Section 525 of the Bankruptcy Code protects employees who currently are or have previously been in bankruptcy from discrimination. It contains two subsections. Subsection (a) states that government employers may not deny employment to, terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy solely because of that filing. Subsection (b) provides that no private employer “may terminate the employment of, or discriminate with respect to employment against” individuals for declaring bankruptcy. The salient difference is that the section applying to private employers does not mention denial of employment in its list of prohibited discriminatory actions. The United States Supreme Court has never determined whether this discrepancy in language indicates that there should be different policies in place for the public and private sectors with respect to hiring practices. However, a number of courts, including the Third, Fifth, and Eleventh Circuits, have held that section 525 permits private employers are allowed to discriminate in hiring based on a prior bankruptcy.
In Myers v. TooJay’s Management Corp., the Court of Appeals for the Eleventh Circuit distinguished between public and private employers, and held that section 525(b) of the Bankruptcy Code does not prohibit a private employer from declining to hire a person because of a prior bankruptcy. The court applied a plain meaning interpretation of the statute and noted that the difference in the language of subsections (a) and (b) of section 525 intimates Congressional intent to differentiate between public and private protections.
Part I of this memorandum will discuss the ruling of the Eleventh Circuit in Myers v. TooJay’s Management Corp. and its effect on those who have filed or intend to file bankruptcy petitions. It will also review the holdings of other circuit courts that have interpreted this statute. Part II will more specifically examine the rationale behind a New York case, Leary v. Warnaco, which came to a different conclusion from the circuit courts. Part III will then analyze the purpose of section 525 of the Bankruptcy Code with respect to both public and private employers. Finally, this memorandum will conclude by considering the interest of employees and the public as a whole in determining the impact this decision will have on the bankruptcy field.