Lunchtime Conversation Prompts Judicial Inquiry, Pt. 2

An alert reader, Jim Hoeffner with Thompson Coe in Austin, pointed out that Sec. 525(b) has been interpreted to permit private employers to refuse to hire persons who have filed bankruptcy. Pastore v. Medford Savings Bank, 186 B.R. 553 (D. Mass. 1995); In re Hendrik, 2004 Bankr. LEXIS 1649 (Bankr. M.D. Fla. 2004)("It is well established now by several cases that Section 525(b) of the Code applies only to actions taken after an employment relationship has been established and does not cover a situation which might be a discriminatory hiring practice by private employers"); In re Stinson, 285 B.R. 239 (Bankr. W.D. Va. 2002).

As a result, my statement that "an entity which which functions as a gatekeeper for the bankruptcy process appeared to be violating the Bankruptcy Code" was more a statement of what the law should be than a statement of what the law currently is. A plain reading of the text "No private employer may ... discriminate with respect to employment against, an individual who is or has been a debtor under this title ...." would seem to prohibit refusal to employ as well as discrimination after an employment relationship has been established. However, that is not what the cases say.

Thus, in reading the tea leaves from Judge Isgur's brief opinion, we are left with the following possibilities:

1. Judge Isgur may be signaling a break with the existing case law on Sec. 525(b) and is willing to entertain a cause of action for failure to hire;

2. Judge Isgur may find that discrimination in employment by credit counseling agencies, while lawful, reflects negatively upon their fitness to provide services to potential debtors; or

3. Judge Isgur may find that cause has been shown and take no further action.

Obviously, the first two possibilities are more interesting. We will have to wait and see what happens.