Another Appeals Court Approves Bankruptcy Hiring Discrimination by Private Employers

18 May Another Appeals Court Approves Bankruptcy Hiring Discrimination by Private Employers

Eric Myers of North Carolina filed for bankruptcy in the hopes of a better financial life. What he got was a slap in the face and lack of employment prospects that would help him fulfill that dream.

Eric Myers filed a Chapter 7 bankruptcy in North Carolina in 2008. Shortly after he received a discharge of his debts, while a shift manager at Starbucks, he applied for employment as a manager at TooJay’s Restaurant. He interviewed with TooJay’s and was told the position paid $55,000 per year with health insurance and other benefits such as a bonus plan. A two day on the job evaluation was scheduled, for which the debtor was paid $100 per day, less than half the pay of the job’s regular salary.

Two days after completing the two day on the job evaluation, the debtor gave his two weeks notice to Starbucks. Later the same day, he was informed by TooJay’s that he would not be offered the position because TooJay’s had discovered he had filed bankruptcy. He wrote a letter to TooJay’s CEO, protesting to no avail. He was later rehired by Starbucks, but at reduced hours.

Myers sued TooJay’s, claiming he had actually been hired for the job and then terminated because of his bankruptcy filing. He also claimedthat in any event, TooJay’s was prohibited from refusing to hire him based solely upon bankruptcy.

The federal Eleventh Circuit Court of Appeals ruled in Myers v. TooJay’s Management Corp., No. 10-10774 (11th Cir. May 17, 2011), that a private employer can refuse to hire a person based solely upon the fact that he or she filed for bankruptcy.As this is the third federal appeals court ruling of its kind, this decisionmarks a clear trend in the case law allowing such discrimination. These appeals court rulings were all handed down in 2010 and 2011, and both bankruptcy and employment lawyers are sure to begin advising their clients accordingly.


The Eleventh Circuit noted that it was following Third Circuit’s decision in Rea v. Federated Investors, 627 F.3d 937 (3d Cir. 2010), and the Fifth Circuit’s decsion in In re Burnett, 2011 WL 754152 (5th Cir. Mar. 4, 2011).

The courts were interpreting the bankruptcy code’s “nondiscrimination” provision, 11 U.S.C. section 525.In relevant part,section 525(a)reads:

[A] governmental unit may not … deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title…. [emphasis added]

In relevant part, section 525(b) reads:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title….

The appeals court noted that the obvious difference was that section 525(a), which applies to government employers, prohibits them from denying employment to persons having filed bankruptcy, while section 525(b), which applies to private employers, forbids only termination of or discrimination in employment,because section 525(b) is missing the proscription against denying employment.

According to the court, Congress must have acted intentionally in omitting the phrase concerning denial of employment from section 525(b). It noted that section 525(b) had been enacted seven years after the enactment of section 525(a). “Congress had section 525(a) in front of it when it enacted section 525(b),” said the court. “It used the same language for section 525(b) that it had in section 525(a) except it left out ‘deny employment to’ in section 525(b). We presume that Congress did so for a reason.”

The district court jury found that the two day evaluation did not constitute being hired by TooJay’s. The districtcourt also ruled that section 525(b) allowed a private employer to refuse to hire the debtor based upon bankruptcy. Accordingly, it denied both the debtor’s claims.

The upholding of this verdict on appeal amounts to a clear stamp of approval by the federal appeals courts allowing bankruptcy hiring discrimination by private employers.

Image credit: Zaprittsky/Flickr

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Craig Andresen is a Minnesota bankruptcy attorney who represents both consumers and small business owners in chapter 7 and chapter 13 cases. With thirty years experience, Mr. Andresen is a frequent speaker on the topics of stopping mortgage foreclosures, and stripping off second mortgages in chapter 13. His office is located in Bloomington just across the street from the Mall of America. Call his office at (952) 831-1995 for a free consultation about protecting your rights using bankruptcy.

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