Why The Tax Overhaul Could Lead To Lower Settlements For Sexual Harassment Victims

By Samantha Bomkamp
Chicago Tribune

WWR Article Summary (tl;dr) 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 agreement.

Chicago Tribune

The 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.

Companies 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 agreement.

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.

Former 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.”

But 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 Fairness.

The 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.

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