Two men from upstate New York have filed a federal lawsuit against State Farm, accusing the insurer of fraudulently recruiting them into an agent training program and improperly denying them benefits.
The lawsuit seeks class action status for hundreds—if not thousands—of other people who were taking their first steps toward becoming a State Farm agent. The lawsuit focuses on term independent contractor agents (TICAs), who after a 12-month TICA period can become full-fledged State Farm agents, according to the lawsuit. State Farm has around 19,000 agents.
In the lawsuit, Jason Sheldon and Steven Hunsberger claim they were misled during the agent-recruitment process. They claim they were and “set up for failure” through “unrealistic goals” and an inability to deviate from their initial business proposals as part of the agent-application process. The agent intern process was shortened from 34 weeks to 17 weeks just before Sheldon started his training, the lawsuit says. He claims this led to an “incomplete learning cycle and resulted in agents being undertrained.”
Sheldon was terminated in 2017, and Hunsberger closed his office in 2016.
State Farm “through oral statements, emails, and written documentation induced (Sheldon and Hunsberger) to continually invest more and more of their own money into a business that was destined to fail,” the lawsuit claims.
“The reality of a State Farm agency is that the agent has little to no control over his business, and the likelihood of success is much lower than State Farm represents throughout the entirety of the process before one becomes an agent,” the lawsuit claims.
Sheldon and Hunsberger also claim that they were misclassified as independent contractors and not provided 401(k), retirement, and pension benefits, in violation of the federal Employee Retirement Income Security Act, which sets minimum standards for most retirement and health plans in private industry.
They claim State Farm treats its agents as employees, not independent contractors, by controlling what products they can sell, where they set up an agency, and even which computers they can use.
“These policies and procedures permit State Farm to exercise almost total control over the TICAs’ business,” the lawsuit claims.
State Farm agents remain a central part of the company’s business strategy, even as it’s built out digital product offerings and invested in online sales platforms like HiRoad in Rhode Island. State Farm considers agents its differentiator as it markets itself to customers, company executives say. Indeed, its agents are prominently featured in many State Farm TV commercials.
One reason is customer loyalty. The average State Farm customer has been with the company for 14 years, well above the average for competitors. Experts say agents are a big part of that.
In a statement Friday, State Farm said it was reviewing and evaluating the lawsuit.
“We are confident that Mr. Sheldon and Mr. Hunsberger were independent contractors,” the company said.
The lawsuit seeks a legal declaration that agents are considered State Farm employees and eligible for benefits, plus other unspecified monetary damages.
The lawsuit was filed March 8 in federal court.
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