Laid-off workers sue Iowa company, claiming execs used pandemic to enrich themselves

nterior of an empty courtroom with gavel and sounding block on the desk.
Former Flexsteel employees are suing the Iowa company, alleging executives enriched themselves by blaming the pandemic for layoffs. (Photo by Getty Images)

A group of former Flexsteel employees is suing the Iowa-based company, alleging it used the pandemic to collect millions in federal aid while newly installed executives enriched themselves and denied severance pay to hundreds of laid-off, long-term workers.

The six plaintiffs are seeking class-action status for their lawsuit, filed recently in U.S. District Court for the Northern District of Iowa. They claim the Dubuque-headquartered company has violated the Iowa Wage Payment Collection Act, as well as the federal Worker Adjustment and Retraining Notification Act of 1988 and Employee Retirement Income Security Act of 1974.

They allege that when the pandemic hit in early 2020, Flexsteel was deep into a previously announced corporate restructuring that would leave plants in California, Arkansas, Mississippi and Iowa shuttered. Up until that time, the company had allegedly been providing workers with 60 days’ notice of their termination in accordance with Worker Adjustment and Retraining Notification Act of 1988, and with severance pay in accordance with the Employee Retirement Income Security Act of 1974.

In May 2019, for example, the company closed its California plant that produced residential furniture, and allegedly gave its 87 workers 60 days’ notice and severance pay. A few weeks later, notice and payouts were provided to 109 employees as an Arkansas plant that was preparing to close.

In March 2020, the World Health Organization declared COVID-19 a global public health emergency. Two weeks later, Flexsteel notified employees in Dubuque that it intended to permanently lay off 208 employees there, but it allegedly refused to pay severance or give 60 days’ notice of closure as required by the WARN Act. It also notified workers at its Starkville, Mississippi, plant that it was permanently closing that facility, effective immediately, resulting in the termination of all 170 employees there.

According to the lawsuit, company officials said they had provided no notice or severance pay for the Dubuque and Starkville workers because the closures were “not reasonably foreseeable until recently when the full impact of COVID-19 became clear.”

A few weeks after the announcement, Congress approved the CARES Act, which would provide Flexsteel with $12.7 million in taxpayer-funded assistance.

The lawsuit alleges that just five weeks after COVID-19 was declared a public health emergency, Flexsteel CEO Jerald K. Dittmer purchased 2,787 shares of company stock. A few weeks later, he purchased an additional 1,000 shares, and Flexsteel offered 78,884 stock options to Chief Financial Officer Dereck P. Schmidt at $9.97 per share.

Over the next few months, as Flexsteel plants shut down, Schmidt purchased 49,000 shares of company stock. As of Feb. 9, 2021, those shares were valued at more than $35 — almost three times the price they commanded in June  2020.

The lawsuit alleges Dittmer, Schmitt and others defunded the company’s severance-pay plan, closed the plants and put “their own self-interest ahead” of the workers’ interests.

“Flexsteel and the individual defendants used the economic conditions, federal aid and their privileges as executives to enrich themselves, while terminating long-term employees without notice or severance,” the lawsuit claims.

The company has yet to file a response to the lawsuit and it has not yet responded to a request for comment.

The plaintiffs include former Flexsteel workers Tony Jelinek, Rodney Carroll and Todd Van Der Jagt of Iowa, as well as Jerry Ray, Fred Minor and Stephen Anderson, who worked for the company in Mississippi.

Dittmer has served as Flexsteel CEO since early 2019, and Schmidt has served as chief financial officer since April 2020.

Clark Kauffman
Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing. His 2004 series on prosecutorial misconduct in Iowa was named a finalist for the Pulitzer Prize for Investigative Reporting. From October 2018 through November 2019, Kauffman was an assistant ombudsman for the Iowa Office of Ombudsman, an agency that investigates citizens’ complaints of wrongdoing within state and local government agencies.