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Showing 2 posts in Bankruptcy Code.

No Violation of Bankruptcy Code for Refusing to Hire Applicant due to Bankruptcy Filing

An applicant for a project manager position with an information technology employer was interviewed and offered the position, pending a background check. The background check revealed that the applicant had filed for bankruptcy in 2002, and the applicant was not hired because of that filing. The applicant sued, alleging that the employer had violated the U.S. Bankruptcy Code’s anti-discrimination provision when it decided not to hire him based on his debt history. The U.S. Court of Appeals for the Third Circuit rejected the applicant’s claim, finding that the Bankruptcy Code does not prevent a private employer from considering a bankruptcy filing in the hiring process. While the Bankruptcy Code states that a public employer may not “deny employment to” an individual based on a bankruptcy filing, it does not extend that prohibition to private employers. Rather, the Bankruptcy Code only creates liability for private employers who “terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor . . .” While this case indicates that private employers may consider an applicant’s debt history when making hiring decisions, employers must be aware of state laws that do not allow such considerations. For example, Illinois employers must now abide by the Employee Credit Privacy Act, which prohibits employers from discriminating against applicants based on their credit history.

Private Employer may Consider Bankruptcy Status in Hiring

An applicant sued her employer, alleging that it discriminated against her when it refused to hire her because of her bankruptcy status. The U.S. Court of Appeals for the Fifth Circuit dismissed the applicant’s claim, holding that Section 525(b) of the Bankruptcy Code does not prohibit private entities from engaging in discrimination in hiring on the basis of bankruptcy status. The court held that the standard set forth for private employers in Section 525(b) differs from that set out for public employers in Section 525(a) of the Bankruptcy Code. Section 525(a) provides that the government is not permitted to “deny employment to, terminate the employment of, or discriminate with respect to employment against” any individual on the basis of his or her bankruptcy status. However, Section 525(b) of the Bankruptcy Code states only that “no private employer may terminate the employment of, or discriminate with respect to employment against” any individual on the basis of his or her bankruptcy status. The court explained that Congress’ exclusion of the words ”deny employment to” in Section 525(b) for private employers was intentional and purposeful. Private employers must remember that they may consider bankruptcy status in hiring decisions, but not when terminating employees. However, public employers should be aware that considering bankruptcy status in any employment decision will impose liability on the employer.

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