Federal law prohibits private employers from terminating the employment of or discriminating with respect to employment against an individual because the individual is or was a debtor under the Bankruptcy Code. In a recent decision of the U.S. Court of Appeals for the Fifth Circuit, the appellate court held that the anti-discrimination provisions of the federal bankruptcy code do not provide an an applicant for employment a cause of action against a private employer when the applicant is denied employment solely because of a previous bankruptcy filing. (Burnett v. Stewart Title).
The facts of Burnett are straightforward. Burnett applied for employment with Stewart Title in 2007. She was offered a job conditioned on the successful completion of a drug screening and background check. The background check revealed that, in 2006, Burnett filed a Chapter 13 bankruptcy proceeding. As a result of this bankrupcty filing, Stewart Title rescinded its conditional employment offer. Burnett sued claiming she was discriminated against in violation of the bankruptcy code. (11 U.S.C. 525). Section 525(b) provides that:
No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt–
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.
Applying canons of statutory construction, the Court of Appeals concluded that the act of hiring is not encompassed within Section 525(b)’s prohibition against "discriminating with respect to employment" and therefore, Burnett had no claim. Consequently, the Court held that "11 U.S.C. 525(b) does not prohibit private employers from denying employment to applicants based on their bankruptcy status."
You can access the full copy of the opinion here.
One caveat, the anti-discrimination provisions of the bankruptcy code do preclude a governmental employer from refusing to hire an applicant solely because of the applicant’s prior bankruptcy filings.