Under the Bankruptcy Code, a private employer may not "terminate the employment of, or discriminate with respect to employment against" people who are or who have been in bankruptcy. 11 U.S.C. § 525(b). However, this provision does not prohibit a private employer from refusing to hire an applicant because he has filed for bankruptcy, according a recent decision by the Eleventh Circuit Court of Appeals, Myers v. Toojay's Management Corp., Case No. 10-10774 (11th Cir., May 17, 2011).
Facts of the Case
Myers worked for Toojay's, a delicatessen, for two days during an "on-the-job" evaluation. During those two days, he filled out several personnel forms, including an authorization and release of personal information for a background check. The background check release permitted TooJay's to "conduct a comprehensive review" including a review of Myers's "credit history and reports."
Three days later, Myers gave his current employer, Starbucks, two weeks notice of his resignation. The same day, Toojay's sent a letter to Myers informing him that it would not hire him because of the results of his background check. Myers subsequently learned that the company has a policy against hiring applicants who have filed for bankruptcy. Myers had filed a Chapter 7 bankruptcy petition earlier that year.
Myers sued Toojay's, alleging that Toojay's had violated section 525(b) by refusing to hire him or, alternatively, by terminating him after it had hired him.
The district court granted Toojay's summary judgment motion on the refusal to hire claim on the grounds that section 525(b) does not prohibit a private employer from declining to hire an applicant because he has filed for bankruptcy. The case proceeded to trial on the wrongful termination claim. At trial the jury rejected Myers' claim that he had been hired by the company, and the court entered judgment in favor of Toojay's. Myers appealed on both issues.
The Eleventh Circuit's Decision
The Eleventh Circuit affirmed the district court's entry of judgment on the wrongful termination claim on the grounds that the evidence was sufficient to sustain the jury's finding that no employment relationship had been formed by virtue of Toojay's "on the job" evaluation of Myers.
The court also affirmed the district court's ruling on the refusal to hire claim. Agreeing with several other federal courts, including the Fifth and Third Circuits, the court held that the plain language of the statute did not bar private employers from discriminating in hiring decisions on the basis of an applicant's bankruptcy filing. The court contrasted the language of section 525(b) with the language of section 525(a), which applies to governmental employers and provides that they may not "deny employment to, terminate the employment of, or discriminate with respect to employment against" a person because he has filed for bankruptcy." (Emphasis supplied). "Had Congress wanted to cover a private employer's hiring policies and practices in § 525(b)," the court wrote, "it could have done so the same way it covered a governmental unit's hiring policies and practices in § 525(a)."
Does a "No Bankruptcy" Hiring Policy Make Sense?
One interesting note about the case is that Starbucks hired Myers after he had filed for bankruptcy. (Starbucks also allowed Myers to return to work after his short stint at Toojay's and his notice of resignation from Starbucks.) Apparently, unlike Toojay's, Starbucks does not have a policy of refusing to hire applicants who have filed for bankruptcy. While Toojay's policy is legal (at least, in the Third, Fifth, and Eleventh Circuits), the opinion raises the question of whether it is wise. Are people who have filed for bankruptcy less responsible? Are they more prone to engage in theft and other dishonest acts? Or are they more likely the innocent victims of tough economic times who are likely to make grateful and loyal employees? If you know of any data that addresses these questions, I would like to hear from you.
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