Can my Fort Lauderdale Employer Fire Me Because I File a Chapter 7 or Chapter 13 Bankruptcy?

On behalf of Bankruptcy Law Firm of Clare Casas on Monday, October 11, 2010.

There are weeks that I seem to get asked the same question repeatedly during the free Chapter 7 bankruptcy consultations that I provide. When that happens, that question usually becomes a blog post! This week’s question has actually been coming up for a couple of weeks now so it’s overdue for a posting.

The question on most minds lately is: Can my employer take any action against me for filing a bankruptcy? This has come from prospective clients in the banking industry, government and also those that are looking for a job. There’s no easy answer to that one.

There is federal law that prohibits a government entity (federal, state, local) from discriminating against someone solely because they filed for bankruptcy (11 U.S.C. sec. 525(a)). The prohibited actions include denying someone a job or firing them.

In re Kanouse, 153 B.R. 81 (Bankr. S.D.Fla., 1993), the Court found the language of Section 525(b) to be plain and unambiguous on its face: Section 525(b) provides a remedy to “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 …” 11 U.S.C. Section 525(b) (emphasis added). Section 525(b) bars employment termination or discrimination by a private employer against a debtor or former debtor solely because such debtor: (1) is or has been a debtor under the Bankruptcy Code; (2) has been insolvent before the commencement of a case under the Bankruptcy Code; or (3) has failed to pay a dischargeable or discharged debt. (I emphasize the word “solely”)

If you noticed, I emphasized the word “solely” in both of those paragraphs. The reason for that is because an employer cannot use bankruptcy as the sole reason for making a decision, but they can use other reasons such as performance issues as a reason for taking disciplinary action (including dismissal) and the bankruptcy becomes a secondary issue. The law clearly states that a bankruptcy cannot be the only reason that an action is being taken against the employee.

When it comes to hiring, government employers are expressly prohibited from denying someone a job because the person filed for bankruptcy. However, there is no similar “express prohibition” directed at private employers under the bankruptcy code. This has been tested in lawsuits and unfortunately many courts appear to land on the side of private employers on this one and rule that private employers have a right to refuse employment to someone because of a prior bankruptcy.

A recent example of this is found in a Pennsylvania case: Rea v. Federated Investors (W.D. Penn. Jan. 29, 2010). The U.S. District Court in Pennsylvania ruled that Section 525(b) of the bankruptcy code does not prohibit a private employer from refusing to hire a job applicant solely because they had previously filed for bankruptcy seven years earlier.

In reaching its decision, the court seemed to focus on the wording of Section 525 section “a” and section “b.” It expressly commented on the fact that while the phrase “deny employment to” was found in Section 525(a) regarding government employers – it was not present in Section 525(b). By this exclusion, the Court opined that Congress intended to leave it out and not bind private employers to that standard.