Court Allows Private Employer To Refuse To Hire Bankrupt Applicant


by Steve Bogue

Bogue, A. Stevenson
sbogue@mcgrathnorth.com
(402) 341-3070

A section of the U.S. Bankruptcy Code prohibits employers from taking certain action against people who are or have been in bankruptcy doesn’t necessarily mean private employers must hire them. The 11th Circuit Court of Appeals in Myers v. Toojay’s Management Corporation examined a situation in which an applicant was given a two-day on-the-job evaluation of his skills as a manager. During those two days, the company learned that he had filed for bankruptcy. They then denied him employment.

The court examined the protective provisions of the bankruptcy statute at 11 U.S.C. § 525(a) and (b). It noted that the extent to which applicants or employees are protected by the law depends upon whether the employer is a “governmental unit” or a “private employer.”

More specifically, it noted that, according to the statute, a governmental unit may not (1) deny employment to; (2) terminate the employment of; or (3) discriminate with respect to employment against a person that is or has been a debtor or a bankrupt.

However, the second part of the statute, by contrast, provides that no private employer may (1) terminate the employment of; or (2) discriminate with respect to employment against an individual who is or has been a debtor or a bankrupt under the Bankruptcy Act. It noted what it called a “conspicuous difference” between the two sections in that governmental units were specifically precluded from denying employment to a protected employee, while that same language was not found in the portion of the statute that applied to private employers. On that basis it concluded that if the company were a governmental unit, the plaintiff would have a refusal to hire claim, but since it was a private employer, he did not. It noted that two other circuit courts of appeal had reached the same conclusion along with five bankruptcy courts.

The court then rejected the plaintiff’s argument that the language covering private employers concerning “discrimination” was broad enough to apply to a refusal to hire. It also rejected the plaintiff’s argument that the policy behind the Bankruptcy Act should cause the court to grant him protection. It concluded that the court’s task was to apply the text of the law, not to improve on it.

As noted in the decision, the distinction between the status as a private employer and as a governmental unit is crucial. When writing the Bankruptcy Act, Congress specifically gave broader protections under the portion of the statute that applied to governmental employers by extending its protections to applicants. No parallel language was found in the section that covers private employers. Both parts of the statute preclude terminating the employment of or discriminating with respect to employment against an individual who is a debtor or a bankrupt.  The protections were extended one step forward to include applicants, but only with respect to governmental employers.

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