Court Rules That Private Employers May Refuse To Hire Based Upon Bankruptcy Filing

by Craig Andresen, Minneapolis, MN, Bankruptcy Attorney

July 14, 2010

Employment Discrimination After Bankruptcy

In Rea v. Federated Investors, 2010 WL 370334 (W.D.Penn. Jan. 29, 2010), a U.S. District Court held that section 525(b) of the Bankruptcy Code does not forbid a private employer from refusing to hire a job applicant solely because the job applicant filed for bankruptcy in the past.  The court stated that while section 525(b) does indeed prevent employers from discriminating against current employees based upon a bankruptcy filing, the unique wording of this section allows bankruptcy discrimination in the hiring process.

The debtor had filed his case in 2002, and received a discharge of debts in that case.  In 2009, he interviewed for the position of project manager with Federated Investors.  The debtor was informed that Federated wanted to hire him at $80,000 per year but that he had to pass a criminal background and credit check.  After a few days, the debtor was informed that the fact of his past bankruptcy was a “deal breaker” and that he would not be hired after all.  He sued, claiming that this constituted bankruptcy discrimination – something that’s against the law.  He asked for damages for lost wages and emotional distress.

The U.S. district court dismissed the debtor’s claims, observing that section 525(a) addresses governmental employers, and that section 525(b) addresses private employers.  Section 525(a) and (b) read as follows:

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled “An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,” approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, 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 or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

(b) 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, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt— (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

The court noted that section 525(a) forbids a governmental employer from denying employment based upon bankruptcy, while section 525(b) forbids a private employer from terminating employment or discriminating in employment based on bankruptcy.  The phrase “deny employment to” was found in section 525(a) but not in section 525(b).  The court found that Congress must have had a reason for omitting this phrase from section 525(b).  Accordingly, it held that private employers were allowed to discriminate in hiring based upon bankruptcy, and the debtor’s discrimination case was dismissed.

Photo credit: Sterile (Flickr)

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.

Last modified: February 21, 2013