With the economy and unemployment figures as they are today, many businesses find they have many more applicants for a job opening. This means employers may look for more ways to filter the resumes before the final rounds of interviews. Should a personal bankruptcy filing in the applicant’s past be considered in employment decisions? Many employers would say yes, it is a sign of how the applicant cares for their personal finances and, therefore, a sign of how the applicant would care for the employer’s finances and property. Obviously, this analysis is not accurate for all (maybe even most) applicants, but in an employers’ market it may be a way to winnow down the resumes with freely available public information.
The question is whether or not this practice is legal. Section 525 of the Bankruptcy Code provides the following (applicable to private, non-government employers):
(b) 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.
A fair reading of the plain language of this section may lead a reasonable person to conclude that discrimination in the hiring process is prohibited. In a recent case, the Fifth Circuit Court of Appeals reached a different conclusion and held that discrimination in the hiring process was not prohibited by Section 525(b).
In Burnett v. Stewart Title, Inc., No. 10-20250, 2011 WL 754152 (5th Cir. March 4, 2011) (click here for .pdf of opinion) the issue was whether §525(b) created a private cause of action for a debtor who was denied employment by a private employer.
The Court contrasted the language of §525(a), applicable to government units:
… a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act...
(emphasis added). The Court noted that Congress included specific language about denying employment in subsection (a), applicable to public employers, but omitted the language in subsection (b), applicable to private employers. Under the rules of statutory construction, it is presumed that Congress "acted intentionally and and purposefully in the disparate inclusion or exclusion" of specific language, and statutes are to be read as a whole. In short, had Congress wanted to include the denial of employment in §525(b), which was enacted several years after subsection (a), they knew very well how to so. We have to assume the omission was intentional.
Whether one agrees or disagrees with the principal, the rather short and straightforward opinion of the Fifth Circuit is based on straightforward rules of statutory construction. Therefore, employers in the Fifth Circuit (Texas, Louisiana, Mississippi) (Georgia was in the 5th Cir. until 1981) apparently are free to discriminate against applicants based on a prior bankruptcy filing of the applicant or a person associated with the applicant (such as a spouse).
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.