• LinkedIn
  • YouTube
  • Twitter
  • Facebook
  • Google+

Applicant filed for bankruptcy: Can you refuse to hire him?

Get PDF file

by on
in Discrimination and Harassment,Employment Background Check,Employment Law,Firing,Hiring,Human Resources,Leaders & Managers,Management Training

by Mindy Chapman, Esq.

Have you ever thought of not hiring an applicant because he or she had previously declared bankruptcy? Maybe you thought that was discriminatory.

But a court last month said, “Don’t worry.” Private employers won’t violate the U.S. Bankruptcy Code if they refuse to hire. But firing based on bankruptcy status is another story …

Case in Point: Dean Rea was offered a job as an IT project manager at a Pennsylvania company, pending a background check. The check revealed that Rea had filed for bankruptcy seven years prior. Based on this new information, the company withdrew its offer.

Rea sued for discrimination under the Bankruptcy Code, claiming it prohibits employers from discriminating based on a person’s previous bankruptcy filing. The code says, “No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title.”

The company argued that courts have consistently ruled that the Bankruptcy Code does not apply to discrimination in hiring—only to termination activities.

Ruling: The 3rd Circuit Court of Appeals sided with the company. It dismissed the case, saying the majority of federal courts that have ruled on this issue have said the code doesn’t apply to hiring-discrimination claims.

In upholding a lower court ruling, the appeals court said, “The district court properly declined Rea’s request to read the phrase ‘discrimination with respect to employment’ in as broad enough to encompass discrimination in the denial of employment … Congress did not so provide. Neither will we.” (Rea v. Federated Investors, 3d Cir.)

Note: This ruling applies to private employers. Another section of the Bankruptcy Code says government employers are prohibited from discriminating in hiring based on a person’s previous bankruptcy filing.

3 lessons learned … without going to court

1. Use a third party for reference checks. This strategy is a best practice to receive an objective background report.

2. No discrimination in termination. The Bankruptcy Code prohibits discrimination based on bankruptcy filing when it comes to firing an employee.

3. Remember the public/private divide. The code has different standards for private employers versus government employers.


Mindy Chapman is an attorney and president of Mindy Chapman & Associates LLC. She is a master trainer, keynote speaker and co-author of the book, Case Dismissed! Taking Your Harassment Prevention Training to Trial. Sign up to receive her Case in Point blog postings.

Leave a Comment