Monday, December 20, 2010

Ever Filed For Bankruptcy? Don't Put It On Your Resume.

On December 15, 2010, in the case of Rea v. Federated Investors, No.: 10-1440, the Third Circuit Court of Appeals held that the federal Bankruptcy Code does not prohibit a private employer from refusing to hire an applicant solely because that applicant had previously filed for bankruptcy.

The plaintiff in this case, Dean Rea, had filed for bankruptcy in 2002 and his debts were discharged in 2003. In 2009, Rea applied for employment with Federated Investors, a private company. After an interview, it initially appeared that Rea would be hired by Federated Investors. Rea was later informed, however, that Federated Investors had refused to hire him because he had previously been in bankruptcy.

Rea then filed suit, arguing that section 525(b) of the Bankruptcy Code (11 U.S.C. 525(b)) prohibited discrimination against an individual solely because he or she is or has been a debtor in bankruptcy. Specifically, section 525(b) directs, in pertinent part, 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 bankruptcy, solely because such debtor or bankrupt -- (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act. . ."

The District Court dismissed Rea's case, holding that the language of Section 525(b), above, does not prohibit an employer from refusing to hire an applicant on the basis of a previous bankruptcy.

On appeal, the Third Circuit agreed, and affirmed the dismissal of Rea's case. Specifically, the Court looked at the language of Section 525(b) quoted above, which is directed to private employers, and compared it to the language set forth in Section 525(a), which is directed to governmental agencies. The Court noted that the texts of Sections 525(a) and 525(b) are nearly identical, but not completely. The Court noted that Section 525(a) provides that a governmental unit shall not "deny employment to, terminate the employment of, or discriminate with respect to employment against," a person that is or has been in bankruptcy, but that Section 525(b) lacks any such language concerning "denying employment to." The Third Circuit held that the omission of the phrase "deny employment to," by Congress in Section 525(b) was intentional, and effect must be given to this important difference. As such, the Court reasoned that by intentionally omitting the phrase "deny employment to," in Section 525(b), after having specifically included it in Section 525(a), Congress did not intend to prohibit a private employer from refusing to hire an applicant because of that applicant's previous or current bankruptcy.

You can view the Third Circuit's full opinion here: http://www.ca3.uscourts.gov/opinarch/101440p.pdf