·  Legal News, Analysis, & Commentary

Lawsuits & Litigation

Former Toys ‘R’ Us Employees Win $2M Settlement Over Severance Pay

— July 1, 2019

Former Toys ‘R’ Us employees recently won a settlement that will award them $2 million in severance pay.

For those who don’t know, Toys ‘R’ Us recently shut down after declaring bankruptcy, leaving many of its former workers wondering what to do. Fortunately for some of those who abruptly lost their jobs, a judge recently ruled that they’re entitled to “some of the estate’s remaining cash to make up for severance pay that they were denied during the court case.” According to representatives of the workers, “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.”

Rubber-banded rolls of hundred-dollar bills; image by Pictures of Money, via Flickr, CC BY 2.0, no changes.
Rubber-banded rolls of hundred-dollar bills; image by Pictures of Money, via Flickr, CC BY 2.0, no changes.

Since declaring bankruptcy, the focus has always been on “distributing cash that was set aside for administrative claims,” which typically included “fees for advisers, lawyers and other parties that assist in winding down a company.” Oftentimes, these fees and expenses are considered more high priority than other expenses, such as severance pay and other benefits for employees.

Not long after the retailer declared bankruptcy, though, Ann Marie Reinhart Smith, a former employee who worked at Toys ‘R’ Us for 30 years, believed it wasn’t fair that she and her fellow employees were being ignored. As a result, she led a group of former workers and filed a class action claim in the bankruptcy court and asked “that their severance claims get the same priority as administrative claims, seeking a bigger sum than the court ultimately approved.” To help put together her case, Reinhart was joined by United for Respect, an organization designed to help improve working conditions for those working in the retail industry.

When commenting on the recent settlement, Jack Raisner, one of the lawyers representing Reinhart at the other employees, said:

“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.”

Why were the former employee’s severance pay and other benefits not treated with the same attention as other expenses, though? Well, in bankruptcy cases, “unpaid worker benefits often are treated as unsecured, putting them in a group with almost the lowest priority.” It’s also important to note that the recent settlement came after Kirkland & Ellis LLP, the firm that represented Toys ‘R’ Us in the bankruptcy, received $56 million in fees.

While commenting on the situation and settlement, Reinhart said:

“It is an important milestone for working families like mine who are so vulnerable to Wall Street’s greed. 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.”


Toys ‘R’ Us Workers Win $2 Million Settlement on Severance

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

Join the conversation!