Toys R Us bankruptcy: Retailer’s lawyers get $56 million, while laid-off workers get $2 million

A year after Toys R Us closed, tens of thousands of laid-off workers are getting a portion of the severance promised and then rescinded as the retailer unraveled. 

While workers are getting $2 million, a fraction of the $56 million in fees awarded to Kirkland & Ellis, the law firm representing Toys R Us, the decision is still a victory of sorts. That’s because pensions and severance payments are labeled as unsecured debt when a company files Chapter 11, making them low priority and less likely to be paid

A bankruptcy judge on Thursday approved the settlement to a class-action lawsuit filed on behalf of 33,000 former Toys R Us workers, a figure that means each will receive about $60. 

“That’ll pay my phone bill,” said Michelle Perez, a resident of Vancouver, Washington, who worked as a supervisor at a Toys R Us store in Portland, Oregon, for four years until June 30, 2018. “This has really shown how the bankruptcy system is broken. It’s taken us a year and we’re making pennies on the dollar,” she added.

“We feel employees should be taken care of first, a lot of employees had been there 30 years,” said Perez, a 29-year-old mother of two, ages 6 and 4. “It shows how little employees are valued. Many of us still don’t have jobs.”

Back of the line

Out of work for the past year, Perez said she is relying on family, friends and public assistance to get by. “It’s terrifying. I was working full time, and have been looking since then,” she said. In hunting for another job, Perez is trying to avoid retail, pointing to other bankruptcies in the industry. “Look at Shopko, Kmart and Sears, the same thing is happening to them that happened to us.” 

Judge Keith Philips of the Eastern District of Virginia awarded the $2 million to workers who had been told they would receive severance at the start of the bankruptcy as part of a benefit package that was then voided during the legal proceedings. 

A class-action claim made to the court in 2018 on behalf of Ann Marie Reinhart Smith, a 30-year Toys R Us employee, had requested that severance be treated on par with administrative claims.  

“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, and that is important to people who work in retail and their families,” Jack Raisner, an attorney with Outten & Golden who represented Reinhart Smith, said in a statement.

In the wake of protests by workers organized by the non-profit group United for Respect, two Toys R Us owners — KKR and Bain Capital — in November set aside $20 million for workers impacted by the company’s liquidation.

Advocates had earlier estimated workers were entitled to $75 million in severance after the retailer closed its more than 700 U.S. stores last year.

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