Harassment, Taxes, and Confidentiality

Posted on March 12, 2019 in Consulting

 The Tax Cuts and Jobs Act (TCJA), what normal people recall as President Trump’s tax law, contained a little know provision inspired by the Metoo# movement. Now, an employer cannot deduct as a business expense any settlement payment related to sexual harassment or sexual abuse if the settlement is subject to a nondisclosure agreement. Senator Menendez (D. NJ) proposed the amendment stating: “Corporations should not be allowed to write-off workplace sexual misconduct as a normal cost of doing business when it is far from normal. That is why I was proud to offer an amendment to the GOP tax bill that would both protect victims of sexual misconduct while ending the practice of taxpayers subsidizing the bad behavior of corporations or executives.” Perhaps Senator Menendez had good intentions, but his attempted quick fix missed the point. (It likely did not help that Senator Menendez’s corruption trial precluded him from being present for the vote on his amendment.) Here are my thoughts on what Congress should reconsider.

1. Sexual harassment should not have special status above race harassment.

I understand Congress’ desire to take a stand against sexual harassment. However, companies remain permitted to secretly settle claims of race harassment and deduct whatever expense they incur. I cannot rationalize a tax law that distinguishes (or should I say discriminates) between race and sex based harassment. I doubt anyone in Congress gave this much thought… unfortunately.

2. Confidentiality means less these days.

Companies should reconsider whether confidentiality provisions deliver the desired result. We live in a time of very few secrets. People access information off the Internet with ease. It takes very little time with a Google search to find how much Fox News and O’Reilly (secretly) paid to his various victims. Confidentiality clauses sometimes cause unintended harm. I learned that lesson early in my career. It was in the mid-1990s and I defended a man in his early 60s against a claim of sexual harassment brought by two women. The allegations never amounted to much and we settled the case on very favorable defense terms with a confidentiality provision. The payout was a total of $17,000 made by the company to a charity of the plaintiffs’ choice. The plaintiffs took home nothing. The next calendar year the same man came back to me accused by two different women again of sexual harassment. In deposition testimony, we learned that the second-suit plaintiffs heard a rumor that the prior litigants settled “confidentially” for $1.7 million. I always wondered if the second suit would have been filed if the settlement of the first suit had not been confidential.

3. Ban confidentiality provisions.

If Congress really wants companies held accountable for discrimination or harassment, it should adopt a law that bars confidentiality provisions in settlements of discrimination and harassment claims. Honestly, what good comes from a confidentiality provision? Just ask Michael Cohen.

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