Toys 'R' Us Workers Win $2 Million Settlement on Severance

(Bloomberg) -- A group of Toys “R” Us workers who lost their jobs as the company went bankrupt will get some of the estate’s remaining cash to make up for severance pay that they were denied during the court case, according to representatives for the group.

Judge Keith L. Philips of the Eastern District of Virginia awarded $2 million to the workers, who were promised severance at the outset of the bankruptcy as part of a benefits plan that was later canceled as the restructuring unraveled.

The retailer’s bankruptcy is in its final stages, and the focus is on distributing cash that was set aside for administrative claims. Those expenses typically include fees for advisers, lawyers and other parties that assist in winding down a company and they’re given high priority by the court for repayment in full.

Former workers led by Ann Marie Reinhart Smith, a 30-year Toys “R” Us employee, filed a class action claim in 2018 to the bankruptcy court to ask that their severance claims get the same priority as administrative claims, seeking a bigger sum than the court ultimately approved.

“It’s a shame they aren’t getting more, but this settlement sends a message that employees deserve a place in the front of the line of creditors when businesses fail,” Jack Raisner, a lawyer who represented Reinhart, said in a statement.

Prior Accord

Some of the workers also raised the issue outside of court, rallying support from pension funds and elected officials to demand compensation from the private equity firms that owned Toys “R” Us during its demise. KKR & Co. and Bain Capital, two of those owners, created a $20 million hardship fund in November for clerks, cashiers and warehouse staff hurt by the retailer’s liquidation.

Unpaid worker benefits often are treated as unsecured, putting them in a group with almost the lowest priority in bankruptcy. Shareholders are generally the last to be paid, and only after creditors above them in the pecking order are paid in full.

United for Respect, a non-profit group dedicated to improving working conditions in the retail industry, organized the workers who brought the class action suit and the campaign for a hardship fund.

The settlement comes after Kirkland & Ellis LLP, which represented Toys “R” Us in the bankruptcy, was awarded $56 million in fees.

“It is an important milestone for working families like mine who are so vulnerable to Wall Street’s greed,” Reinhart said about the settlement in the statement. “While it recognizes the importance of honoring severance, it points to holes in the laws and bankruptcy process that prevent us from getting paid in full. The system is rigged against us. That has to change.”

To contact the reporters on this story: Eliza Ronalds-Hannon in New York at eronaldshann@bloomberg.net;Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Nicole Bullock

©2019 Bloomberg L.P.