Workers fear jolt at end of ride Merry-Go-Round's demise imperils employee severance

February 06, 1996|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

On Nov. 9, 1994, Jeff Austin, a vice president at Merry-Go-Round Enterprises Inc., outlined the company's bonus and severance plans, telling employees, "it's nice to know there is a safety net and more important, MGRE cares," according to an internal memorandum obtained by The Sun.

Yesterday, three days after the Joppa-based chain of apparel stores announced it was going out of business, questions remained about the retailer's liquidation plans, raising fear among employees that they may no longer have that safety net.

"It's just that we worked so hard," an employee said, crying. "They lied to us. It's terrible. We just cared so much about it. It wasn't just a job. We were like family."

No specifics about the liquidation or severance package were available yesterday, but company spokesman Michael W. Kempner said, "There's a real effort and a real understanding of the fear within our employee base, and the company is doing everything it can to protect our employees now and into the future. However, while you're in Chapter 11 [bankruptcy], there are many constituencies that have an impact on how decisions are made, not just management."

Among those constituencies are creditors, who have first dibs on Merry-Go-Round's assets. And among those creditors is Fidelity Investments, the nation's largest mutual fund company, which reportedly faces a loss of nearly $100 million on its Merry-Go-Round investment.

What that means, bankruptcy experts say, is that employees -- including 6,000 store workers and 630 at headquarters -- are in a tenuous situation.

"What is in the best interest of creditors is not in the best interest of employees," said Peter Chapman, a minor Merry-Go-Round creditor and president of Bankruptcy Creditors' Service Inc. in Princeton, N.J.

In an internal memo Feb. 2 -- the day Merry-Go-Round announced its liquidation -- the company made no promises about employee benefits and severance, although it had already obtained court approval of an employee retention and severance program on Oct. 25, 1994, according to court documents.

In last week's memo, the company stated that "decisions including those regarding employee benefits and payments may require discussions with the company's lenders and other creditor representatives and may require approval by the bankruptcy court."

The memo, however, added that the company "wants" to make payments to employees under the "Worker Adjustment and Retraining Notification Act." The federal labor law, also known as WARN, requires companies with at least 100 employees to give 60 days notice before going out of business. If a company fails to give such notice, labor attorneys said, employees can file claims in U.S. Bankruptcy Court to force the company to pay them for those 60 days. Or, the company can voluntarily pay employees.

For now, employees can only wait. A hearing is scheduled Thursday at 2 p.m. before U.S. Bankruptcy Court Judge E. Stephen Derby. Although the hearing is aimed at a dispute over a Merry-Go-Round store lease, some employees said they planned to be there to express their concerns and send a message to the judge.

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