A Nebraska bankruptcy judge has approved a $3.018 million severance settlement for almost 4,000 Shopko employees who were laid off when the chain of 351 stores declared bankruptcy last year.
The plaintiffs are former Shopko employees, who organized with United for Respect to file a class action lawsuit, in hopes of regaining at least some of the severance they were all promised. The settlement will cover all the severance owed the employees who were part of the suit, less any legal fees that will be deducted from it.
Shopko collapsed last year with $1 billion-some in debts, stemming from a $1.1 billion leveraged buyout in 2005 by private equity firm Sun Capital Partners.
According to a media release from United for Respect, when Sun Capital purchased the stores, they sold the locations to Spirit Finance Corp., a real estate investment trust, which then leased the buildings and land back to Shopko. This added a large amount of debt to the chain’s balance sheet, while stripping it of assets, setting the stage for its ultimate bankruptcy.
Between 2007 and 2015, Shopko was forced to pay out most of its profits to Sun Capital, in the amount of $250 million in dividends and management fees. This starved Shopko of capital for the investments it needed to remain competitive, at a time when the retailer was already near insolvency.
Shopko filed for Chapter 11 on Jan. 16, 2019, eventually leaving 14,000 people unemployed. Last year in March, the company announced it would close all remaining stores by June.
Protesters gathered this year in Wisconsin to mark the anniversary of Shopko’s demise, and U.S. Sen. Tammy Baldwin of Wisconsin gathered with other elected officials for a town hall discussing the need to curtail these types of private equity deals which strip companies of their assets and rob them of future profits, leaving them with little but debts, and ultimately leading to the destruction of both jobs and communities.
The settlement approved by the Nebraska judge excluded 2,700 employees referred to as phase seven workers, who were all part of the last group of employees to work at Shopko during its liquidation process. At the time, the company sent a memo to employees promising severance pay as an incentive to keep them working through the liquidation process, according to various media reports at the time.
In a letter sent to Sun Capital, the excluded workers urged the company to honor its commitment.
“As you know, Shopko had a severance policy in place for years prior to the bankruptcy. We were counting on that severance to support us in the event we were laid off,” the letter reads in part. “But that severance policy was terminated shortly before Shopko announced it was liquidating. ...We are calling on Sun Capital to ensure that every Shopko employee in phase seven and who worked at corporate receives a severance payment. We worked hard to make Shopko a beloved brand. Sun Capital should show us the respect we have earned.”
An email has been sent to Sun Capital seeking comment about the settlement and the exclusion of phase seven workers. This story will be updated if and when any comments are received from the company.