Written by attorney James Adrian Cueva

Bankruptcy Filing Leads to Adverse Employment Action

Bankruptcy Filing Leads to Adverse Employment Action

The Eleventh Circuit Court of Appeals recently rendered a decision in a case that asked whether a private employer could deny employment to a prospective employee because that employee had in the past filed for bankruptcy. The appellate court agreed with the trial court in ruling that private employers could in fact deny employment based on the fact that the prospective employee had filed for bankruptcy. The case is Myers v. TooJays Management Corporation, Case No. 10-10774 and was decided on May 17, 2011.

Facts of the Case

The facts of the case are as follows: Eric Myers filed for bankruptcy in January 2008 while living in North Carolina. In May 2008, the bankruptcy court discharged Mr. Myer's debts. While the bankruptcy was pending Mr. Myers moved to Florida and was working for Starbuck's. In July 2008 Mr. Myers applied for an assistant manager position with TooJays. He interviewed for the position and was invited to two day job evaluation. He attended the evaluation on July 31 and August 1, 2008. Mr. Myers was scheduled to start with TooJays on August 18, 2008, however this employment offer was apparently subject to a successful background investigation. On August 4, 2008, Mr. Myers gave his two weeks notice to Starbuck's. On August 12, 2008 he received a letter stating that his employment offer was being rescinded "based in whole or in part on information contained in a credit report". Upon inquiring with TooJays, a human resources representative stated the only reason he had not been hired was because Mr. Myers had filed for bankruptcy. Mr. Myers was able to go back to his job with Starbucks, but was given fewer hours. Mr. Myers filed suit against TooJays alleging, among other things, that he had been discriminated against on account of having filed for bankruptcy.

Legal Reasoning for the Decision

The trial court granted summary judgment as to part of the case and allowed part of the case to proceed to a jury. The jury found for the defendant, TooJays. The issue on appeal was whether it was unlawful for TooJays to revoke its employment offer solely based on the fact that Mr. Myers had filed for bankruptcy. The appellate court focused on two similar but slightly different provisions contained in the Bankruptcy Code. The first provision, Section 525(a), applies to government employees while the second provision, 525(b), applies to private employers. The two statutory provisions are very similar, however the second provision applicable to private employers omits the phrase "deny employment to" in outlining a general prohibition in employment discrimination for bankruptcy petitioners. The court relied on the fact that the second provision, which was passed by Congress seven years after the first provision, omitted that key phrase and therefore found that Congress did not mean to apply the prohibition against offering employment on the basis of a bankruptcy filing.

Analysis and The Bottom Line

This decision is good news for employers, but very bad news for bankruptcy petitioners. The decision is also arguably bad policy as it relates to bankruptcy filing in general, since a major policy behind the bankruptcy system is allowing people to make a "fresh start". Anyone considering filing a personal bankruptcy should also seek advice regarding possible adverse employment consequences stemming from a recent bankruptcy. This decision stands for the proposition that filing for bankruptcy can have a negative effect on your ability to land a new job, at least in the short term following a bankruptcy filing. It is also always a good idea to have a firm employment offer in hand before giving notice. You should be particularly weary of any conditional employment offers, especially if you have recently filed for bankruptcy.

Additional resources provided by the author

You can read the Myers opinion by clicking on the link below.

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