The Legal Aftermath of the Sexual Harassment Scandals

As the public continues to process the growing number of sexual harassment scandals involving public figures, lawmakers and businesses are moving to adopt new policies designed to remedy actual and perceived abuses of the legal process in this area. Whether or not these changes will help or hurt the actual victims of sex-based employment discrimination remains to be seen. But it is critical to be aware of these policy shifts and how even well-intended ideas may have unintended consequences.

Did Congress Unintentionally Punish Sexual Harassment Victims?

On December 20, the Republican majority in Congress passed its long-awaited tax bill. Buried in the fine print of the massive legislation is a provision that some critics say will discourage victims of sexual harassment in the workplace from coming forward. If you are wondering what tax law has to do with sexual harassment, consider that when employers settle or pay discrimination claims, they can presently deduct such payments as business expenses. But under Section 13307 of H.R. 1–the formal designation of the new tax bill–the employer will no longer be allowed to take a deduction from taxable income for “any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement.”

Non-disclosure agreements forbid an employee or former employee from discussing harassment or abuse publicly in exchange for receiving a financial settlement for any employment discrimination claims. Such agreements are controversial because they can allow an employer to effectively buy an employee's silence and cover up a pattern of sexual harassment within a company. Hence, Section 13307 ostensible removes a key financial incentive for a company to rely on such confidentiality provisions.

Section 13307 also removes the tax deduction for any “attorneys' fees related to such a settlement or payment.” At first glance this may sound appealing to victims. After all, why should a company deduct its high-priced attorney's fees from its income? The problem is that this particular provision as written appears to apply to all attorney fees related to a confidential settlement, meaning those paid by the employee as well as the employer.

According to Newsweek, a spokesman for New Jersey Sen. Robert Menendez, a Democrat who proposed Section 13307 as an amendment to H.R. 1, insisted that the ban on attorney fee deductions “was limited to trade and businesses and does not affect individual filers.” Yet Newsweek cited other tax experts who said that due to its “hasty” drafting, the provision would cover individual victims. If true, this would mean that an employee who receives a confidential settlement would owe tax on his or her attorney's fees, even though the attorney must also report and pay tax on the same money.

Will Employers Move Away From Forced Arbitration?

Outside of Congressional action, some large employers are taking their own steps to curb perceived abuses of power. Microsoft, one of the world's biggest companies, told the New York Times recently that it would no longer insist key employees submit sexual harassment claims to binding arbitration. Many employers favor arbitration because it is a private process that is easier to tilt in their favor. Some legislators, including New York Sen. Kirsten Gillibrand, have proposed abolishing such arbitration agreements at the federal level.

Obviously, the state of the law in this area will remain in a state of entropy for some time. This is why it is important to consult with a qualified New York employment attorney if you need advice on the current state of sexual harassment law and how it may apply to your situation. Contact the Law Offices of Mahir S. Nisar at 646.760.6493 to speak with an experienced sex discrimination attorney today.


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