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Employment Discrimination Based on Bankruptcy

Bankruptcy with businessman holding a tablet computer

Can an employer terminate an employee because he or she has filed for bankruptcy, reasoning that the employee is irresponsible? Can an employer refuse to hire an applicant for a finance-related position because they have gone through bankruptcy, concluding it is too risky to have such a person in the job? The answer to both questions is “no”, whether the individual has a pending bankruptcy case or previously filed for bankruptcy.

Many employers are unaware that federal law prohibits employment discrimination by both private and public employers because an employee or applicant has at any time filed for bankruptcy. 11 U.S.C. Section 525, a provision of the U.S. Bankruptcy Code, provides that private employers and government entities cannot discriminate against an employee or applicant solely because they have a pending bankruptcy case or previously had one. Section 525 also prohibits discrimination against anyone associated with such a person based solely on the bankruptcy. Some courts have held that Section 525 protects independent contractors even though they technically are not “employees”.

A plaintiff with a pending bankruptcy case is to file their claim in the bankruptcy court. A plaintiff whose previous bankruptcy case is closed is to sue in federal district court. A prevailing plaintiff may recover lost backpay and obtain reinstatement. Other types of damages such as emotional distress damages and punitive damages are not available. Nor can the plaintiff recover attorneys’ fees.

Practice Pointer: As with other areas protected by the employment discrimination laws, employers should not ask applicants or employees about pending or previous bankruptcy cases, discuss those matters with them, or consider those things in any employment decisions. Employers may want to consider adding bankruptcy to their non-discrimination policies as an additional category of protection.

If you’re an employer in Tennessee or elsewhere facing an issue related to alleged discrimination, or any other complex employment issue, obtain professional and thorough legal assistance by contacting the Law Offices of Cary Schwimmer at 901-753-5537 or visiting our website at Our office address is 1661 International Place Drive, Suite 400, Memphis, TN 38120.

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