Is Bankruptcy Discrimination Unlawful?

April 1, 2011, 2:20 PM

That depends. According to the Bankruptcy Code, private employers may not terminate or discriminate against current employees on the basis of bankruptcy. By comparison, public or governmental employers are forbidden not only from terminating employment or discriminating against current employees on the basis of bankruptcy, but also from denying employment on the basis of bankruptcy. Interestingly, what that means is private employers are not prohibited from denying employment on the basis of bankruptcy. As a practical matter, private employers who may wish to deny employment on the basis of bankruptcy are reminded to not hire employees until proper credit checks are complete. Once hired, the additional protections applied to employees complicate matters significantly.

As the economy continues to struggle and bankruptcy filings remain high, it is important to remember these restrictions. Employers may encounter bankruptcy protections in unexpected situations. For example, an employee may default on a loan from the employer, or an employer may be burdened by multiple garnishments against a single employee. Similarly, protected individuals may not be easy to identify. Indeed, the Bankruptcy Code explains that a person may qualify for protection in three ways: 1) the person is or has gone through a bankruptcy proceeding; 2) the person was insolvent, either before filing for bankruptcy or while the petition was pending; or 3) the person has not paid a dischargeable debt. For these reasons, employers must proceed with caution and be aware of the protections afforded by the Bankruptcy Code. --David J. Sullivan