JOB DISCRIMINATION NOT ALLOWED AS A RESULT OF BANKRUPTCY

A governmental unit may not deny, revoke, suspend or refuse to renew a license, deny employment to, terminate the employment of, or discriminate with respect to employment against a person who has sought protection under the Bankruptcy Act (11 U.S.C. Sec. 525(a)).

Private employers may not terminate the employment of or discriminate with respect to employment against a person who has sought protection under the Bankruptcy Act (11 U.S.C. Sec. 525(b)).

Discrimination Must Be Based Solely on Bankruptcy Filing

The anti-discrimination statute under the Bankruptcy Act requires that the discrimination be based solely on the fact that person discriminated against is or has been a debtor under the Act. White v. Kentuckiana Livestock Mkt., Inc., 397 F.3d 420 (6th Cir. 2005) (Court concluding that Debtor must show that their termination of employment was based solely on the filing of bankruptcy).

So, if the employer bases the termination on factors other than a bankruptcy filing, the employee debtor does not have any remedy against the employer. In Re Banner, 422 B.R. 608, 612 (Bankr. N.D. Tex. 2009).

Private Employer Refusal to Hire

A public or governmental body cannot refuse to hire someone based solely on the fact that the individual has sought protection under the Bankruptcy Act. Section 525 reads differently for a private employer and does not expressly prohibit the denial of employment, specifically omitting the phrase “deny employment to” when listing the prohibitions of private employers. 

At least one Texas court has concluded that Congress acted intentionally and purposely in refusing to use the same language with private employers as with governmental bodies.

Burnett v. Stewart Title, Inc., 431 B.R. 894, 897-898 (S.D. Tex. 2010).  The court concluded that the private employer did not violate the statute when it denied employment to a prospective employee based on a previous bankruptcy filing.  Id. at 901.

The court in Burnett refused to follow the analysis in Leary v. Warnaco, 251 B.R. 656 (S.D.N.Y. 2000), where the court concluded that the phrase “with respect to employment” in Section 525(b) precluded discrimination against prospective private-sector employees.

The majority view of the courts has been that Congress in Section 525(a) specifically precluded public employers from denying employment to a prospective employee based solely on a previous bankruptcy filing, but specifically excluded the phrase “deny employment” in Section 525(b).

The Third Circuit in Rea v. Federated Investors, 627 F.3d 937 (3rd Cir. 2010) concluded that a private employee does not have a claim against a private employer based on the employer refusing to hire because the employee has previously filed for bankruptcy.  The U.S. Supreme Court denied the writ of certiorari in Rea on October 3, 2011.

Summary

While governmental bodies may not deny employment to prospective employees based solely on a previous bankruptcy filing, it appears Congress did not intend to provide the same protection to private-sector employees.  Any discrimination based on a bankruptcy filing must be the “sole” reason for the employer treating an employee in a disparate manner.

So, if the employer articulates a reason for treating the employee in a discriminatory manner, whether it be a private or public employer, which is based on something other than a bankruptcy filing, then there is no violation of the statute.

As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation.  Bankruptcy, as many other areas of the law, can be very case or fact specific.  I pride myself on giving you the answers to your questions that are based on your individual circumstances.