Virginia District Court finds private right to action under §525(b) employment discrimination case

It is fairly rare to see a case brought alleging employment discrimination due to the filing of a bankruptcy.  This allegation gave rise to a complaint under 11 U.S.C. §525(b) in Johnson v. Speedway, LLC, 2021 U.S. Dist. LEXIS 80891, Case no 7:21cv00100 (W.D. Va. 28 April 2021).   The factual situation asserted was that the Johnson worked as an assistant manager at a speedway store.  Due to becoming homeless, with the manager's permission, he had his mail sent to him at the store.  When he subsequently filed a chapter 13 bankruptcy, listing the store's address as his address for the bankruptcy, another employee opened the bankruptcy notice and notified his manager and 'corporate' who determined that Johnson was too much of a liability given the bankruptcy filing, fearing that he would steal money from the store, and terminated his employment (after allowing him to work his final shift, upon which he locked the store and turned in his keys).

Johnson filed an adversary proceeding against Speedway under 11 U.S.C. §525(b), which was transferred to the district court pursuant to 28 U.S.C. §157(d).

Section 525(b) of the bankruptcy code prohibits a private employer from terminating an individual's employment 'solely because' that individual filed for bankruptcy.   The first issue on the motion to dismiss is that §525(b) does not create a private cause of action for such suits.  In order to find such a cause of action courts must consider whether congress intended to create both a private right and a private remedy for violations.  This then requires consideration of whether the statute includes 'rights-creating language.'1   As §525(b) protects filers from discriminatory employment termination, it explicitly confers a right directly on a class of persons including the plaintiff.  The statute includes no language suggesting that Congress intended to preclude a private remedy for the violation of the statute.  The court thus concluded that Congress intended to provide a private right of action and private remedy which the court can award under 11 U.S.C. §105, which gives the court authority to issue any order, process, or judgment necessary or appropriate to carry out the provisions of the Bankruptcy Code.

The court did grant Speedway's motion to dismiss the breach of contract claims, given Virginia's employment-at-will doctrine.  The court likewise dismissed the count for intentional infliction of emotional distress based on Virginia law requiring the showing that the conduct of the defendant be outrageous in character and extreme in degree.  Under Virginpa law the plaintiff must also show that defendant had the specific purpose of inflicting emotional distress or intended the specific conduct knowing emotional distress would likely to result.  The allegations did not meet this standard, resulting in dismissal of that count.

The court allowed the counts under §525(b) to proceed to trial.


1 Alexander v Sandoval, 532 U.S. 275, 288, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001).↩

Michael Barnett
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