Billion-dollar Iowa business tied to pandemic relief is accused of wage violations

A Des Moines business that generated $1 billion in revenue helping companies collect pandemic-related tax credits threw lavish parties for executives before laying off half its workforce in violation of federal law, a lawsuit claims.

Lawyers for Dakota Menaugh of Tennessee filed the class-action lawsuit Tuesday in U.S. District Court for the Southern District of Iowa against the Des Moines-headquartered consulting firm Innovation Refunds. The lawsuit alleges violations of the federal Worker Adjustment and Retraining Notification Act and the Fair Labor Standards Act.

The lawsuit seeks unspecified damages for Menaugh and at least 100 other former employees of Innovation Refunds who were laid off in September 2023. The court has yet to decide whether to grant the plaintiff’s request for class-action status. The company has yet to file a response to the lawsuit.

The company’s corporate communications director, Allison Jackson, said Thursday that Innovation Refunds has no knowledge of any pending lawsuits against the company.

According to the lawsuit, Innovation Refunds was established for the purpose of capitalizing on the government-approved Employee Retention Credit that awarded money to businesses that struggled to maintain their workforce as a result of the COVID-19 pandemic.

Innovation Refunds ran a nationwide marketing campaign across multiple media platforms encouraging small business owners to apply for the credit and to hire Innovation Refunds to assist them with that process. The marketing campaign included celebrities such as Ty Burrell, the lead actor on the situation comedy “Modern Family.”

The company reportedly processed more than 20,000 Employee Retention Credit applications for clients, retaining 25% of the total refund due to each customer. The lawsuit claims the average refund received by Innovation Refunds’ customers was $250,000.

At one point, the lawsuit alleges, Rob Domenico, Innovation Refunds’ former executive vice president of financial partnerships, claimed that Innovation Refunds had processed nearly $7 billion worth of claims. Innovation Refunds, the lawsuit claims, generated more than $1 billion in revenue over a three-year period while hosting “lavish parties for its employees and its partner accounting and law firms.”

During one such party, Innovation Refunds hired interpretation artists and a marching band and filled the venue with Innovation Refunds-themed ice sculptures, according to the lawsuit.

At its peak, Innovation Refunds employed close to 1,000 people, although its primary service, tied to the pandemic-related tax credits, had a short shelf life. As a result, the lawsuit claims, Innovation Refunds employed a very aggressive growth strategy and encouraged employees to “process as many applications for the Employee Retention Credit as possible.”

The company allegedly paid bonuses of $10,000 to every employee once the company submitted credit applications for 10,000 customers. The largest bonus promised to employees was $100,000, payable to all workers hired by March 31, 2023, if Innovation Refunds was able to close 50,000 “lifetime” deals with clients.

In September 2023, when Innovation Refunds employed close to 350 people, it notified at least 157 workers that their jobs were being eliminated the next day. The workers allegedly were not provided with the 60 days’ notice as required under the federal WARN Act.

In addition, the lawsuit claims that employees of Innovation Refunds frequently worked more 40 hours per week. Although the company paid overtime to its workers, it allegedly failed to include in the calculation of that pay the nondiscretionary, performance-based bonus payments that were a significant portion of the workers’ regular compensation.

According to Innovation Refunds’ website, the company is headed by CEO Howard Makler, described as “the visionary co-founder” of the company and an individual who has previously worked in the gaming industry and real estate. He lives in Miami, Florida, as does Jeffrey Schoonover, the board chairman.

The plaintiff in the case is currently represented by Timm W. Reid of the Reid Law Firm in Des Moines, but the attorney dealing with potential additional plaintiffs in the case is Jack Simpson of the Langston & Lott firm in Booneville, Mississippi.

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