The Third Circuit recently tackled this issue in Rea v. Federated Investors, and issued two clear- cut rules in response to this question. First, an employer cannot terminate or discriminate against an employee based upon his or her status as a debtor under the Bankruptcy Code. Second, the employer can deny employment to an applicant based on past or current bankruptcies.
In reaching those two rules, the Court relied upon the language of the Bankruptcy Code, which provides 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 the Bankruptcy Act. . . .
The Third Circuit refused to broadly interpret this provision when it decided that the Bankruptcy Code’s protections did not extend to job applicants. The Court explained that “Congress omitted the language prohibiting a private employer from denying employment to a person that has been bankrupt” and that it “will not contravene congressional intent by implying language that Congress omitted.”
While this case makes clear that an employer can legally refuse to hire an applicant under the Bankruptcy Code based on past bankruptcies, employers must act cautiously. Specifically, employers must still comply with other laws, such as the Fair Credit Reporting Act, which requires that the applicant receive certain notices when he or she is denied employment based on credit histories and background checks.