Can Private Employers Discriminate Against Debtors? Ninth Circuit: Yep.

Mr. Jones, a former debtor, applies  and is accepted to work at a private company.   Before his first day, Mr. Jones informs his employer that he needs to file chapter 7 to get rid of some pesky creditors and to make the phone calls stop.   The employer immediately says “sorry, you are no longer hired because our company policy does not allow for employees who have filed bankruptcy.”    Mr. Jones is mad and screams “Discrimination! You can’t do that!”   Can a private employer do that?

Ninth Circuit – yep.  The Code doesn’t preclude such discrimination.   In re Majewski, 310 F.3d 653 (9th Cir.2002).

The Ninth Circuit read the statute, §525 carefully and found that it covered only an individual “who is or has been a debtor” under the Code, concluding that § 525 does not provide a claim to an employee who is terminated before filing a bankruptcy petition.

Section 525(a), which applies to government employers is more restrictive in that the government can’t discriminate to those who filed or have filed.  But Section 525(b), for private employers, is more narrow in that it does not say anything that a private employer cannot “deny employment to” a job applicant because he was once a bankrupt debtor.

Ninth Circuit said if Congress wanted it to prevent private employers (525(b)) from discriminating like it did to government employees (525(a)), then they would have written it so.  There you go.


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