The insurance firm Aflac has exploited workers, manipulated its accounting, and deceived shareholders and customers, according to nine former employees. This article is based on interviews with multiple current and former employees, as well as three previously unreported lawsuits.
The allegations contained in the lawsuits involve nearly every aspect of Aflac’s business and have already led to a series of investigations by state and federal regulators. But though Aflac’s top management and board of directors have known about the claims for over a year, they have not disclosed anything to shareholders in public filings with the Securities and Exchange Commission beyond generalities about unnamed pending lawsuits that they say they expect will not hurt the company’s bottom line.
The revelations could damage the public image of the Columbus, Georgia-based insurer, a Fortune 500 stalwart that boasts about being named one of the world’s most ethical companies for 11 consecutive years and one of the best companies to work for in America. But behind Aflac’s facade, according to the former employees, lurks a company that fails to live up to promises made in employee recruitment. Indeed, one of the ways Aflac exploits workers is by calling them “independent contractors” when they are really employees. For the purposes of this article, we will refer to these workers as employees.
“What they’re doing is unfair,” said Louis Varela, who spent three years as a sales associate for Aflac in New York City. The allegations pull together virtually every major corporate scandal of the past two decades into the behavior of a single company, drawing on the various misdeeds of for-profit colleges, Herbalife, Uber, Wells Fargo, Enron, Trump University, and more.
The allegations in the lawsuits include:
- Recruiting thousands of employees with promises of six-figure incomes in the first year, which ultimately less than 2 percent of new hires manage to earn
- Encouraging employees to sell policies to friends and relatives and recruit them into the company, akin to a multi-level marketing scheme
- Widespread misclassification of employees as independent contractors, despite Aflac controlling virtually every aspect of the work experience
- Much like at Wells Fargo, employees under pressure to meet sales goals selling policies without customer authorization or consent, illegally “bundling” policies, and issuing others to ineligible customers
- Wage theft, where commissions rightfully owed to associates are transferred to managers
- At least one charge of sexual harassment
- Massaging of key operational metrics to prove company growth to investors
- Earnings statement manipulation, by moving sales earned in certain weeks into different quarters to hit numbers
- Retaliation against whistleblowers
Employees initially presented the allegations to management through official company channels in December 2016, at which point Aflac management categorically denied them. However, the company thereafter made several changes to its recruiting materials, compensation plan, and operational metrics, suggesting at least some validity to the claims — or a striking coincidence.
Aflac spokesman Jon Sullivan responded to a detailed list of questions by saying the company “will not comment on pending litigation.” After publication, the company released a statement saying that it had investigated the charges and plans to fight them. “Recent media stories regarding Aflac contain false allegations made by a very small group of independent contractors. Aflac intends to aggressively fight these allegations beginning with filing for their dismissal,” the statement read. “The Company has investigated these claims and found them to be without merit.”
Aflac President Paul Amos II, the grandson of the founder, abruptly resigned in June to join a boutique private equity firm, receiving a $3.4 million golden parachute. Four days after the announcement, Amos sold off 222,889 shares of stock, nearly half his total holdings, for $17 million. Other Aflac executives have sold large blocs of shares recently; according to Ben Silverman, director of research at InsiderScore, his organization reports only 3,000 shares purchased by insiders in the 2017 calendar year, and 363,512 shares sold.
Amos’s sale triggered a derivative shareholder lawsuit in federal court in New York brought by the ex-employees, who happened to be shareholders because of small distributions of Aflac stock as part of their compensation. The case accuses Amos and others of insider trading while holding material, non-public information: the allegations of fraud at Aflac.
In November, the ex-employees showed Aflac a 93-page draft of a class-action suit against the company, in an attempt to settle the dispute out of court. But Aflac immediately filed for a temporary restraining order in two jurisdictions – Georgia and New York – to block the plaintiffs from filing the class-action, citing the forced arbitration clause in all employee contracts. A court in the Georgia case last week ruled that Aflac could compel arbitration and stop the lawsuit from being filed. However, Aflac put the draft complaint into evidence in the Georgia case without requesting that it be placed under seal. So Aflac’s attempt to push the suit into arbitration ended up exposing it.
This is the first installment of a series analyzing the employees’ claims. We’ll start by looking at how Aflac treats its workers, which took on heightened political importance when Aflac joined in the chorus of major companies offering workers bonuses and promising domestic investments after the passage of the GOP tax plan.
American Family Life Assurance Company, or Aflac, was founded in 1955 by John, Paul, and Bill Amos. Paul’s son Dan is the current CEO and chair; Dan’s son is Paul II, the former president. The company mostly sells supplemental policies in the U.S. and Japan that enhance traditional health insurance, for accidents, cancer, short-term disability, or vision and dental. Nearly all policies are sold as voluntary options in health plans offered to small businesses, paid through payroll deductions. Aflac’s strong branding (the Aflac duck is ubiquitous on NFL telecasts; Melania Trump even once served as a pitch-woman) and the popular “One Day Pay” claims reimbursement option has contributed to a market-leading 7.2 million policyholders and $22.5 billion in annual revenue.
But Aflac “employees” by and large don’t sell the policies. That task falls to an army of roughly 50,000 independent contractor insurance agents, recruited into the company every year. Sales associates must invest thousands of dollars into their business and must pass exams to obtain insurance licenses in all states where they sell, take licensing classes and mandatory Aflac training, cover all travel and overhead, and are even asked to pay for working space in Aflac offices.
That grind creates enormous churn. “Recruiting is our lifeblood,” wrote Aflac Vice President Michael Chille to staff in July 2012. District offices run recruiting contests, and income and bonuses for district and regional managers depend on constantly refreshing supplies of recruits. “Continual recruiting activity is the most important factor in your success,” reads the Aflac Participant Workbook. “Recruit all the time: there is always an ‘opening’ for a new associate!”
Recruiters, who are paid $20 for each employee they sign up, scour online resume sites and pitch prospects on becoming Aflac sales associates, its entry-level position. New college graduates and laid-off professionals looking for a bridge to retirement make up the bulk of the recruits, according to the complainants.
Current and former employees allege that recruiters make outsized promises about the job. “There’s a lot of money to be made at Aflac,” says Trevor Fennell in a video presentation shown in informational sessions with recruits. “I think that’s what people are looking for in an unstable economy.” Recruits are given a “Ten-Year Income Example” at interviews. According to the handout, if recruits manage to write $266,760 in annual premiums, they could earn $125,000 in commissions in the first year, growing to $236,000 in Year 10, with another $116,000 in accumulated stock bonuses.
Buoyed by these assurances, new associates sign up with Aflac. But late in the game, they learn that the job is 100 percent commission-based. “At first, they positioned it that it was a job, and I wasn’t aware until the very end that there was no salary involved,” said one current sales associate. Indeed, wedged into the bottom of various information sheets promoting earnings potential and the benefits of “flexible working” is a small disclaimer: “Aflac agents are independent contractors and are not employees of Aflac.”
This puts a new spin on Aflac’s pledge after passage of the Republican tax bill, touted by Donald Trump in his “Big Brother” video statement to the press, of doubling its 401(k) match to workers. Most of Aflac’s sales force aren’t employees and thus, are mere observers of Aflac’s public gesture of generosity, rather than recipients of it. “My mom saw [CEO] Dan Amos on TV talking about this 401(k) match,” one current employee told The Intercept. “She called me and said, ‘Oh my God, that’s great news,’ and I said, ‘Mom, this does not include me, I’m a 1099.’ She said, ‘Those sons of bitches!’”
Martin Conroy, a nine-year Aflac veteran and the initial whistleblower in the case, said, “On a daily basis, hundreds of people are receiving phone calls and emails that make you think it’s a job. Those who figure out the scam get out of it. Some people go into financial ruin.“
Sharecroppers after the Civil War were famously charged endless fees and rent for farming equipment and use of the land, an arrangement that feels reminiscent for Aflac’s white-collar version. “I got charged for having a desk, $300-$600 a month,” said a current employee. “They even charged for the ducks,” he added, referring to stuffed animal ducks given out to clients.
Despite touting the flexibility of “being your own boss,” Aflac directs most facets of the job. Management dictates where an associate works and whom they work for. It controls the accounts and can reassign them at will. Mandatory national and local training sessions, like a four-week program at the company’s Wall Street office beginning the Monday after being hired, dominate a new associate’s early work schedule. Associates must report sales results, participate in conference calls, in-person meetings, and online courses, and must memorize and deliver sales scripts in which they refer to themselves as employees of Aflac.
Most of Aflac’s sales force aren’t employees and thus, are mere observers of Aflac’s public gesture of generosity, rather than recipients of it.
Even district sales coordinators, notionally the bosses of sales associates, are treated as independent contractors, despite having to write business plans, attend mandatory trainings and workshops (including multi-day retreats), and other responsibilities customary to managers. State sales coordinators were also contractors until converting to salaried employees in 2014. While Aflac presented this as a titanic shift in strategy, “nothing really changes on Monday except my title,” wrote Ken Meier, sales coordinator for the New York metro region, in a 2014 email to his underling Conroy.
“It sounds like Aflac is treating their workers like employees while classifying them as independent contractors,” said Marni von Wilpert with the Economic Policy Institute, which estimates that 10 to 20 percent of all employers misclassify at least one employee. The practice can save companies boatloads of money. Companies don’t pay payroll or unemployment insurance taxes for independent contractors, or give them benefits like overtime pay, minimum wage, or workers’ compensation. They also don’t have to adhere to guidelines under the Fair Labor Standards Act or allow workers to collectively bargain. Misclassification artificially reduces labor costs compared to competitors who have employees.
Misclassification has been attributed to app-based companies like Uber, Lyft, or TaskRabbit, where employees get assignments through an app. But in Aflac’s case, workers show up to their desk, attend meetings and trainings, take direction from a boss — everything a salaried employee would do, except without the salary or the 401(k).
Effectively forcing sales associates to rent office space and computers is a common way to circumvent the law, von Wilpert said. “One of the tests for misclassification is if the workers supply their own equipment. So companies force workers to rent out the desks and the phones. You get around having workers own their own equipment by forcing them to buy it from you.”
Once in place, new associates at Aflac find it nearly impossible to reach the $266,760 annual sales goal referred to in the 10-year income example. Aflac offers no leads or contacts to its sales force; in fact, they encourage them to turn to friends and family. “They tell you to go out to your ‘warm market,’ people you know,” said Louis Varela, who had sold Aflac policies in New York City. “My dentist was a friend of mine, he said I’ll offer policies to my hygienist and receptionist.”
One unlikely source of new business comes from the recruits themselves. Sales associates are strongly encouraged to sign up for at least one Aflac policy. “The analogy they made is that if you work at Coke, you should drink Coke,” Varela said. Because associates earn the commission from the policies they purchase, it’s also pitched as an employee benefit.
Another way to make money at Aflac is through recruiting people into the company, which is where the business begins to feel like a pyramid scheme. Associates earn 5 percent of all first-year sales produced by recruits they bring in. Managers hound associates about recruiting. One message read: “Have you ever thought that you actually may be offending your family and friends by not nominating them?”
As the warm markets turn cold and associates run out of friends, they’re given virtually nothing from which to generate business. “They give you SalesGenie, it’s like a phone book,” said Varela. “I’m thinking, I already have a phone book.”
Some anonymous comments at job review sites, like Glassdoor and Indeed.com, corroborate these sentiments, though others are more positive about Aflac. “Do you like sitting in a cubicle all day cold-calling potential clients selling ‘voluntary benefits’ only to get cursed at and get hung up on?” wrote one commenter. “If so, an Aflac sales agent career is for you! Go and live the Aflac dream, make no money, and you will wind up quite poor as well.” Another claims: “Aflac cost almost as much in mileage as I was able to make.”
The draft class-action complaint alleges that the typical Aflac sales agent stays for less than a year and earns on average under $10,000 in commissions — and that’s before accounting for the costs they’ve incurred along the way. An internal document called the “Rule of 24” lays out the cold reality, informing coordinators that out of 24 new recruits they’ll get in their offices, 14 will “never get started,” another six will produce a minimal amount of business, and only four will be “keepers.”
Even top recruits are not expected to reach the heights of the 10-year income example. Only 2 percent of Aflac associates nationally — both veterans and new recruits — produce the $266,760 production number touted in the income example. Ex-employees allege that the income example also includes inflated assumptions about annual commissions and doesn’t account for expected cancellations after the first year. So even if an associate sold $266,760 in business — which they very likely won’t — they wouldn’t make the promised earnings.
Most associates cannot survive, their investments wasted and savings drained. Marcus Johnson, a sales associate from California and one of the nine plaintiffs, made less than $25,000 in over two years with Aflac, leaving the company with his house foreclosed and car re-possessed. Another plaintiff, Julio Leaty from New York, said he made less than $10,000 in seven months, after hundreds of cold calls. In the draft complaint, he called working at Aflac “purgatory” and “the worst time in his life.”
In the draft complaint, plaintiff Julio Leaty called working at Aflac “purgatory” and “the worst time in his life.”
Louis Varela told the story of a fellow sales associate who had worked at Aflac for seven years. “He was asking me for lunch money,” Varela said. “Here’s a veteran agent who needs to borrow $50. They’re taking advantage of vulnerable people in workforce.”
High turnover at Aflac was noted in a 2013 Business Insider piece, ranking the company second-lowest in average tenure, with just one year of service.
When an Aflac associate leaves, the accounts they managed to sell transfer over to the sales coordinators. These “orphan” or “house” accounts then get allocated to other associates, who try to mine them for new business while the coordinators keep the old commissions. The churn, then, is critical to Aflac’s growth. Recruits are essentially brought in for their contacts, hitting up friends and family to buy Aflac policies, and then rotated out, with the benefits of that new business going to the higher-ups, the costs all borne by the discarded non-employees.
After the former employees described the allegations to Aflac management in a December 10, 2016 Dispute Notice, the company nixed the 10-year income example, replacing it with new recruiting materials promising a more modest first-year commission of $64,000. In addition, Aflac removed the Trevor Fennell recruiting video, where he says “there is a lot of money to be made at Aflac,” from its website.
The ex-employees allege that the changes prove how out of whack the initial example was. In addition, they say, the new chart still overstates expected earnings for sales associates. It’s based on associates closing two accounts a month, a feat accomplished by less than 0.1 percent of all sales associates, according to Aflac’s own internal reporting.
“I don’t believe that insulates Aflac from the charge that they were deceiving the market,” said Dimitry Joffe, co-counsel for the former employees. “These are cosmetic changes designed to hide the problems we raised instead of fixing them.”
Update: January 12, 2017
This story was updated to include a statement from Aflac and details on employee misclassification.