Federal court: Employers can refuse to hire based on past bankruptcies

February 06, 2013

Federal court: Employers can refuse to hire based on past bankruptcies

Filing for bankruptcy is a major decision. In many cases, a Chapter 7 or Chapter 13 bankruptcy can be the best way for individuals to get out from under overwhelming debt. However, there are some downsides to filing for bankruptcy -- most notably, bankruptcy will negatively a person's credit score and it can make it difficult to qualify for a mortgage or a major loan.

Recently, a new complication for bankruptcy filers has emerged. More and more, employers are looking into job applicants' credit histories. In some cases, a bankruptcy filing might negatively influence the hiring decision.

This can certainly feel unfair, especially considering that most bankruptcy filers end up in financial trouble not because of irresponsibility, but because of life circumstances like an unexpected illness, divorce or job loss. However, according the U.S. 3rd Circuit Court of Appeals, it is not illegal for an employer to refuse to hire a job applicant on the basis of the applicant's bankruptcy history.

Rea v. Federated Investors

The case involved a Pennsylvania man who filed for bankruptcy in 2002. In 2009, he applied for a job at an investment services company. Initially, it appeared that he was going to be hired. However, the company ultimately informed him that it was refusing to hire him because he had filed for bankruptcy.

The man sued, claiming that the employer's decision was unlawful discrimination. The court, however, disagreed. It held that nothing in federal law prohibits private employers from making hiring decisions based on an applicant's bankruptcy history.

Still, the court did not give employers a free pass to discriminate against bankruptcy filers. Federal law still prohibits employers from firing workers who file for bankruptcy. In addition, government employers cannot fire, refuse to hire or otherwise discriminate against an employee or job applicant on the basis of bankruptcy.

Experts caution against bankruptcy discrimination

Despite the court's ruling, employment experts are cautioning employers against giving too much weight to a prior bankruptcywhen deciding whether to hire a job applicant. In doing so, they have noted -- correctly -- that a prior bankruptcy has little bearing on a person's ability to perform their job, especially in this day and age when so many people have been battered by the tanking economy. Moreover, the experts warn that refusing to hire bankruptcy filers could seriously tarnish a company's public image. Few people, they say, will want to patronize businesses that appear to lack compassion.

Given these considerations, it is unlikely that the court's ruling will have a major impact on job applicants in Pennsylvania. Still, it illustrates a larger point: if you are in financial trouble, it is important to make sure you understand all of your options -- and their risks and benefits -- before making a decision. If you are struggling with debt, talk to a Pennsylvania bankruptcy attorney who can help you reach the solution that is right for you.

Article provided by Turner & O'Connell, Attorneys At Law
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