Bankruptcy Found on Background Check is Fair Game

Nick Fishman

Stop me if you’ve heard this one before.  A man applies for a job as a manager at a deli.  He appears to be the ideal candidate and is asked to submit to an employment background check.  The man is told that his offer is contingent upon the successful completion of the check (although he argues that he was never informed of this).  He quits his current job only to find out that he has been rejected by the deli because a credit report revealed he had previously filed for bankruptcy.  The man sues the deli on grounds that an employer cannot make a hiring decision based on a bankruptcy.  He won, right?

Wrong.  Check out Myers v. TooJay’s, U.S. Court of Appeals for the 11th Circuit, No. 10-10774.

In a decision that affirms the U.S. 5th Circuit Court Ruling on Burnett v. Stewart Title, Inc. earlier this year, the court ruled that the prohibition of the use of bankruptcy records only applies to public employers (the government).

The comments I shared about the Burnett case apply here as well:

“I think it’s an interesting ruling to note since many employers I speak with think the government provisions apply to them in this regard.  Now remember, this isn’t an overall ringing endorsement by the court to run credit reports on all candidates or reject anyone who has filed for bankruptcy.  You still want to make sure that the information sought on a credit report has a clear nexus to the job responsibilities and that the adverse information would affect their ability to perform their responsibilities.”

HR.BLR broke down the case as follows and offered some insight and advice as well:

What the court said. The section of the Bankruptcy Code covering private employers was added to the earlier law. The prior section says that public employers may not refuse to hire someone with a bankruptcy filing. But the later section says that private employers may not terminate an employee who files for bankruptcy—and says nothing about refusing to hire such a person. So appellate judges again ruled in favor of Toojay’s and against Mitchell. Myers v. TooJay’s, U.S. Court of Appeals for the 11th Circuit, No. 10-10774 (5/17/11).

Point(s) to remember: The TooJay’s interviewer probably should have stressed that the job offer was pending the right background check results. But Starbucks has no such no-bankruptcies provision and hired Mitchell right back. Is such a policy really necessary?

P.S. I’ve been to Too Jay’s on many occasions and they make a mean Matzo Ball soup.

Nick Fishman
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Nick Fishman

Nick Fishman is the co-founder of EmployeeScreenIQ, a leading, global employment background screening provider, and serves as the company’s executive vice president and chief marketing officer. He pioneered the creation of EmployeeScreen University, the #1 educational resource on employment background checks for human resources, security and risk management professionals. A recognized industry expert, Nick is a frequent author, presenter and contributor to the news media. Nick is also a licensed private investigator in the states of Ohio and Texas.
Nick Fishman
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