Previously, I discussed the bankruptcy rule that employers cannot fire or otherwise discriminate against employees because they filed for bankruptcy. However, I also mentioned the difficulty in sometimes proving the causation element between the filing and the discrimination, and the fact that a bankruptcy will still come up on credit checks and other types of employee monitoring devices.
To add to this confusion, two recent court decisions have ruled that the Bankruptcy Code does not prevent private employers from discriminating among applicants for positions with the companies solely because of their prior bankruptcy filing. However, it appears the same is not true for government employers.
The court cases were based on section 525 of the Bankruptcy Code, which was adopted in 1978. There is a part of that section that deals with private employers, and a part that deals with public employers. The public employer section is quite broad, but the private employer section only prohibits discrimination in termination.
This has lead two different circuit courts to rule that the law broadly prohibits public employers from any discrimination due to abankruptcy filing, both including termination, discrimination that prevent promotions and other on-the-job related discrimination, as well as discrimination amongst new hires and potential hires. On the other hand, private employers are only prohibited from terminating an employee due to a bankruptcy filing, and are still permitted to not hire someone for that same reason.
This development is one more reason why many people will be wary before filing for bankruptcy. However, it remains to be seen how many employers actually discriminate between potential hires on this basis, and whether that is expected to change with the news of these two rulings.