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Moving worker severance to front line in corporate bankruptcies

A protest that began with Toys R Us workers left empty-handed in the retailer's bankruptcy is now being heard on Capitol Hill and the 2020 campaign trail. 

Rep. Tim Ryan, D-Ohio, plans to reintroduce legislation that would classify worker claims in bankruptcy as administrative costs, putting them on par with the investment bankers, lawyers and consultants who get paid in full through a bankruptcy proceeding, a spokesperson for the lawmaker confirmed in an email to CBS. 

As things stand, any pension and severance payments built over the years by workers are labeled as unsecured debt when a company files Chapter 11, leaving workers claims low priority and less likely to be paid.

Ryan told Bloomberg News the plight of government workers during the 35-day shutdown showed the need for his bill. "It laid bare that workers who are perceived to have pretty solid jobs could not miss one paycheck," the lawmaker told the news service. "They were at the food pantries."

As Toys R Us closes its doors for good, a look back at its legacy

Missed paychecks are likely to be especially acute among retail workers. Employment consulting firm Challenger Gray & Christmas estimates 100,000 workers lost their jobs in 2018 due to the demise of Toys R Us and other retailers. 

Those job losses are likely to continue: Moody's Investors Service recently predicted more retail chains would tumble this year, and listed J.Crew, J.C. Penney, Neiman Marcus, PetSmart and Pier 1 as among those swimming in debt

As Toys R Us closed the last of its stores in June last year, a campaign demanding severance for the 33,000 workers losing their jobs was already well underway, drawing support from politicians including presidential candidates Elizabeth Warren, Bernie Sanders and Tulsi Gabbard. Alexandria Ocasio-Cortez also weighed in, releasing a video featuring former Toys R Us workers on the first Black Friday since losing their jobs.

The long-shot effort led to a partial victory: KKR and Bain Capital, two private-equity firms with stakes in Toys R Us, set aside $20 million for workers, who advocates said would have received $75 million in severance under the retailer's pre-bankruptcy policies.

The movement, since taken up by employees at Sears, had Warren in January calling out billionaire Eddie Lampert's successful bid for bankrupt Sears, suggesting his "history of slashing jobs" didn't bode well for the roughly 45,000 people still employed by the retailer. 

Lampert ultimately spun his proposal as the only one that would save jobs, as it prevented an outright liquidation of the iconic retailer's remaining stores.