Can My Employer Terminate me for Filing Bankruptcy?

Typically, when we think of unlawful retaliation in the workplace, issues like sexual harassment, whistleblowing and race or gender discrimination come to mind. There are actually many different types of retaliation that are prohibited by federal and state law. One type of retaliation that is less common, but still exists, is retaliation against employees who file bankruptcy. Why does this happen, and what can you do about it?

What the Bankruptcy Code says

The Bankruptcy Code actually contains an anti-discrimination provision which provides as follows:

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 this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

1. is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

2. has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

3. has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act. (11 U.S.C. §525(b))

While a private employer cannot take action against existing employees, many courts have held that they can refuse to hire someone who has filed for bankruptcy. However, the challenge often becomes being able to prove, as an employee, that your bankruptcy filing was the sole cause for the challenged discriminatory action.

An example of bankruptcy-based discrimination

One common form of bankruptcy discrimination is seen in transfers of employees to so-called "backroom assignments." For example, in Hicks v. First National Bank of Harrison, a teller was transferred from her position to a backroom bookkeeping position once it was discovered that she had filed for bankruptcy. Her employer said the transfer was made so the employee could avoid regular contact with customers, purportedly in an effort to protect that employee from embarrassment and to avoid harm to customer relations potentially caused by a bankrupt employee serving as a teller. The court did not buy this argument.

There was no evidence that the teller was actually embarrassed to continue on as a teller. Nor was there evidence of any harm to the bank's reputation. The court also found that, even though the transfer to bookkeeping did not result in a pay cut, the employee's job duties were still affected.

If you feel you have been the victim of discrimination or retaliation, or if you have any questions regarding your employment rights, please contact Wrady & Michel, LLC, either online or by calling us at (205) 265-1880.

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