Tuesday, January 12, 2010

Do you know? Bankruptcy discrimination

The economy will continue to dominate the headlines in 2010. And, as the economy continues to struggle to rebound, it is likely that your business will have employees who have filed bankruptcy. The question is what do you do with this information.

Do you know that bankruptcy discrimination is unlawful under the Bankruptcy Code.

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, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt – (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

In other words, federal law prohibits an employer from terminating an employee or taking an other adverse action against an employee because that employee filed bankruptcy or is associated with someone else who filed bankruptcy.

Three key points to make about this statute:

  1. With one exception, every court that has applied this statute has found that it only applies to termination decisions – not hiring decisions. Thus, employers are reasonably safe taking a bankruptcy into consideration when making a hiring decision.

  2. The Fair Credit Reporting Act still applies to how employers obtain employee credit information from third parties, including information about bankruptcies. This law only impacts what employers do with the information once they get it.

  3. Unlike Title VII, this statute is narrowly written to provide that the bankruptcy must be the sole reason for the adverse action before liability attaches. This is a high standard for a plaintiff to meet, and perhaps explains why we see so few of these cases.

Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.