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 law as it currently exists, private employers can refuse to hire a person who has filed bankruptcy solely because that person has filed for 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, these groups are disproportionately affected by bankruptcy discrimination. This disparate impact probably violates Title VII of the Civil Rights Act of 1964. Moreover, there is scant 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 according to whatever employment policies and practices they want should be balanced against employees’ and potential 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.
In addition to a review of the case law relating to restrictions on private and government employment discrimination based on bankruptcy, this article also provides a very in depth review of how lending practices impact bankruptcy filings based on race, leading to potential disparate impacts of bankruptcy in hiring and which could be prohibited under the Title VII of the Civil Rights Act.
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