Working World

Recently, we made a job offer contingent on the results of a background check, which revealed that the candidate had declared bankruptcy two years ago. My boss wants to rescind the offer, as he believes bankruptcy shows bad character. Is this legal?

No. United States Bankruptcy Code Section 532 prohibits discrimination in employment decisions based solely on an applicant’s bankruptcy history, insolvency or association with someone who has filed for bankruptcy. Because the statute provides that the decision cannot be based “solely” on the bankruptcy, it is likely very difficult as a practical matter for an applicant to win such a case. Indeed, employers regularly conduct credit checks on applicants, particularly for sensitive positions in industries such as banking or law enforcement. A person who has filed for bankruptcy in the recent past will almost certainly have a poor credit rating.

Selection practices such as checking credit references and screening for wage garnishments and bankruptcies may also raise issues under the anti-discrimination laws such as the California Fair Employment and Housing Act. Because some minority groups are disproportionately represented at the lower end of the economic scale, basing hiring decisions on credit risk may disproportionately impact that group. For example, one case found that a bank’s practice of discharging employees who filed for bankruptcy discriminated against African Americans since the practice had a disproportionate impact on them. Another case held that an employer’s practice of discharging employees whose wages had been garnished violated the anti-discrimination laws.

While some people handle credit irresponsibly, many others find themselves with poor credit and/or being forced to file for bankruptcy by unfortunate situations beyond their control. For example, a significant percentage of people who filed for bankruptcy have had the misfortune of suffering from a catastrophic injury or illness and are forced into bankruptcy by unusually large medical bills. One hopes that person would be judged on their job-related skills when applying for a job.

Amy Semmel is an attorney with the firm of Donfeld, Kelley & Rollman. Her practice emphasizes employment, trade secret and business tort law. The information discussed here is a general explanation of the law, and is not intended to serve as legal advice. Readers requiring legal advice regarding a specific situation should consult an employment attorney.

1 COMMENTS

• Alex Jones

  Rather than just lumping together all bankruptcies as the same, perhaps the candidate should be asked the reason why it happened. Sure, some people are irresponsible and run up their credit cards. However, I watched as my parents declared bankruptcy after my father's battle with Parkinson's. He had insurance, but the medical bills were still unrelenting and finally my parents had no choice. This was a very diffcult decision for them — and certainly not a reason to be denied a job.

  Jan 15, 2009