Employers can refuse to hire bankruptcy filers

January 3, 2011
By Eric B. Meyer on January 3, 2011 5:00 AM | | Comments

Confession: I find bankruptcy VERY boring. And I loathe it. I'm a labor and employment attorney. When partners approach my door with bankruptcy assignments, I pick up the phone and pretend to yell at opposing counsel. So far I'm batting 1000.

But when I learned that the Third Circuit in Rea v. Federated Investors ruled that a private employer may refuse employment to a job applicant who has ever filed for bankruptcy, I mustered up the will power for this blog post.*Checks ESPN.com* Consider it my 2011 bankruptcy contribution.

I'll break down the court's ruling after the jump.

Dean Rea filed for bankruptcy in 2002 and his debts were discharged in 2003. In 2009, Rea applied for employment with Federated through a placement firm. Although it appeared after Federated interviewed him that Rea would be hired by Federated, the placement firm later informed Rea that Federated had refused to hire him because of his bankruptcy.

How can they get away with this?

Easy. Section 525(a) of the Bankruptcy Code expressly prohibits governments from discriminating against bankruptcy filers. Section 525(b) does not.

As the Supreme Court stated in Russello v. United States, 464 U.S. 16, 23 (1983), "[w]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposefully in the disparate inclusion or exclusion."

There you have it. Bankruptcy-hater employers rejoice! However, just because employers can single out job applicants based on prior bankruptcy filings doesn't mean they should. Although not discussed in the Third Circuit opinion, if failing to consider bankruptcy filers for employment causes a disparate impact on a protected class, then the employer is inviting a series of federal lawsuits. So, consider whether bankruptcy filing, especially one that is six years old, makes for good hiring criteria.

* * *
UPDATE: Three of my Dilworth Paxson colleagues, Anne Marie P. Kelly, Marjorie Obod, and Ethan Dennis have combined on a more detailed look at this very important decision. You can read their article here.