tax overhaul law, written last year near the height of
the #MeToo movement, could place a bigger financial
burden on victims of workplace sexual harassment and
make such cases more difficult and expensive to settle.
have long been able to write off the settlement money
they pay out to former employees, as well as related
attorney’s fees, a provision meant to give employers
an incentive to quickly resolve cases. But the new tax
law stipulates that companies can no longer deduct the
money they pay out in conjunction with sexual harassment
settlements if the deal also includes a nondisclosure
agreements prevent employees from sharing confidential
information, whether it be the details of a settlement
or trade secrets. The tax code change was an attempt to
discourage the use of such agreements in conjunction
with sexual harassment settlements, because keeping
victims silent can allow perpetrators to continue a
pattern of bad behavior.
Hollywood producer Harvey Weinstein, who pleaded not
guilty last month to two counts of rape and one criminal
sex act charge, frequently used nondisclosure agreements
to silence women who accused him of sexual misconduct.
Some attorneys and business leaders refer to the change
in the tax law as the "Weinstein tax."
the tax code provision "was scribbled into the
margins at the last minute, and not thought through very
well," said Paula Brantner, senior advisor of the
nonprofit worker assistance organization Workplace
biggest and most immediate impact of the change could be
on victims who, like the companies they settle with, may
no longer be able to deduct attorney’s fees, said Bill
Tarnow, chair of the labor and employment practice at
the Chicago-based law firm Neal Gerber Eisenberg.
this example: Under previous tax law, a victim of sexual
harassment who received a $100,000 settlement with a
nondisclosure agreement and paid $40,000 of it to her
attorneys would only have to pay taxes on the $60,000
she took home. But under the new tax law, she’s
obligated to pay taxes on all $100,000, Tarnow said.
amendment introduced in May in a Senate committee could
resolve the issue. The amendment would allow victims to
still deduct attorney fees even if the companies they
are negotiating with can’t.
are divided over the extent to which the tax code change
will affect the way companies approach sexual harassment
settlements. Some say that because of the sensitive
nature of such settlements and unanswered questions
about enforcement of the new law, companies will proceed
as they always have. But others worry that without the
incentive of a tax deduction, companies will agree to
fewer — and smaller — payouts.
for example, expects settlement values to go down this
year as a result of the tax change, until the law is
clarified. Jon Vegosen, an attorney that represents
companies in similar disputes, agrees that is a
possibility as companies balance privacy and financial
say a business wants to keep (a settlement) a secret,
and it is willing to pay $100,000 with a nondisclosure
agreement," Vegosen said. "Would it be willing
to pay that much, or settle at all, without a
law also could make it more difficult to bring both
sides together to settle workplace sexual harassment
cases, Tarnow said. Businesses, without the benefit of a
tax break, will aim for lower settlements, while victims
will likely aim higher because of the higher taxes they
would pay, he said.
big issue: Because many settlement agreements are for
multiple infractions, like race and age discrimination,
it will be difficult to parse out what is tax-deductible
and what isn’t. Settlements that don’t involve
sexual harassment can still be deducted, even if they
include nondisclosure agreements.
Siegel, a Chicago employment attorney who has
represented sexual harassment victims in cases against
their former employers, says the new tax law, by
singling out sexual harassment settlements and
preventing companies from deducting costs, is drawing a
distinction between types of harassment.
genesis of this law is laudable, but if someone is
harassed because they are black, or Mexican, or gay, how
do you decide that is less worthy than sexual
harassment?" Siegel said.