Outten & Golden: Empowering Employees in the Workplace

Firing Because Of Bankruptcy Is Illegal

December 23rd, 2009 | Ellen Simon

Employee Terminated Because Of Bankruptcy Gets Right To Trial In Federal Court

I must admit that I don’t ever remember seeing a case involving bankruptcy discrimination — so when I ran across a recent federal court case out of Florida on the subject, it struck me as one well worth talking about.

The case,  Myers v. TooJay’s Management Corporation, is important because there are so few cases on the topic and because bankruptcy affects so many people. The case also highlights some flaws in the statute which could really use a Congressional fix.

What Happened In The Case

Plaintiff Eric Myers filed for Chapter 7 bankruptcy in January of 2008. Around the same time, Myers moved his family to Florida to live with his parents. His debts were fully discharged in May of 2008.

At some point, Myers heard about an opening at one of Defendant TooJay’s restaurants in Sumter County, Florida for a management position.  He called the company contact, Tom Thornton, about the position. Thornton interviewed Myers and the interview went well.

Myers was then scheduled for a two day on the job evaluation which was held at on July 31st and August 1st. During those two days, for which he was paid,  Myers shadowed various employees.became familiar with restaurant procedures.

At the end of the second day, Thornton told Myers that he had performed well and according to Myers, offered him a job.  He was told that he was supposed to start work on August 18, 2008 at a salary of between $50,000 and $55,000 for a 40 hour week.

Thornton contended that he never told Myers he was officially hired, never discussed hours, salary, or a start date.

Thornton contended  he told Myers that any offer of employment was contingent on a background check.

There was no dispute that Thornton photocopied Myers’ drivers license and social security card and had Myers complete and sign several employment forms including :

  • an IRS withholding W-4 form
  • an order form for TooJay’s uniform and shoes
  • a food employee reporting agreement
  • an assistant manger trade secret non-disclosure agreement
  • an I-9 employment eligibility verification form.

Thornton also gave Myers a copy of TooJay’s employee handbook and sexual harassment policy, and directed Myers to sign forms indicating that he received copies. On each form, Myers signed in the blank listed for “employee signature.

Myers was also asked to sign a document which permitted TooJay to conduct a background check and consumer credit report check.

After that, Myers notified his then employer that he was resigning so that he could start at TooJay’s.

A little more than a week later, Myers received a letter from TooJay’s stating that it was rescinding its previous offer of employment because of the credit report. He called the Vice President of Human Resources and was told that he was not hired because he had filed for bankruptcy and that TooJay’s, as a matter of corporate policy, did not hire individuals who had a bankruptcy on their credit report.

Myers went back to his prior employer and asked for his job back but it was too late. His work hours had already been distributed to other employees, and he was told that he could only be rehired at a reduced schedule.

According to Myers no one told him that his employment at TooJay’s was contingent on a satisfactory credit report.

Myers filed a complaint in the United States District Court in Florida claiming bankruptcy discrimination in violation of 11 U.S.C s. 525(b).

Issues In The Case

The defendant TooJay filed a motion for summary judgment asking that the case be thrown out on the grounds that:

  • the statute only applied to discrimination after an employee was hired
  • the statute did not prohibit bankruptcy discrimination with respect to hiring decisions
  • Myers was never hired so the statute did not apply

Myers argued that:

  • the statue applied to hiring decisions in which an employer refused to hire an individual because of bankruptcy
  • the statute applied because Myers had been offered employment,
  • he accepted the offer and was terminated because of the bankruptcy
The Court’s Decision

The Failure To Hire Claim

The Court analyzed Section 525 of the Bankruptcy Code which protects individuals from discrimination. 

For whatever reason, there are two different standards in these bankruptcy discriminaion statutes– one for governmental employees [s.525(a)] and one for private employees [s.525 (b)] – and they are different.

The language of the statute regarding governmental employees states that the government :

[M]ay 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 or another person with whom such bankrupt has been associated . . .

Section 525 (b) was enacted several years later. It applies to private employers. Peculiarly, while the topic is the same, the language is different. It states that:

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 the bankruptcy Act, or an individual associated with such debtor or bankrupt,….

As the statutory language set forth above indicates, the section pertaining to government employees prohibits an employer from “denying employment” to a person because of bankruptcy.

The section pertaining to private employers does not contain a similar provision.

Therefore, according to the Court,  the section which applies to private employees only prohibits discrimination because of bankruptcy to those already employed.

If Congress intended a different result, the Court reasoned, it would have chosen different words in the statute. (as the opinion points out, only one court has reached a contrary result)

As the opinion states:

Thus by its plain language, the statute does not provide a cause of action against private employers for persons who are denied employment due to their bankrupt status….

In the absence of strong indicia of a contrary congressional intent, [a court should ] conclude that Congress provided precisely the remedies it considered appropriate.

Summary judgment was granted for the defendant TooJay on Myers discriminatory hiring claim.

The Termination Claim

Both parties agreed that terminating an individual’s employment because of bankruptcy status violates 11 U.S.C.s. 525(b).

Meyers argued that an employment relationship with TooJay’s was created on July 31 and August, 1, 2008.  When TooJay rescinded its offer of employment, Meyers claimed, it fired him solely because of his prior bankruptcy in violation of the statute.

TooJay contended that an employment relationship was never created.

The Court found that based on the evidence presented,  the jury could determine that an employment relationship was created.  Important to the Court was proof that:

  • Thornton made Myers an unconditional offer of employment
  • The parties finalized all key employment terms, such as start date, hours of operation,job duties,and salary
  • Myers signed numerous employee-related forms and received a copy of the handbook
  • Myers  actually worked for TooJay’s for two day.

On the other hand, as the Court pointed out TooJay presented evidence through Thornton’s testimony that:

  • Myers was never employed by TooJay’s and that
  • only a conditional offer of employment was made — contingent on a clean background and credit check.

Based on the record and the “material facts in dispute” TooJay’s motion for summary judgment was denied.  Meyers won his right to have a jury hear his claim.

Conclusion

It’s important for all employers to know that it’s illegal to terminate an individual because of an individual’s bankruptcy status.

Hiring decisions are more problematic. Government employers can’t refuse to hire a candidate because of bankruptcy. Private employers, according to most courts, are not covered by the bankruptcy statute with respect to offers of employment.  This makes no sense.

In light of today’s economy, with so many Americans sadly having to declare bankruptcy, these statues should be reconciled so that they are consistent.

All employers should be prohibited from discriminating against individuals due to bankruptcy with respect to all aspects of employment. Congress should amend the language of S. 525(b) so that private employers can’t refuse to hire someone because of bankruptcy.

After all, aren’t these the folks who desperately need to work and earn some income? Isn’t this why we have bankruptcy discrimination laws?

image: newzar.files.wordpress.com

www.floridabeerfestivals.com

*This post originally appeared in Employee Rights Post on December 15, 2009. Reprinted with permission from the author.

About the Author: Ellen Simon is recognized as one of the first and foremost employment and civil rights lawyers in the United States. With more than $50* million in verdicts and settlements and over 30 years of experience, Ellen has been listed in Best Lawyers in America and in the National Law Journal as one of the nation’s leading litigators. She has been lauded for her work on landmark cases that established employment law in both state and federal court. Ellen also possesses a wealth of knowledge as a legal analyst discussing high-profile civil cases, employment discrimination and women’s issues. Ms. Simon has been quoted often in local and national news media and is a regular guest on television and radio, including appearances on Court TV. She is the author of the Employee Rights Post, a legal blog devoted to employee and civil rights.

*prior results do not guarantee a similar outcome

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4 Responses to “Firing Because Of Bankruptcy Is Illegal”

  1. Marc Brenman Says:

    Very interesting. Thanks. Will be good to hear how the case comes out. A number of employers today are also checking credit ratings of potential employees, and refusing to hire those with “bad” credit scores. One among many problems with this is that a low credit score can be a proxy measure for being a person of color, which would equate to race or national origin discrimination.

  2. anxious Says:

    In a somewhat similar situation: I had recently accepted an offer via phone and my 1st day is next Wednesday (with a small financial firm), and it is presumed paperwork will be processed in the background during the first couple of days. Only reason why I remain more anxious than excited is because another employer had refused to extend an offer due to a recent ch7 bankruptcy (debts discharged Nov 09), I only assume this because HR had mentioned (or slipped) they usually don’t extend offers to “consultants” or “temps” due to a bankruptcy within the last 5 years. They noted “…this decision was based in whole or in part on information contained in a report from (their screening company), a copy of which was previously given to you. The agency did not make this employment decision and is unable to supply you with specific reasons why the decision was made…” Then it goes onto more about the Fair Credit Reporting Act, etc. This was definitely a heart-breaker knowing the interviewers and internal references really liked me for the job. So back on the full time job offer I accepted (not a temp/consultant position), can they take back what was already offered via phone? This is probably more of a question I can provide a definite answer to after my first paycheck.

  3. Chris Says:

    It seems to me that employees are actually more of a risk to a company prior to filing bankrupcty becacause these people are in so much debt. Once the debt is discharged they are in a better position and less likely to do something detrimental to their employers.

  4. Nate Says:

    Had to go through bankruptcy in 2005 as debt increased and work was slow.. Couldn”t get a second job because everyone was doing a credit check.. i went down and further down. I would be quite upset if some one decided that i shouldn’t be hired because of this. All my monthly bills left almost no money for food, i got sick with not enough to eat. I was labled by those who I thought were my friends, those were hard times. And credit card companies BANK on the fact that they will get their prey. It was the best thing that happened for me. Many people do it and shouldn’t, but i went through a few years of misery till someone had to suggest to me to do so. As the economy went down in 2007 started to see more people that judged me in the same boat I was. But then I was the one with no debt and a good job. Never used a credit card since and dont care to.

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