Friday, January 5, 2018

New Tax Law Eliminates Employer Deductions for Certain Types of Sexual Harassment Settlements

In the midst of the growing “Me Too” movement, employers may find it more expensive to settle employment claims of sexual harassment or sexual abuse. A provision in the new tax law signed by President Trump on Dec. 22, 2017 (the Tax Cuts and Jobs Act) provides that, effective as of the signing of the law, a business can no longer deduct the costs incurred to settle employment sexual harassment or abuse claims if a nondisclosure agreement is included in the settlement.  This provision was added to the tax law in response to the “Me Too” movement and growing criticism of the historic practice of conditioning settlements on confidentiality. In addition, the new tax law contains limits on the ability to deduct attorney’s fees related to a sexual harassment or abuse settlement.