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Court Rules Debtor Not Protected From Job Discrimination Based on Bankruptcy Status

March 16, 2011

An interesting federal appeals court ruling caught the attention of our Rancho Cucamonga bankruptcy attorneys recently. According to a March 10 article in Westlaw News & Insight, the Fifth U.S. Circuit Court of Appeals in New Orleans has ruled that a job-seeker may not sue the real estate law firm that declined to hire her because she had filed for bankruptcy the year before. The ruling means Shani Burnett of Houston won't be able to pursue her case against Stewart Title unless she wins a rehearing from a full panel of the Fifth Circuit or the Supreme Court. The case turns on the interpretation of a federal law that the justices said forbade hiring discrimination by the federal government, but not by private employers.

The facts are not disputed. Burnett filed for bankruptcy in September of 2006 and interviewed for a job at Stewart Title in July of 2007. It offered her a job if she could pass a background check and drug test -- but the background check turned up the bankruptcy, and the firm declined to hire Burnett. Burnett sued under a section of the bankruptcy code, 11 USC sec. 525(b), which in relevant part says private employers may not "terminate the employment of, nor discriminate with respect to employment against," current or former debtors. However, the bankruptcy court where the lawsuit started dismissed the case, agreeing with Stewart Title that the law does not prohibit refusal to hire -- just discrimination "with respect to employment." The federal district court agreed, and in a March 4 ruling, so did the Fifth Circuit.

The ruling turned on the court's interpretation of the meaning of "employment discrimination." That particular sentence might seem to support Burnett's case, the court wrote, but the court also had to consider the context of the law. Immediately prior to section 525(b) was 525(a), which explicitly says a "government unit may not... deny employment to, terminate the employment of, or discriminate with respect to employment against" a current or former bankruptcy debtor. The court found that the choice to include "deny employment to" in subsection (a) but not in subsection (b) was a deliberate choice by Congress, not an omission. In so deciding, the Fifth sided with a 2010 ruling by the Third Circuit and against a district court decision from 2000 on the same subject. Another such case is pending before the 11th Circuit.

This ruling is disappointing to us as Yorba Linda bankruptcy lawyers. While it's true that Congress could have chosen to include the language in subsection (b), it's important to realize that that subsection was written six years after subsection (a) -- that is, not at the same time and likely not by the same people. More importantly, it's difficult to figure out why the court believes refusing to hire someone because of her bankruptcy does not constitute the "employment discrimination" that is clearly outlawed in subsection (b). And, as Burnett's attorney pointed out in the case, this decision makes bad public policy because it gives private employers permission to discriminate that public employers do not have. We believe job seekers should be evaluated according to their skills and experience -- not the past mistakes that they have taken clear steps to fix.

At Howard Law PC, we represent Californians of all backgrounds and walks of life who are considering bankruptcy as a way to deal with debts they can no longer sustain. In our line of work, we deal regularly with clients who have waited far too long to consider bankruptcy because they feel it's wrong, or an irresponsible choice. In fact, bankruptcy is a much more responsible and difficult choice than simply ignoring your debts and hoping they'll go away, or continuing to pay the minimum and watching the debts spiral out of control. Our Vista bankruptcy attorneys help clients begin the difficult but rewarding process of repaying all the debts they can and petitioning for others to be forgiven, then slowly rebuilding their credit.

If you're saddled with debt that you don't believe you can ever realistically pay, you should consider calling Howard Law for a free, confidential consultation on your case. To set one up, call us toll-free at 1-800-872-5925 or send us an email today.