In tough economic times, people who lose their jobs often have to file for bankruptcy. But some employers frown on bankruptcy and don’t want to hire someone who can’t pay his or her bills.
Now the 5th Circuit Court of Appeals has ruled that a private employer is free to turn down an applicant because he or she filed for bankruptcy.
Recent case: Shani Burnett applied for a job with Stewart Title and was offered a position contingent on passing a drug screening and background check. That check revealed that Burnett had filed for bankruptcy. The company rescinded the job offer.
Burnett sued, alleging that the federal Bankruptcy Code forbids refusing to hire someone based on bankruptcy.
But the 5th Circuit Court of Appeals disagreed. It said the law made it illegal for government agencies not to hire bankrupt people. However, it doesn’t apply to the private sector. (Burnett v. Stewart Title, No. 10-20250, 5th Cir., 2011)
Caution: The Bankruptcy Code may allow a no-hire rule for private employers, but that doesn’t mean you can fire or otherwise punish current employees for filing a bankruptcy petition. The law prohibits all employers from firing employees based on bankruptcy status.
Final note: The EEOC is actively pursuing whether using credit scores to bar employment may be race or other discrimination. Expect more litigation on this issue in the next few years.