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In a recent decision, the 3rd U.S. Circuit Court of Appeals held that the Bankruptcy Code’s anti-discrimination provisions applicable to private employers do not apply to hiring decisions. See Rea v. Federated Investors, No. 10-1440, 2010 WL 5094250 (3d Cir. Dec. 15, 2010). Finding that the language of the statute is plain and that Congress chose to prohibit discrimination in hiring in the anti-discrimination section of the Bankruptcy Code applicable to public employers but not in the section applicable to private employers, the court held that Federated Investors did not violate 11 U.S.C. §525(b) when it refused to hire the plaintiff because he had previously declared bankruptcy. While this decision indicates that private employers may avoid liability under the Bankruptcy Code when making hiring decisions on the basis of an applicant’s bankruptcy filing, such employers will face liability under the Bankruptcy Code’s anti-discrimination provisions if they terminate an employee or otherwise discriminate against an employee on the basis of his bankruptcy filing. Id.

However, employers may run afoul of various state and federal statutes when making employment decisions, including hiring decisions, based on employees’ and applicants’ credit histories. The Equal Employment Opportunity Commission contends that an employer violates Title VII of the Civil Rights Act of 1964 if it makes employment decisions on the basis of individuals’ credit histories, as doing so has an adverse impact on various minority groups according to the EEOC. In 2009, the EEOC filed a lawsuit against a Dallas-based convention and corporate events planning company, alleging that the company unlawfully discriminated against black, Hispanic and male applicants in violation of Title VII by using credit histories and certain types of criminal background information when making hiring decisions. See EEOC v. Freeman, No. 8:09-cv-02573-RWT (S.D. Md., complaint filed Sept. 30, 2009). In October 2010, the EEOC held a public meeting to explore the practice of employers considering applicant and employee credit reports in making employment decisions, and the potential discriminatory impact of such practice. While employers faced with Title VII discriminatory impact lawsuits can defend the challenged practice by showing that the practice is job-related and consistent with business necessity, disparate impact plaintiffs can still prevail if they show that an alternate practice exists that achieves the same purpose without creating the discriminatory impact.

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