The U.S. Bankruptcy Code says it's illegal for private companies to fire employees, or refuse to hire applicants, solely because they've filed for bankruptcy. But what about workers who simply say that they plan to file for bankruptcy? Can they be fired? In the first decision on the subject, a federal appeals court has said "yes."
Here's what happened: When Norman Majewski was injured, he racked up a $10,000 hospital bill. Shortly after he recovered, he started working at that same hospital. As you might expect, administrators eventually asked him how he was going to pay the outstanding bill. Majewski told the hospital he planned to file for bankruptcy. With that, the hospital fired him. After he formally filed a bankruptcy petition, Majewski filed a lawsuit against the hospital, claiming bankruptcy bias.
A federal appeals court tossed out his case. Reason: Employees aren't entitled to the law's protections, including job security and an automatic stay of litigation, unless they've filed a bankruptcy petition. (Leonard v. St. Rose Dominican Hosp., No. 01-15544, 9th Cir., 2002)
Advice: Say an employee who owes your company a large amount of money tells you he's about to file for bankruptcy, leaving you holding the bag. You can fire him, but only if you do so before he files.
This may be your legal right but it's probably not the smartest move. Reason: You'll only antagonize the person by firing him, meaning you may never see a dime of the money owed. If he's a good employee, refer him to credit counseling and try to set up a payment plan.
Also, this is the first ruling of its kind, and other courts may be more sympathetic to workers in financial trouble, especially in the current economy.