Considering a candidate’s financial fitness in hiring decisions is getting trickier.
Latest example: A federal appeals court ruling said it was OK for a financial services company to reject an applicant who’d declared bankruptcy several years earlier.
The decision was a win for the employer — but it brings up a number of pitfalls employers need to avoid when checking applicants’ backgrounds.
The case involved Dean Rea, who applied for a job with with Federated Investors in Pennsylvania. Although it appeared after his interview that Rea would be hired, Rea was later informed he wouldn’t be getting the job — because he had previously filed for bankruptcy protection.
Rea sued, claiming the rejection violated the Bankruptcy Code, which prevents private sector employers from taking action against employees who’ve gone through bankruptcy proceedings.
The appeals court took a narrow view of the meaning of the statute. The law says public employers are barred from “denying employment to, terminating the employment of, or discriminating against” people who’ve filed for bankruptcy.
But the section covering private employers is a little different. It only specifies “terminating the employment of, or discriminating against” such individuals. No mention of the hiring process.
And the judge ruled that the “differences between the two are the result of Congress acting intentionally and willfully.” Case closed.
Cite: Rea v. Federated Investors. For a look at the full decision, go here.
Good news, bad news
Although the court’s ruling does affirm employers’ rights to reject an applicant because of a past bankruptcy filing, making hiring decisions based on applicants’ financial history can be dicey, according to attorneys Rod Fliegel and William Simmons, writing on a Littler Mendelson blog.
Here’s a rundown on their reaction to the court decision — and why employers need to be cautious in this area:
First off, the decision only applies to hiring decisions. Employers are still prohibited from taking adverse actions against current employees who have a bankruptcy filing on their record.
And since bankruptcy records are usually expunged after a certain amount of time, an employer might be violating the fair credit reporting laws by simply learning about a prior bankruptcy filing.
As you’ve no doubt heard, the Equal Employment Opportunity Commission (EEOC) recently reaffirmed its position that the indiscriminate use of credit history information by employers will violate bias laws if the employer’s screening practices have a disparate impact on protected class members.
Just recently, the EEOC filed a race discrimination case in federal court in Ohio that alleges disparate impact based on the employer’s use of credit reports.
Finally, state laws restricting the use credit history information by employers have been gaining momentum. Four states – Washington, Hawaii, Oregon and Illinois – prohibit by statute the use of such information unless it is specifically job-related.
More states are currently considering such legislation, and a similar bill is pending before Congress.