Tuesday, January 11, 2011

3rd Circuit Rules Private Employers Permitted to Reject Applicants Based on Past Bankruptcy Filing

Many people, including many employment attorneys, are unaware that Section 525 of the Bankruptcy Code provides individuals with protection from discriminatory treatment as a result of having filed for bankruptcy. The actual section reads:

a.…[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…

b.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 Bankruptcy Act…

However, subsection (b) does not include the same "deny employment to" provision that subsection (a) does regarding governmental units which is what led the Court of Appeals for the Third Circuit to recently rule that the differences in the plain language of Section 525(a) and Section 525(b) indicate an intentional decision of Congress to distinguish between the prohibited conduct of governmental and private employers. Therefore, the court said, Section 525(b) cannot be read broadly to prohibit private employers from denying employment based on past or present bankruptcy.

The 3rd Circuit is the first court to issue an opinion on this issue and more circuits may be likely to follow given the economic situation of many people in this country and the soar in bankruptcy filings that occurred in the past several years.

The case is Rea v. Federated Investors, No.2 -09-cv-01205 (3d Cir. Dec. 15, 2010).

NOTE: The 3rd Circuit is not the court of appeals that covers Wisconsin. Therefore, Wisconsin residents who feel they have been discriminated against because of their previous bankruptcy filings still have a course of action until the 7th Circuit or Supreme Court of the United States rules otherwise.

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