THREE CIRCUITS HOLD PRIVATE EMPLOYERS MAY DISCRIMINATE AGAINST DEBTOR/APPLICANTS

By Vijay Malik.  Mr. Malik is a law student at Creighton University in Omaha, Nebraska

The Eleventh Circuit Court of Appeals, in Meyers v. Toojay’s Mgmt. Corp., joined two other circuits in holding that private employers have the right to deny employment to applicants on the basis of their filing for bankruptcy.

In January 2008, Eric Myers filed a Chapter 7 bankruptcy petition in North Carolina, ultimately leading to a discharge of his debts, and subsequently moved to Florida seeking a fresh start as a supervisor at a Starbuck’s coffeehouse.  During his employment with Starbucks, Myers responded to an advertisement for a management position with a local TooJay’s Gourment Deli restaurant.  Myers interviewed with the regional manager of TooJay’s and participated in a two-day on-the-job evaluation.  During this time, he completed several standard personnel forms, including a confidentiality agreement and authorization of release of personal information for a background check, which allowed TooJay’s to “conduct a comprehensive review” including a review of Myers’ “credit history and reports.”

Myers gave Starbucks two weeks notice after he mistakenly believed TooJay’s hired him.  On the very day he gave notice, however, he received a letter from TooJay’s informing him “that we find it necessary to rescind our previous offer of employment.  The decision was based in whole or in part, on the information provided us in a Consumer Report.”  Upon contacting the company’s human resources department, Myers was notified that the reason he was not hired was that he has filed for bankruptcy, and it was against company policy to hire people who had done so.

Myers filed suit arguing that TooJay’s had discriminated against him because of his bankruptcy filing, violating 11 U.S.C. § 525(b), by refusing to hire him because he filed for bankruptcy and, in the alternative, terminated his employment after he was hired because he filed for bankruptcy.  The wrongful termination claim was sent to the jury, who held that he never became an employee of TooJay’s.

The Bankruptcy Code prohibits employers from engaging in certain actions against those who have filed for bankruptcy.

Section 525(a) provides:

“[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(b) provides:

“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 . . . .”

Notably, 525(a) prohibits government employers from both denying and terminating employment because of a bankruptcy filing while 525(b) prohibits private employers from terminating employment because of a bankruptcy filing.

The court held Myers did not have a refusal to hire claim because TooJay’s was a private employer, not a governmental unit.  The court found the district court’s reasoning persuasive:

“A comparison of the words used in subsections (a) and (b) demonstrates that subsection (a) prohibits government employers from ‘deny[ing] employment to’ a person because of his or [her] bankrupt status, whereas subsection (b) does not contain such a prohibition for private employers. Rather, the private sector is prohibited only from discriminating against those persons who are already employees. In other words, Congress intentionally omitted any mention of denial of employment from subsection (b), but specifically provided that denial of employment was actionable in subsection (a). Thus, by its plain language, the statute does not provide a cause of action against private employers for persons who are denied employment due to their bankrupt status. “Where Congress has carefully employed a term in one place but excluded it in another, it should not be implied where excluded.”

The court noted its holding is consistent with other federal courts.  See In re Burnett, ___ F.3d ___, No. 10-20250, 2011 WL 754152, at *2 (5th Cir. Mar. 4, 2011); Rea v. Federated Investors, 627 F.3d 937, 940–41 (3d Cir. 2010); Burnett v. Stewart Title, Inc., 431 B.R. 894, 901 (S.D. Tex. 2010); Fiorani v. CACI, 192 B.R. 401, 407 (E.D. Va. 1996); Pastore v. Medford Sav. Bank, 186 B.R. 553, 555 (D. Mass. 1995); In re Stinson, 285 B.R. 239, 250 (Bankr. W.D. Va. 2002); In re Madison Madison Int’l of Ill., 77 B.R. 678, 682 (Bankr. E.D. Wis. 1987).

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