stock at the end of August 2001, then two more blocks of stock in the first week of October. She acknowledged that the transactions, which garnered her $17,000, were not proper.

Consider problem number 4 at the end of the chapter. Apply the IRAC analysis for your response.