Lawmakers in New York and other states are taking up initiatives following in the wake of the multitude of sexual misconduct allegations made against high-profile political and media figures and the ever-growing #MeToo movement. These actions include measures to curb the use of nondisclosure and arbitration agreements in employment contracts and settlement agreements.
Here in New York, new sexual harassment legislation is on the horizon. On January 3, Governor Andrew M. Cuomo announced in his annual State of the State address a new legislative agenda on workplace sexual harassment which will be proposed this year.
Although Cuomo has not disclosed specific legislative language, the sexual harassment legislation will likely void mandatory arbitration policies and clauses included in employment contracts that prevent sexual harassment claims from being considered in law enforcement investigations or during trials. The legislation will mandate that private companies engaging in business with the state annually report the number of sexual harassment violations the company had in addition to any nondisclosure agreements it has executed. Cuomo also proposes his new legislative package will institute a uniform code of sexual harassment policies that would be binding on all branches of state and local government, including a course of action for anonymous whistleblowers to communicate complaints across state and local government without fear of negative consequences or retribution.
In terms of federal law, the Tax Cuts and Jobs Tax Act, signed by President Donald Trump on December 22, 2017, includes a new provision that disallows the tax deduction a company may take if the company settles a sexual harassment or sexual abuse claim and wishes to maintain a nondisclosure agreement of the details. This provision also bars the business deduction taken for attorneys’ fees related to a settlement or payment having to do with a sexual harassment or sexual abuse claim. A business deduction taken in relation to a settlement for a sexual harassment claim may even be disallowed regardless of whether the employer or employee wishes to have a nondisclosure agreement.
Employers should also take note that this new provision may also disallow other deductibles a company may take that are related to the sexual harassment or sexual abuse claim. For example, if the aggressor’s employment is terminated and the employee receives a severance package, the severance package might be non-deductible. If the nondisclosure agreement calls for the employer to take other actions, such as implementing a program to raise awareness of sexual harassment, the cost to implement such a program may also not be deductible.
In light of the proposed legislation coming down the pipeline and the increased scrutiny on harassment in the workplace, it is time for you to ensure your company has taken all appropriate measures to remain compliant. This includes having a harassment and anti-retaliation policy, complaint procedures, and educating your employees. Providing training to management and employees always helps in fostering a tolerant and constructive workplace culture. Please contact us if you have any questions about implementing new sexual harassment measures into your workplace.
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