Dive Brief:
- Former Toys R Us employees are set to receive small cash payments as part of an agreement to settle severance claims workers brought against the entity winding down the defunct toy retailer.
- A judge on Thursday approved a $2 million settlement agreement between former employees and Wayne Services Legacy, the wind-down entity. Under the agreement, former part-time Toys R Us workers are supposed to receive $34 each and full-time workers $60.
- The original claims brought by a former employee last year totaled more than $75 million. The settlement is on top of a $20 million hardship fund set up in 2018 by Toys R Us' former private equity owners.
Dive Insight:
The $2 million agreement is largely a symbolic victory for the more than 30,000 workers laid off in the liquidation of Toys R Us, as the settlement registers their interests in the court system and bankruptcy process.
Just before the retailer filed for bankruptcy it reportedly paid out $8.2 million to a handful of executives. In the years before it liquidated it also allegedly paid more than $100 million in fees to its private equity sponsors for "advisory services." In all, Bloomberg reported in 2018 that Bain Capital, KKR and Vornado Realty Trust made $470 million off Toys R Us in fees and interest payments. (KKR, for its part, has said previously that it "lost many millions of dollars" on its Toys R Us investment and did not want the company to liquidate.)
According to court documents, Toys R Us had in place a severance program that went back to 2002. But it was axed in February 2018 as the retailer prepared for liquidation. (Employees would not find out officially until mid-March that the company was going out of business, even as internal figures made clear in early January, if not sooner, that Toys R Us' abysmal holiday season may have put it at risk of losing its bankruptcy financing.)
Former employees have asserted that money exited the retailer as it steadily declined under budget cuts, strategy flubs and cutthroat competition by better-capitalized mass merchants. As Toys R Us buckled under the debt load leftover from its leveraged buyout, employees said they often bore the brunt.
One of those employees, Ann Marie Reinhart Smith, who brought the class action on behalf of employees to recover severance for her peers in court, told Retail Dive last summer that as Toys R Us reduced staff over the years, workloads became unmanageable, morale slumped and stores suffered as a result. "The amount of work was — you couldn't do it," she said, adding that the company was "asking people to do work that physically couldn't be done."
In a statement Thursday emailed to Retail Dive by the nonprofit organization United for Respect, Reinhart Smith said that the settlement over severance is "an important milestone" but also added that "it points to holes in the laws and bankruptcy process that prevent us from getting paid in full." Jack Raisner, an attorney with Outten & Golden LLP representing Reinhart Smith, said in a statement that the "settlement sends a message that employees deserve a place in the front of the line of creditors when businesses fail."
