Q. One of our financial managers has filed for bankruptcy, and our directors now want to terminate him because they doubt his financial judgment. They’re also worried that customers will react negatively to the news that one of our finance people is going bankrupt. Can we lawfully discharge him?
A. Under the U.S. Bankruptcy Code (11 U.S.C. § 525(b)), such a termination is illegal only if the bankruptcy filing is the sole reason for discharge.
If there were evidence that the employee has engaged in misconduct or has performed his work poorly, a discharge based at least in part on those grounds would not be unlawful.
In the situation you have described, dismissing this employee would likely result in a claim that you violated the Bankruptcy Code, because an employer cannot discharge an employee simply because the employee has filed for bankruptcy. It makes no difference that the employer has a reasonable fear that directors, fellow employees or customers may react negatively to news of his filing. There must some other reason to justify the firing.