The Bankruptcy Shadow: Section 525(b) and the Job Applicant's Sisyphean Struggle for a Fresh Start
| Jurisdiction | United States,Federal |
| Publication year | 2013 |
| Citation | Vol. 29 No. 2 |
The Bankruptcy Shadow: Section 525(b) and the Job Applicant's Sisyphean Struggle for a Fresh Start
Samantha Orovitz
Congress amended § 525 of the Bankruptcy Code in 1984 to expand employment discrimination regulation to private employers. Section 525 prohibits employment discrimination on the basis of bankruptcy status. Section 525(a) prohibits this practice by government employers, and § 525(b) does so with respect to private employers. But there is a key difference between the two sections: only § 525(a), which governs public employers, explicitly prohibits discriminatory hiring on the basis of bankruptcy status.
Courts have split over whether a similar prohibition protecting private employees from discriminatory hiring should be read into § 525(b). This Comment argues that by narrowly interpreting § 525(b) as omitting such a prohibition, courts are dishonoring an overarching goal of bankruptcy law: to provide debtors with a fresh start. This Comment supports its position in several ways. First, credit reports—the source of information about individuals' bankruptcy status—are unreliable, unfair, and difficult to remedy. Second, the history of § 525(b) shows that permitting private employers to use bankruptcy status as a hiring criterion leads to unreasonable and unnecessarily punitive results that were outside the goals of the enacting legislators. Third, enacted state statutes and proposed federal legislation identify, address, and attempt to remedy this very problem.
Ultimately, because bankrupt debtors deserve both a fresh start and protection against discriminatory hiring, § 525(b) should be amended to prohibit private employers from hiring discrimination on the basis of bankruptcy status.
One of the pillars of bankruptcy is providing the debtor with "a fresh start in life,"1 a "new opportunity,"2 and "a clear field for future effort."3
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Problematically, employers who request credit reports as part of the job application process are increasingly disrupting this "fresh start." When credit reports reveal job applicants' past bankruptcies, employers often disqualify the applicants without considering what gave rise to the bankruptcies or the applicants' pertinent credentials. This knee-jerk reaction by employers creates a bankruptcy shadow. job applicants who filed for bankruptcy after falling victim to a bad economy or other unfortunate circumstances are categorically prevented from obtaining employment. The bankruptcy shadow makes jobs harder to find for those who need them the most. Thus, the Bankruptcy Code's fresh start is merely theoretical for a wide swath of debtors. Those looking for their fresh start are forced, like the mythological king Sisyphus, to endure the interminable and repetitive toil of job application after job application with no positive result.
This toil is exemplified by Eric Myers, a North Carolina native, who filed for chapter 7 bankruptcy relief in 2008.4 A month after Myers filed for bankruptcy, he moved from North Carolina to Florida in pursuit of a "fresh start."5 In Florida, Myers managed to find work at a Starbucks coffeehouse as a shift supervisor.6 The bankruptcy court discharged Myers' debt.7 While working at Starbucks, Myers saw an advertisement for a management position at a nearby TooJay's restaurant.8 Myers met with the regional manager of TooJay's, and after a two-day on-the-job assessment he was scheduled to begin working at TooJay's.9 Myers gave Starbucks his two weeks' notice.10 However, Myers was never informed that a pristine credit history would be a prerequisite to gain full-time employment with TooJay's.11
A month later, before Myers was scheduled to start work, he received a letter from TooJay's indicating that his employment offer had been rescinded due to information revealed in his consumer credit report.12 Myers contacted TooJay's Human Resources Department to obtain further explanation about
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why his offer was rescinded.13 TooJay's explained that its policy forbids hiring individuals who have filed for bankruptcy.14 In short, Myers could not get a job at the restaurant because he had filed for bankruptcy relief in 2008.15 Myers wrote a letter to the CEO requesting that TooJay's reconsider its policy.16 Myers never received a response to his letter, but instead returned to Starbucks, where he was forced to accept reduced hours.17 Myers filed suit against TooJay's alleging employment discrimination.18 Because TooJay's is a private employer and Myers' employment never officially began, the Bankruptcy Code could not provide him with protection or compensation.19
Myers did not realize that his past bankruptcy would trail him like a shadow. Instead, he put his faith in a promise made by the American consumer bankruptcy system for a "fresh start." The underlying purpose of the fresh start is to encourage recovering and former debtors to participate in the American economy so that they may have a chance at a prosperous financial future.20 The concept of a fresh start is omnipresent in the world of bankruptcy, yet the meaning of the term is not fully understood.21 Because "fresh start" has such an elusive meaning, it is often supplemented with the rhetoric of rehabilitation by commentators.22
Rehabilitation, in its most distilled form, means that the debtor will be "free of financial hardship" after she files for bankruptcy.23 Professor Margaret Howard explained that within the concept of rehabilitation there is a policy thread of economic rehabilitation.24 However, post-bankruptcy economic rehabilitation may be impossible when private employers use adverse credit reports to disqualify job applicants.25 Adverse credit reports are treated like a
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scarlet letter for those who hoped the bankruptcy system would provide them with a "fresh start."26 The bankruptcy system gave Myers the impression that, if he qualified for and complied with the chapter 7 provisions of the Bankruptcy Code, he would have a clean slate and the opportunity to better his circumstances.27 Instead, he is burdened by the shadow of his former bankruptcy filing.
In Part I, this Comment examines protective mechanisms in the Bankruptcy Code and the Fair Credit Reporting Act for bankrupt debtors. This Comment demonstrates that these mechanisms do not adequately prevent employment discrimination in the bankruptcy context. In Part II, this Comment examines the majority of courts' narrow interpretation of 11 U.S.C. § 525(b). In Part II, this Comment also describes an extreme minority of courts that have tried to skirt the plain meaning of the text to harmonize its interpretation with the fresh start theory of bankruptcy. In Part III, this Comment argues that reform is needed because employers' use of credit checks leads to unfair and unnecessarily punitive results. In Part IV, this Comment explores both proposed and enacted state and federal legislation that aims to remedy employment discrimination in this context. This Comment concludes by arguing that the Bankruptcy Code should be amended to better protect job applicants who have filed for bankruptcy.
To gain context, it is important to first examine § 525(b) of the Bankruptcy Code and the Fair Credit Reporting Act (FCRA). These two laws attempt to limit employment discrimination against debtors. They are the primary statutes used by courts to determine whether Congress permitted employment discrimination against bankrupt debtors. First, this Comment addresses § 525(b). This Comment reviews the circumstances prompting the enactment of the statute, surveys the discrepancies in the interpretation of § 525(b), and outlines the reasons why the majority interpretation provides inadequate protection. Second, this Comment assesses the FCRA's deficiency in limiting the abuse of credit reports in the employment context. A critical examination
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of § 525(b) and the FCRA supports the argument that to give all debtors a "fresh start," Congress must amend § 525(b).
A. Section 525(b) of the Bankruptcy Code
In contrast to § 525(a), which applies to government employers, § 525(b) is directed at private employers.28 Section 525 of the Bankruptcy Code is the primary statute that protects bankrupt debtors from employment discrimination.29 Subsection (b) prevents private employers from terminating employees based on bankruptcy status.30 However, unlike § 525(a), § 525(b) does not specify that a private employer cannot "deny employment to" a job applicant because she was once a bankrupt debtor.31 The two sections' disparate language has generated a split in the courts as to whether private employers can deny employment to job applicants solely because their credit histories reveal a past bankruptcy.32 Below, this Comment discusses the history preceding the enactment of § 525(b) to demonstrate that the majority interpretation does not satisfy Congress's goals.
1. History of 11 U.S.C. § 525
In 1978, Congress enacted § 525 of the Bankruptcy Code in reaction to the Supreme Court's Perez v. Campbell decision.33 In Perez, the Court was dissatisfied with the protection afforded to a debtor who filed for bankruptcy.34 Specifically, in its opinion, the Court expressed that it disliked how a third party's action could interfere with a debtor benefiting from the bankruptcy process.35 In the years following the enactment of § 525, courts filled in the statutory gaps and manipulated the statute,36 but stopped short of applying it to
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debtors who suffer discrimination at the hands of private employers.37 Courts have explained that the language of § 525 prevents them from interpreting the statute in a way that punishes private employers' discriminatory hiring.38 For instance, in one case, the Eleventh Circuit did not condone private entities' discriminatory actions, but explained that it would be...
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