Q. I recently discovered that an employee who handles company money has filed for bankruptcy. My concern is that if he was unable to handle his own finances, he may be untrustworthy with company finances. Can I discharge this employee?
A. Under federal law, the fact that an individual has filed for bankruptcy is not a legal reason for rejecting an applicant or for firing a current employee.
11 U.S. Code section 525 provides: “No private employer may terminate the employment of, or discrimination 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” was or is a debtor or bankrupt.
In other words, bankruptcy cannot be the “but for” reason for an employee’s discharge (i.e., but for the bankruptcy, the worker would not have been discharged).
Thus, an employer that obtains information indicating that an applicant or current employee has filed for bankruptcy cannot discharge him or her because of that.
However, an employer may still discharge an at-will employee who has filed for bankruptcy based on facts independent of the bankruptcy filing.
If you need to discharge an employee who filed for bankruptcy, it would be wise to take precautions to ensure that clear documentation exists establishing the reason for the employee’s discharge.