Private Employers May Refuse to Hire a Person with Past Bankruptcy
By Ted Olsen
The Federal Bankruptcy Act prohibits public and private employers from engaging in various discriminatory acts against individuals because they have filed for bankruptcy. 11 U.S.C. § 525. Inexplicably, the statutes applicable to public and private employers are not identical. The law applicable to a public employer, for example, specifically provides that it "may not . . . deny employment to" one who has filed for bankruptcy. 11 U.S.C. § 525(a). This "deny employment to" language does not appear in the statute for private employers. 11 U.S.C. § 525(b). Persons claiming to have been denied hire by private employers have instead based their claims on broad 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 a discriminatory failure to hire against a private employer attempted 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 claim, ruling that Congress' omission of the "deny employment to" language in the private employer statute meant that a discriminatory failure to hire case could not be made against a private employer. This ruling was consistent with the decisions of most courts that have faced the issue.
Private businesses that decline to employ debtors should remain cautious that their practice does not have a disparate impact on groups protected by other laws. Those businesses should also verify that no applicable state laws ban this practice.
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©2011 Sherman & Howard L.L.C. March 3, 2011