Last week, the Equal Employment Opportunity Commission (EEOC) in St. Louis said that Allstate Corp. (ALL) had agreed to pay $4.5 million to certain former employees to settle an age-discrimination lawsuit.

A reorganization of the company in 1999 had turned thousands of Allstate agents from employees to independent contractors. However, 1-year hiring moratorium was then put to effect. The EEOC claimed that 90% of the agents subjected to the moratorium were aged 40 or more and were disproportionately affected.

While the older workers were looking to be rehired in a different role within the company, Allstate decided not to rehire sales agents within a year of termination of their employment, or longer if they were still receiving severance benefits. The company stopped hiring new sales agents as employees in 1990 and shifted towards using external contractors.

The lawsuit was filed in October 2004 under the Age Discrimination in Employment Act. While Allstate remained confident that it acted fittingly, it agreed to settle the dispute to avoid the burden and cost of additional litigation. The settlement must be approved by US District Judge Richard Webber.

The awards to about 90 individual former agents are expected to range from about $9,000 to $114,000, based on actual losses each person suffered. Former employees who sought employment or would have sought it in the absence of Allstate’s policy would all be compensated. The EEOC also said that the settlement provides for discrimination training and other efforts to educate Allstate managers to prevent further violations of the Age Discrimination in Employment Act.

Though Allstate’s capital and liquidity levels remain impressive, it has experienced significant catastrophe losses and deterioration in its key operating metrics. We expect continued benefits from the company’s diversification and pricing discipline, but the ongoing global crisis and catastrophes will continue to hurt results in the coming quarters. As such, we maintain our Neutral recommendation on the stock.

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