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Bankruptcy can lead to dismissal of discrimination suits

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in Discrimination and Harassment,Firing,HR Management,Human Resources

Today, companies commonly emerge stronger and more competitive after filing for bankruptcy. An additional, unintended benefit may have a substantial impact on the HR office: Employees who file discrimination lawsuits may find their cases thrown out — if the alleged discrimination occurred before the bankruptcy court discharged the bankruptcy and they didn’t file their claim with the bankruptcy court earlier.

As a practical matter, an HR professional working for a company that has recently undergone bankruptcy should carefully analyze any discrimination claim received from the EEOC or the Pennsylvania Human Relations Commission. HR must determine the date the alleged discriminatory act occurred and compare that with the date of discharge. You just may pull a “get out of jail free” card from the pile.

Recent case: Simone Freeman worked for Kmart for 19 years before she quit. She claimed she had no choice: When she complained about a boss who constantly harassed her, HR simply advised him to “watch” his language. After the warning, Freeman claimed the boss punished her.

But Freeman filed her lawsuit after Kmart began bankruptcy proceedings and saw its obligation effectively discharged. The federal court hearing Freeman’s case agreed that if her “constructive discharge” — her voluntary resignation — occurred before Kmart emerged from bankruptcy, she could lose her case. It dismissed the case and told her she’d have to take it up with the bankruptcy court. (Freeman v. Kmart, No. 06-2412, ED PA, 2007)

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