Employers Allowed to Refuse Employment to Individuals Who Have Filed for Bankruptcy

Shani Burnett v. Stewart Title, Inc. is a case decided on March 4, 2011 by the Fifth Circuit.  The court confirmed that private employers may refuse to hire a job candidate based on the individual’s previous bankruptcy filing.  11 U.S.C. § 525(b) “does not prohibit private employers from denying employment to applicants based on their bankruptcy status.”

In the lawsuit, Shani Burnett sued Stewart Title, Inc., alleging Stewart Title violated 11 U.S.C. § 525(b) when it did not hire her because she previously filed Chapter 13 bankruptcy in September 2006. In July 2007, Burnett applied for a job with Stewart Title and got an employment offer contingent on passing a drug test and background check. After review of the background check, Stewart Title found out Burnett filed for bankruptcy and did not offer her the job.

In her case, Burnett complained Stewart Title unlawfully discriminated against her due to her bankruptcy status. Though there is a right to equal protection under the US Constitution, a private employer can discriminate against a job applicant by denying employment based only on that individual’s status as a debtor in a bankruptcy proceeding.  11 U.S.C. § 525, gives different standards for government employers and private employers.

While § 525(a) states a “governmental unit” may not “deny employment to … a person … solely because [the person] is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act …,” the section applicable to private employers does not have the “deny employment” language.  § 525(b) explains no private employer may “discriminate with respect to employment against … an individual who is or has been a debtor … or bankrupt under the Bankruptcy Act ….”

The Fifth Circuit stated the statute must be read as a whole and § 525(a) explicitly does not allow denial of employment while § 525(b) does not. Congress’s exclusion of the words “deny employment to” from subsection (b) “was intentional and purposeful,” and thus, the “discriminate with respect to employment” language in subsection (b) does not include denial of employment to a job applicant. The Fifth Circuit concluded Congress “intentionally and purposefully drew a line prohibiting governmental units, but not private employers, from denying employment to persons based on their status as debtors in bankruptcy proceedings” and affirmed the bankruptcy and district courts’ rulings that Burnett did not state a claim upon which relief could be granted.

Contact an experienced New York bankruptcy attorney for bankruptcy questions.