Difference in Wording Dooms Bankruptcy Discrimination Claim

A debtor who was denied a job based on a bankruptcy filing found out the hard way that subtle differences in wording can make a big difference. Burnett v. Stewart Title, No. 10-20250 (5th Cir. 3/4/11). You can find the opinion here.

In September 2006, Shani Burnett filed for chapter 13 bankruptcy relief. The following year, she interviewed with Stewart Title. She was offered a job subject to a background check. When Stewart Title found out about the bankruptcy, they rescinded the offer. Burnett filed suit against Stewart Title under 11 U.S.C. Sec.525, which is titled "Protection Against Discriminatory Treatment." The Bankruptcy Court dismissed the Complaint for failure to state a cause of action and the District Court affirmed.

The Fifth Circuit as well. What would have been a good claim against a public employer failed to state a cause of action against a private employer. Section 525(a) says that a public employer may not "deny employment to, terminate the employment of, or discriminate with respect to employment against" a debtor. Sec. 525(b) states that a private employer may not "terminate the employment of, or discriminate with respect to employment against" a person who has filed bankruptcy.

The Debtor argued that refusing employment based on bankruptcy constituted "discrimination with respect to employment," one of the two clauses applicable to a private employer. The Fifth Circuit conceded that the argument might be reasonable in isolation, but failed when the two subsections were read together.

Burnett and amicus curiae contend that the act of denying employment to a person is to “discriminate with respect to employment against” that person, such that it is barred by the plain language of § 525(b). If § 525(b) were considered in isolation, Burnett’s position may have merit. However, when interpreting the meaning of a phrase in a statute, the statute must be read as a whole because “ ‘Act[s] of Congress . . . should not be read as a series of unrelated and isolated provisions.’ ” (citation omitted).

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The Fifth Circuit's opinion is spot on. Where one subsection expressly applies to denial of prospective employment and the second one does not, the omission must be given effect. The bottom line is that public employers may not discriminate against either existing or prospective employees based on their bankruptcy status, but private employers must only protect existing employees.

The Bankruptcy Court opinion by Judge Jeff Bohm makes an important point:

If Stewart Title had actually offered Burnett a position and if she had accepted the offer, then an employment relationship would have arisen, and any discrimination thereafter based on Burnett's bankruptcy status would have been unlawful under Sec. 525(b). (citation omitted). However, because Burnett was never formally hired and never had an employment relationship with Stewart Title, Stewart Title did not violate Sec. 525(b) by refusing to hire Burnett based on her bankruptcy status.Memorandum Opinion, Burnett v. Stewart Title, Adv. No. 08-3239 (Bankr. S.D. Tex. 10/14/08), pp. 6-7.

While it is unfortunate that the prospective employee did not receive "protection against discriminatory treatment," the statutory wording dictated the result. Private employers may reject potential employees based on bankruptcy status.