Bankruptcy May Deter Employment

In Rea v. Federated Investors, 627 F.3d 937 (3d Cir. 2010), the court made clear the differences between public and private employers’ abilities to consider bankruptcy as a factor in the hiring process. The case makes people think twice about bankruptcy because bankruptcy may hurt someone’s employment opportunities, not just the credit score.

The Federal Bankruptcy Act does not allow public and private employers to engage in discriminatory acts against people because they have filed for bankruptcy. 11 U.S.C. § 525. The statutes applicable to public and private employers are not the same.

For the public employer, like a state government, the Bankruptcy Code provides that the public employer “may not . . . deny employment to” one who has filed for bankruptcy. 11 U.S.C. § 525(a). This “deny employment to” language does not show up in the statute for private employers. 11 U.S.C. § 525(b).

Persons claiming to have been denied employment by private employers, every company or entity, not run by a federal or state government, have to base their claims on language unique to the private employer statute, “No private employer may . . . discriminate with respect to employment against . . .” a debtor. Id.

In Rea v. Federated Investors, 627 F.3d 937 (3d Cir. 2010), a plaintiff claiming discrimination from not being employed by a private employer tried to base his claim on the “discriminate with respect to employment against” language of Section 525(b).

The Third Circuit Court of Appeals affirmed the dismissal of the plaintiff’s claim, ruling Congress’ omission of the “deny employment to” language in the private employer statute meant a discriminatory failure to hire could not be made against a private employer. The reasoning is that if Congress wanted the language to be the same, it would have written it the same. This ruling was consistent with decisions of most courts that have gone over the issue.

Private businesses that do not hire someone who filed bankruptcy may not have to pay damages as long as they are cautious their employment practice in not hiring former bankruptcy debtors does not have a disparate impact on groups protected by other laws, and verify no applicable state laws ban this practice of not hiring people who have filed bankruptcy before. Sometimes when applying the same practice to everyone could end up discriminating people based on race, national origin, or other categories protected by discrimination laws.