11th Circuit Joins the 5th & 3rd Circuits in Holding that Private Employers May Refuse to Hire Candidates Based on Bankruptcy History

In Myers v. Toojays (May 17, 2011), the 11th Federal Circuit Court of Appeals ruled that private employers may refuse to hire applicants based on their bankruptcy history.  This follows similar rulings in the 5th & 3rd Circuits.  It is based on statutory interpretation, so not very surprising.  However, as I reported here and here, employers should conduct a disparate impact analysis before implementing a “no bankruptcy” policy in their hiring decisions.  The  reason being that the EEOC has noted that where such a policy has a disparate impact on protected groups (such as minorities), and is not job related and justified by business necessity, it will seek to strike such policy down.  It is currently in suit against Kaplan Higher Education Corp for using credit histories as a basis of rejecting job applicants.

Beyond the legal considerations, this 11th Circuit case raises some other issues for HR and senior executives.  The job at issue in this case was a managerial position in a local gourmet deli.  There was no evidence that the applicant Mr. Myers had a criminal history, or was involved or somehow predisposed to stealing.  In fact, at the time he applied for the job he was already working as a supervisor for the national coffee chain Starbucks, and resumed working there after the deli rejected him.   He had completed the required two days of on-the-job training at the deli, and was scheduled to start in earnest a few weeks later.   It was only the credit check that made the deli rescind his job offer.

Considering how many Americans are burdened by large amounts of debt due to the recession, medical debt, student debt, and the housing crisis, it is no surprise that some have opted to exercise their legal right to file for bankruptcy in seeking a fresh start.  That is the express purpose of the personal bankruptcy provision.  In light of this, and the fact that Mr. Meyers was otherwise qualified for the job, and his credit history does not appear to be job-related, did the deli’s policy unnecessarily deny it the services of a good employee?  Probably.  Did it deny an individual his legal right to a fresh start under US law?  Definitely.  He did nothing wrong, and was qualified for the job.  Talk of getting the recession turned around is meaningless if Americans are not able to rejoin the ranks of the employed.

With three appeals courts, and at least 9 district courts now ruling this way, the case for congressional action is clear.  Sadly, the current congress is not likely to answer the call.  It is up to HR and corporate executives to question the utility of a lazy screening policy that in many instances has nothing to do with the qualifications of job applicants.  The fact that a national chain like Starbucks has figured it out offers some hope.  In the meantime, as noted above, if your Company applies or is thinking about applying a “no bankruptcy” or “no bad credit” hiring policy, make sure that it is job-related and business necessity, and  make sure that you conduct a disparate impact analysis.  You do not want to be the subject of the EEOC’s next press release.

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