The Bankruptcy of Refusing to Hire Persons Who Have Filed Bankruptcy

Abstract

In 1978, Congress made it illegal for government employers to deny employment to, terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy. In 1984, Congress extended this prohibition to private employers by making it illegal for such employers to terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy. Under the prevailing view of the law, private employers can refuse to hire a person who has filed bankruptcy solely because that person has filed bankruptcy. Meanwhile, employers have substantially increased their use of credit history checks as a pre-employment screening device. Credit history checks will disclose bankruptcy filings, and because blacks and Latinos are overrepresented among bankruptcy filers, those groups are disproportionately affected by bankruptcy discrimination. This disparate impact probably violates Title VII of the Civil Rights Act of 1964. Moreover, there is almost no empirical support for the proposition that creditworthiness is a reliable proxy for workplace performance or employee trustworthiness.Relying on bankruptcy status simpliciter is antithetical to a core purpose of the bankruptcy system, which is to give debtors a fresh start. Employers’ prerogatives to operate under whatever employment policies and practices that they want must be balanced against employees’ and would be employees’ right to participate in the labor market in an environment free from irrational discrimination. It is irrational to deny employment to a person who is or was a debtor if the person is otherwise qualified, and the job can be successfully performed regardless of bankruptcy status. To allow such discrimination makes the bankruptcy system’s promise of a fresh start illusory.