In a recent decision, the Eleventh Circuit Court of Appeals dismissed an unpaid wages and overtime (FLSA) case because the plaintiff failed to disclose this claim in his bankruptcy. Debtors who file for bankruptcy protection are required to disclose all their assets, which include potential legal claims. The purpose of such disclosure is to ensure that any claim is liquidated and used to satisfy creditors to the extent possible. Normally, if a debtor fails to disclose an asset, he loses his right to a discharge.
In this case, the Court imposed another punishment for failing to disclose his FLSA claim in his bankruptcy. The Court found that because the former employee repeatedly omitted his FLSA claim in bankruptcy filings, he could not then press the claim in court. That is, the employee could not seek a discharge of his debts on the basis that he was bankrupt and then attempt to liquidate an asset (his claim) outside the bankruptcy process.
Courts use a hard forfeiture rule when applying judicial estoppel to claims omitted in bankruptcy. As one court said, allowing the plaintiff to “back-up, re-open the bankruptcy case, and amend his bankruptcy filings, only after his omission has been challenged by an adversary, suggests that a debtor should consider disclosing potential assets only if he is caught concealing them.” Burnes v. Pemco Aeroplex, 291 F.3d 1282, 1288 (11th Cir. 2002).
Because the doctrine of judicial estoppel is designed to protect the integrity of the judicial process, not just the litigants, the employer need not have been involved in the bankruptcy case for it to benefit from the defensive use of judicial estoppel in cases such as these. Id.
Employers who are sued for employment claims should always ascertain whether their former employee has filed for bankruptcy, and if so, whether they have properly disclosed any employment claim. More broadly, employers must always explore creative defenses in an area of law characterized by an unlevel statutory playing field in favor of employees.
The case is Henderson v. U.S. Security Associates, 18-14739 (11th Cir. July 31, 2019).