Toys ‘R’ Us Owners to Disperse $20 Million In Severance To Employees

A few months ago, Toys R Us announced money troubles which could mean leaving employees without jobs. And since that announcement, those workers have been campaigning for some severance.

It turns out that they may just be getting what they wanted.

Two private equity firms have agreed to set aside $20 million to establish a financial assistance fund for these workers. The two private equity firms are Bain Capital and KKR; they are two-thirds of the companies who took Toys ‘R’ Us over after a leveraged buyout worth $6.6 billion, back in 2005.  On Tuesday, these two companies said they will equally contribute $10 million for the fund to assist the employees who have lost their jobs when the retailer closed 735 stores in the US this year.

The third owner in the takeover effort is Vornado, but they have not opted to join the fund (and have not been available for comment).

You may recall that Toys ‘R’ Us filed for bankruptcy roughly one year ago. Fortunately, they wanted to stay in business, even amidst this very troubled retail market with a growing online sector.  In March, though, the retail toy store chain’s creditors forced them to officially go out of business, leaving 31,000 more employees without a severance payment.

It should be noted that some of the company’s top executives managed to receive bonuses as part of the whole bankruptcy process. United States bankruptcy laws set limits for severance payments that a company can make to laid-off employees with priority given, of course, to repaying the bankrupt company’s creditors. Unfortunately for the laid off employees, if they had been let go before the bankruptcy filing they would have all been eligible to as much as one week of pay for every year they worked for the company.

Marilyn Muniz, for example, worked at a New York Toys ‘R’ Us for almost 20 years!  This means the fund will help to recoup up to 20 weeks of pay that she would have been eligible for had the bankruptcy been handled differently. The fund hired attorney Kenneth Feinberg to manage the case and develop a formula for determining who gets the money and how much they should get.  As such, he proposed that severance checks should go to those who worked at Toys ‘R’ Us for at least one year and who earned an annual income between $5,000 and $111,000.

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