Most employers know that it is unlawful to terminate the employment of or to discriminate against an individual who has previously filed bankruptcy because of his or her status as a debtor in a bankruptcy proceeding. A recent Federal Court of Appeals decision, however, highlights the distinction between denying employment to an individual based on prior bankruptcy filing and terminating the individual’s employment because of it. Although government employers may not deny employment to an individual who has filed for bankruptcy protection, that prohibition does not apply to private employers.  That is the holding of a federal appellate court in Myers v. Toojay’s Management Corp., decided by the U.S. Court of Appeals for the Eleventh Circuit on May 17, 2011. This court is based in Florida and reviews decisions of lower federal courts in Florida, Alabama, and Georgia.

In the Myers case the Court of Appeals considered whether the denial of the employment by a private employer, based upon a pre-employment background check, which included a credit history and report, violated section 525(b) of the United States Bankruptcy Code. That section provides that “[n]o 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, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt.”  

The Court of Appeals compared the language of section 525(a) of the Bankruptcy Code which, includes additional language that says, “[A] governmental unit may not . . . deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated.”  

Section 525(a) was originally added in 1978 to prevent units of government from unfairly discriminating against persons who file bankruptcy, after the United States Supreme Court issued a 1971 opinion holding that a state may not suspend the driver’s license of a debtor who had an automotive-related tort judgment discharged in bankruptcy. Section 525(b) was added in 1984 when Congress extended some of those protections to private employers. But the language of Section 525(b) never contained a provision stating that private employers may not deny employment to a person who has filed bankruptcy. While at least one court (the Bankruptcy Court for the Southern District of New York) attributed this failure to a mere “scrivener’s error,” most courts have interpreted this omission as deliberate.  

Relying upon the language of the statute, the Court of Appeals followed the recent decisions of two other federal circuit courts of appeals, the Fifth Circuit (based in Texas) and the Third Circuit (based in Pennsylvania), as well as other federal district courts and bankruptcy courts. The Eleventh Circuit also rejected Myers’s contention that the language “or discriminate with respect to employment” was sufficient to embrace a claim of denial of employment. Finally, the Eleventh Circuit also rejected Myers’s contention that the refusal to hire was tantamount to a termination because he had received an offer letter from the prospective employer. However, that offer letter had been rescinded prior to his acceptance of the offer, and the court held that he had not been terminated.  

The Court of Appeals recognized that the intent of Congress and the purpose of the statute is to protect individuals who have previously filed bankruptcy and to provide them with a fresh start. But, the court said that its job was to apply the statute as it is written and did not quote congressional purposes. In essence, the Court of Appeals said that its job was to engage in statutory construction and that it was “not licensed to practice statutory remodeling.” The Court of Appeals was unwilling to assume that the lack of a provision preventing private employers from denying employment on the basis of a bankruptcy filing was anything but a deliberate choice of Congress.  

The lesson for private employers is that, while it is unlawful to terminate the employment of or to discriminate against a person (and others associated with him or her, e.g., spouses or family members) who has previously filed for bankruptcy protection under the United States Bankruptcy Code, for that reason, it is not unlawful under section 525 of the Bankruptcy Code to deny employment to an applicant because of a past bankruptcy filing.