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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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