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).

No Author Biography has been linked to this Article.

Related Articles

September 8, 2019
By Angela M. Scolforo, Staff Attorney to Herbert L. Beskin, Chapter 13 Trustee (Charlottesville, VA) In Hurlburt v. Black,1 the en banc Fourth Circuit Court of Appeals overturned its prior decision in Witt,2 and held that Bankruptcy Code § 1322(c)(2) authorizes modification of some home mortgage loans through bifurcation and cram down. This enables debtors to cram down home mortgage...
Members
October 18, 2020
By James J. Robinson, Chief United States Bankruptcy Judge, Northern District of Alabama Can the trustee challenge the debtor’s attorney’s fee? In re Rodriguez Perez, 2018 WL 3655656 (Bankr. D.P.R. 2018). In this case, the chapter 13 trustee asked the bankruptcy court to assess the contract between the debtor and counsel under § 526-528. The trustee alleged that the contract...
Members
Copy of Hildebrand-2016
September 18, 2022
Insurance proceeds generated due to a totaled car treated under the “hanging paragraph” of 1325(a) covers the entire claim; interest, however, is not recalculated even though it was a higher rate than the interest paid under the plan. (Hanan) In re Pagan, 638 B.R. 887 (Bankr. E.D. Wis. Jan. 24, 2022) Case Summary Bankruptcy judges have been overheard saying that...
Members
May 5, 2019
By Lawrence R. Ahern III, Brown & Ahern (Nashville, TN) Background Last year, the Ninth Circuit in In re Taggart1 ruled that an act in violation of the discharge injunction did not empower a court to find a creditor in contempt, if the creditor believed in good faith that the discharge injunction did not apply—even if the creditor's belief was...
Members
March 10, 2019
By Lawrence R. Ahern III, Brown & Ahern (Nashville, TN) PART III: The Lower Courts Struggle with Arbitration Guidelines Introduction Click here for Part I Click here for Part II
Members
__ head shot
May 21, 2023
Chapter 13 plans and confirmation orders will occasionally include post-confirmation disclosure and turnover requirements for tax returns and refunds and for other types of post-petition recoveries and income. Debtors are expected, on their own and without the need for rigorous trustee oversight, to fulfill the turnover requirements as a condition of plan completion and discharge. What happens when the case...
Members
March 3, 2019
By William Houston Brown, United States Bankruptcy Judge, Retired; Editor/Adviser, The Academy On April 1, 2019, an increase takes effect in those dollar amounts in the Bankruptcy Code that are subject to adjustment every three years.1 The following increases have significance in everything from the eligibility maximums for filing under Chapters 12 and 13 to the debtor’s exemptions. Relevant Official...
May 12, 2019
By Judge Michael A. Fagone & Career Law Clerk Ciera S. Dye III. Policy Considerations Where the statute does not provide definitive guidance, courts often turn to policy considerations. How do those considerations weigh out here? One answer is that policy considerations cut against imposing any sort of requirement of preapproval for postpetition borrowing by a consumer debtor. Several reasons...
Members
January 10, 2021
By Rachel Jones, Staff Attorney to Chapter 13 Standing Trustee Chris Micale, Western District of Virginia (Roanoke) The events of 2020 have had a devastating impact on the very low-income population. The working poor are struggling, particularly those working in sectors such as hospitality and tourism. State and Federal funding and local programs such as food banks and community action...
rebeccaherr
April 23, 2023
In recent years, a handful of cases have discussed the issue of what happens to the trustee’s percentage fee, collected from debtor plan payments, upon the dismissal or conversion of a case prior to confirmation. This is an emerging area of law, with decisions on both sides.  However, with this new issue, there appears to be at least some confusion...
Members