Bankrupt Retailer’s Workers Seek Benefits from Thomas H. Lee

(Bloomberg) -- Joey Tallmadge, 52, expected to be out of work when his employer, Art Van Furniture, filed for bankruptcy. But he didn’t expect to lose his health insurance in the middle of a pandemic.

The Midwestern furniture chain originally told its employees last month that they’d be entitled to keep their coverage for 90 days as the company kept operating and started auctioning off its retail stores. Then the novel coronavirus spread and more states forced stores to shutter, turning the retailer’s slow liquidation into more of a fire sale. Workers learned their health benefits were getting cut off.

Art Van’s workers sent a letter Tuesday to the company’s private equity owner, Thomas H. Lee Partners, asking it to pay their health insurance for 90 days, and to create a fund for out-of-pocket costs. A representative for the Boston-based private equity firm declined to comment.

The employees’ trouble offers a sense of what might be coming for many struggling retailers. Stores are failing fast, leaving workers in many cases with no alternative but to lobby for compensation from owners, even as they push for broader legal and legislative protections, said Jack Raisner, a lawyer who often represents workers, including in the Art Van case.

“This is a welling grass-roots movement,” he said. In March, U.S. employment in the retail business fell by around 46,000 jobs, according to a government report this month.

‘Unimaginable Burden’

Art Van filed for bankruptcy in March, but weeks later it switched to a more accelerated liquidation. With its troubles mounting, the retailer terminated workers’ health benefits without the notice otherwise required by law. The U.S.’s Worker Adjustment and Retraining Notification Act requires employers to give 60 days’ notice before mass layoffs. Some of the workers laid off in March filed a lawsuit in Art Van’s bankruptcy court citing the violation of the terms of the act.

In a statement posted to its website, Art Van said the bankruptcy court determined the company doesn’t have enough resources to make health insurance payments. The company’s secured creditors, who are first in line to receive any proceeds from the liquidation, didn’t agree to make the payments, the company said.

Employees said in their letter that losing coverage now is “an unimaginable burden.”

The company operated 169 furniture and mattress stores when it filed for bankruptcy in March, just three years after its $612.5 million acquisition by Thomas H. Lee Partners, according to its bankruptcy filing. As part of the transaction, the retailer sold real estate and rented the space back from the new owners, putting additional obligations on the company as it was struggling with new competition.

Founded by Art Van Elslander in 1959, the retailer faced other challenges by the time it filed for bankruptcy, including higher tariffs and management upheaval.

‘Forever Job’

Employees have grown increasingly vocal about how they get hurt by retail bankruptcies and liquidations after former staffers at Toys “R” Us Inc. organized to demand severance pay that had been promised to them toward the beginning of the retailer’s bankruptcy. The workers’ group United for Respect caught the attention and support of prominent lawmakers including former presidential candidates and senators Elizabeth Warren and Cory Booker, and successfully pushed for the creation of a hardship fund for former Toys “R” Us workers.

A promise to save jobs at Sears Holdings Corp. helped Edward Lampert secure ownership of the bankrupt retailer after Sears initially rejected his going-concern bid in favor of buyers who would have liquidated the chain.

Tallmadge, who lives in Clinton Township, Michigan, worked in furniture finishing at Art Van from 1991 through 2003, and again starting in 2017, when the company asked him to return under its new ownership. Though he’d run his own business and switched careers in the interim, he was eager to go back, citing the strong community and satisfaction from his work upholstering and refinishing furniture and training colleagues.

When he was rehired, “I thought that would be my forever job,” Tallmadge said. The sudden cessation of his health coverage has created problems. Tallmadge, who had leg and partial foot amputations after work accidents, had visits planned with a prosthetic and orthopedic specialists as part of his recovery; all have now been put on hold. Tallmadge is backed by United for Respect.

“It hasn’t sunk in yet because it’s unimaginable that this would happen to us,” Tallmadge said.

©2020 Bloomberg L.P.

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