When Federated Investors in Pennsylvania rejected Dean Rea for employment because a background check
yielded that he had previously filed for bankruptcy protection, a federal appeals court ruled that the company was within its legal rights to do so.
But Rea's lawsuit shows that considering a candidate's financial history in hiring decisions, while worthwhile, can be tricky, according to HR Morning. Rea sued the company, claiming that the rejection violated the Bankruptcy Code, which he argued should have protected him from a private employer taking action against him because he had gone through bankruptcy proceedings. However, the appeals court pointed out that the statute says public employers are barred from denying employment to, terminating the employment of or discriminating against people who have filed for bankruptcy. The section covering private employers, according to the court, only specifies that terminating or discriminating against such individuals is illegal. It makes no mention of the hiring process, writes HR Morning. According to the website Total Bankruptcy, the U.S. Equal Employment Opportunity Commission has filed a lawsuit alleging that the pre-hiring credit checks by Kaplan Higher Education Corporation discriminated against certain classes of Americans. Kaplan and Federated Investors aren't alone in this practice, however. Total Bankruptcy explains that as many as 60 percent of employers have begun running credit checks on job applicants.