Fifth Circuit Court of Appeals Rules that Private Employer Can Refuse to Hire Individual Based on Individual's Previously-Filed Bankruptcy

Chapter 11 of the United States Code section 525(a) prohibits a governmental unit from denying employment to an individual who has filed bankruptcy. The governmental unit also is prohibited from terminating the individual’s employment or “discriminat[ing] with respect to employment against” an individual who has filed bankruptcy.

A subsection under this Chapter prohibits private employers from “terminat[ing] the employment of, or discriminat[ing] with respect to employment against” an individual who has filed bankruptcy. This subsection is silent as to whether “discriminat[ing] with respect to employment against,” includes refusing to hire based on an individual’s previously-filed bankruptcy.

On March 4, 2011, the U.S. Court of Appeals for the Fifth Circuit held that Chapter 11 of the United States Code section 525(b) does not prohibit a private employer from refusing to hire an individual based on the individual’s previously-filed bankruptcy. The decision is Burnett v. Stewart Title, Inc., Case No. 10-20250. The facts are straightforward and quite common. Ms. Burnett applied for a job with Stewart Title, Inc. and Stewart Title, Inc. offered Ms. Burnett the job contingent on passing a drug test and background check. During the background check, Stewart Title, Inc. discovered Ms. Burnett previously filed bankruptcy. For that reason, Stewart Title, Inc. revoked its employment offer. Ms. Burnett then filed a discrimination lawsuit under 11 U.S.C. § 525(b).

In dismissing Ms. Burnett’s lawsuit, the Court noted section 525(a) specifically prohibited the government from refusing to hire based on bankruptcy status, but Congress omitted this language as to private employers in section 525(b). Accordingly, the Court reasoned Congress’ omission indicated an intentional differentiation between government and private employers’ rights to discriminate. As such, the Court determined that Ms. Burnett could not bring a lawsuit based on the claim Stewart Title, Inc. (a private employer) refused to hire her based solely on the fact she previously filed bankruptcy.