A recent Fifth Circuit decision may have implications for private sector employers. The Fifth Circuit upheld a lower court ruling indicating that private sector employees could be denied employment based on their bankruptcy status.
The case was brought under the discrimination section of the federal bankruptcy statute. Shari Burnett filed a Chapter 13 bankruptcy petition in September, 2006. In July, 2007, Ms. Burnett was offered employment at Stewart Title, Inc., contingent on her drug screening results and background check. After learning of her bankruptcy status, Stewart Title rescinded its employment offer. Ms. Burnett filed suit under the bankruptcy code claiming that such action constituted unlawful discrimination.
The Fifth Circuit held that although the bankruptcy code specifically prohibits discrimination against current employees on the basis of their status as debtors, such protection did not extend to potential employees. Therefore, refusing to hire an employee involved in bankruptcy proceedings did not equate to unlawful discrimination.
It is significant that the Fifth Circuit case was brought under the bankruptcy statute. If it had been tried as a discrimination in hiring case under either Title VII or the ADA, the outcome of the case would likely have been different. For example, under Title VII, a plaintiff could claim that refusal to hire bankruptcy debtors resulted in disparate impact to minorities.
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