Toys R Us’ Mismanaged Debts Affect Laid Off Workers

Workers from Toys R Us are receiving a $2 million severance package from the company after a months-long class action lawsuit. In addition to this, the two private equity firms who took over Toys R Us in 2005 are setting aside a “financial assistance fund” for their employees.

But is any of this nearly enough? There were over 33,000 employees involved in the class action lawsuit, which brings the total out to 60 dollars per employee from the severance package, and only 600 per person from the $20 million set aside in the “financial assistance fund”.

This is due to the company filing for a Chapter II Bankruptcy, which enabled the company to view severance pay as a low priority debt. Toys R Us had over 100,000 creditors to which they owed millions, if not billions, of dollars (as it was in the case of JP Morgan Chase, to whom they owed $3 billion). It was estimated previous to the bankruptcy that workers would be entitled to, at bare minimum, $75 million collectively in severance pay.

So why did the company fall so far short of that? And is the $75 million even enough to do justice to the employees who made the company what it was for the customers who’d enjoyed it?

My theory is as follows: I don’t believe the company was blindsided by their demise, as they’d been reporting both quarterly and annual losses for 6 continuous years. And yet the company, in its structure and physical retail space design, remained the same. They repeatedly ignored the rise and fall of trends within their demographics, seemingly incapable of downsizing or reorganizing their retail space for a more enjoyable experience for the customer. The company very clearly understood that they were worth over $6 billion in assets and had what was at one point industry-defining name recognition. This enabled them to take out over $7.6 billion in debt and some very chunky bonuses for those at the top of the pyramid.

The company was doomed to fail, but by no means does that necessarily purport that the employees should pay for the poor decision-making skills of the executives, and more specifically, those at the holding companies that took over Toys R Us, and directed the company away from what the public clearly demanded it move its focus towards.  

Elsewhere, the lawyers for the class action lawsuit received over $56 million in exchange for their services. And although the $56 million would still not have been enough to properly compensate laid-off workers, it would’ve definitely provided many with a cushion currently nonexistent.

A 29 year old mother of two, who was involved in the class action lawsuit, was quoted saying as follows:  

“We employees should’ve been taken care of first. A lot of us have been there 30 years. It shows how little employees are valued... Many of us still don’t have jobs.”