How Bankruptcy May Impact Your Client's Current and Future Employment Prospects
Governmental vs. Nongovernmental Discrimination
All governmental entities (federal, state, local) are prohibited from discriminating against a person solely because the person filed for bankruptcy (11 U.S.C. sec. 525(a)). The prohibited actions include denying a person a job or firing an employee.
Private employers may not fire or otherwise discriminate against an employee solely because the employee filed for bankruptcy (11 U.S.C. sec. 525(b)).
Refusing To Hire
While governmental employers are expressly prohibited from denying someone a job because the person filed for bankruptcy, there is no similar express prohibition regarding private employers under the bankruptcy code. However, most courts appear to find that private employers may refuse to hire a person because of a prior bankruptcy.
An example of such a finding can be found in a recent case: Rea v. Federated Investors (W.D. Penn. Jan. 29, 2010). The U.S. District Court in Pennsylvania ruled that Section 525(b) does not prohibit a private employer from refusing to hire a job applicant solely because the job applicant had previously filed for bankruptcy. In this case, the job applicant had filed for bankruptcy seven years before. He was informed by the potential employer that he wouldn't be hired because of his past bankruptcy.
The Court, in reaching its decision, focused on the unique wording of Section 525. It commented on the fact that while the phrase "deny employment to" was found in Section 525(a) regarding governmental employers, it was not present in Section 525(b). The Court concluded that Congress had a reason for omitting the phrase: "... Congress clearly opted to exclude it."
The trend appears to be that employment discrimination against job applicants who have filed for bankruptcy will continue unless Congress adds "deny employment to" or some similar phrase to Section 525(b).
Contemplating Bankruptcy
A recent decision dealt with the unique situation of a private employer firing an employee because the employee was planning to file for bankruptcy. In Robinette v. WESTconsin Credit Union (W.D. Wis. Feb. 25, 2010), the employer argued that the prohibition against firing an employee only applied after a bankruptcy was filed, not when an employee was thinking about filing for bankruptcy.
The Court disagreed, ruling that a preemptive strike by an employer was prohibited as long as the employee did in fact subsequently file for bankruptcy. The Court reasoned that interpreting Section 525(b) as the employer did would result in applying different consequences for the same discriminatory conduct. The employer could fire or demote an employee as long as it was done before the employee filed for bankruptcy: "Reading sec. 525(b) to restrict its protection to those who run the race to the courthouse would frustrate the statute's clear purpose of providing debtors a fresh start."
An employee must actually follow through and file bankruptcy. An employee must also still prove that the intent to file bankruptcy was the sole cause for the termination.
Proving Bankruptcy As The Sole Reason For Termination
While firing an employee because of a bankruptcy is prohibited by both governmental and private employers, proving that the bankruptcy was the sole reason for the firing can be difficult.
In Banner v. ABF Freight System, Inc. (N.D. Tex. Dec. 30, 2009), the employee worked as a sales representative. All employees were required to qualify for and maintain an American Express corporate card in order to pay for customer entertainment and travel.
When the employee filed for bankruptcy, her American Express card was canceled. A subsequent charge on the card for a client's lunch was declined, and the employee was fired. She was informed by the employer that she was being terminated because her bankruptcy filing caused her American Express card to be canceled. Interestingly, in the past the company made exceptions to its card policy for other employees who had filed for bankruptcy.
However, the Court found that the employee failed to prove that she had been fired solely because of her bankruptcy filing. This was due to the fact that the employer also introduced evidence of the employee's poor job performance, claiming that was another reason she was fired. The Court agreed, finding that the fact that the employer refused to make an exception to its card policy for the employee was due to her poor job performance.
If you have a client who is concerned about employment discrimination, or not being hired because of a bankruptcy, you need to review the client's rights and options in light of these current cases. You also need to research the court decisions in the state where you practice to see if they agree or disagree with these decisions. If a client believes that he or she has been a victim of employment discrimination, you need to carefully review the facts of the case to determine if the client has a viable employment discrimination claim.
