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Don’t Discriminate Against Employees who File for Bankruptcy

Filing for bankruptcy is not a “Scarlet Letter,” or a mark of some kind of shame for people who do file. Nonetheless, as an employer you may have, and have a right to have, your own opinion on what it means when employees file for bankruptcy. What you don’t have a right to do, and what could get you in trouble, is discriminating against those employees in the workplace if and when you do find out that they have filed for bankruptcy.

How Will You Know?

If you do conduct any kind of background or public records search on employees, that background check will reveal the existence of a bankruptcy if one has been filed by the potential hire or the employee.

Of course, many times employees file for bankruptcy after they are hired. There is no legal requirement that the bankruptcy court notify you that your employee is filing for bankruptcy, and in many cases, unless someone tells you, you may never know that the employee did file.

You may find out if you are a creditor of your employee—that is, if the employee happens to owe you any money. You also could be notified if you are currently garnishing wages from the employee’s paycheck.

The Automatic Stay

Note that if your employee does owe you any money, once you find out about the bankruptcy, you must stop collecting on that money. Even informal requests, or doing things to “coerce” payment (for example, not allowing an employee to have a perk at work because he owes money to the company), are all violations of the bankruptcy automatic stay.

No Discrimination

It is illegal to discriminate in any way, against an employee who files for bankruptcy. Even if you feel the job requires “financial responsibility,” or handling money, or something that you think may be impacted by the bankruptcy filing.

Subtle statements, or refusal to give perks at work, or not including the employee on work benefits—anything that treats that employee differently—can be seen as illegally discriminating against the employee on the basis of his filing for bankruptcy.

It is also illegal discrimination to try to separate the debts from the bankruptcy. For example, saying “I’m not discriminating because the employee filed for bankruptcy, I am doing it because the employee didn’t pay his debts” is still bankruptcy discrimination.

Likewise, you should stop or curtail any other employees from discriminating against the employee who filed for bankruptcy. Much like any “hostile work environment” claim, if you allow the employee to work in an environment where he or she feels demeaned or threatened because of the filing of the bankruptcy, you, as the employer, can be sued.

Chapter 13 Bankruptcy

If the employee filed for a Chapter 13 bankruptcy, the court may require that you, as the employer, deduct the Chapter 13 payments from the employee’s paycheck. That is fine (after you get the court order), but again, you shouldn’t punish the employee or charge the employee or treat the employee any differently, just because of the Chapter 13 payments.

Don’t get in trouble in your business, if employees decide to sue you. Call the West Palm Beach business litigation attorneys at Pike & Lustig today.




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