Debtors Need Not Apply to Help Wanted Ads?

There are many laws prohibiting employers from discriminating against potential workers in the hiring process. May employers refuse to hire job applicants who have filed bankruptcy? For private employers, the answer may be “yes”.

Bankruptcy Code section 525(b) states a private employer (not a government entity) may not “terminate the employment of, or discriminate with respect to employment against” a person who has been or is in bankruptcy.

Courts interpreting this provision have ruled the section does not forbid a private employer from not hiring an individual based on a pending or prior bankruptcy filing. The Eleventh Circuit Court of Appeals, Myers v. TooJay’s Management Corp., affirmed the lower court’s decision to enter judgment against Eric Myers in favor of TooJay’s when TooJay’s rescinded Myers’ employment offer based partially on a credit check showing Myers’ prior bankruptcy. In 2008, Myers filed for Chapter 7 bankruptcy relief and got a discharge. After the discharge, he applied for a restaurant job at TooJay’s and obtained a conditional offer of employment. As part of the application process, Myers signed a release letting the restaurant conduct a background check, including a credit history evaluation. Myers filed suit, alleging TooJay’s discriminated against him in violation of Bankruptcy Code Section 525(b).

The Eleventh Circuit compared the language of Section 525(b) to Bankruptcy Code section 525(a), which says a governmental unit may not “deny employment to, terminate the employment of, or discriminate with respect to employment against” a person has been or is in bankruptcy. The language of Section 525(b), pertaining to private employers, does not contain the phrase “deny employment to.” The Eleventh Circuit decided Section 525(b) does not stop discrimination by private employers against potential job candidates based on a pending or previous bankruptcy filing.

The Eleventh Circuit’s decision is supported by published decisions in the Third and Fifth Circuits, and it appears in Alabama, Delaware, Florida, Georgia, Louisiana, Mississippi, New Jersey, Pennsylvania, and Texas the law is settled that private employers may refuse to employ candidates based upon pending and previous bankruptcy filings. In the remaining states, the trend in the lower courts outside of the Third, Fifth, and Eleventh Circuits appears to follow Myers.

Section 525(a) expressly does not allow a government employer from refusing to hire someone based on a prior or current bankruptcy filing, and Section 525(b) prohibits all employers (private and government) from taking adverse action against current employees based on a bankruptcy filing.

To learn more about bankruptcy discrimination, contact an experienced New York bankruptcy lawyer.