Just days before we rang in 2018, in the wake of the #MeToo movement, the Tax Cuts and Jobs Act became the law, including the special clause titled “Denial of Deduction for Settlements Subject to Nondisclosure Agreements Paid in Connection with Sexual Harassment or Sexual Abuse.”
Prior to this statute, the law allowed companies to claim tax deductions for settlements of sexual harassment and abuse claims and for attorney’s fees incurred in defense of such claims, even if the settlement agreements were confidential, which they usually were.
Now, if a settlement agreement prevents a harassment or abuse victim from publicly sharing details about the claim, then the company paying the settlement cannot deduct from taxable income the amount of the settlement or the attorney’s fees incurred in reaching the settlement agreement.
However, while the title of the section declares a lofty goal, its implementation and the practical effect remain less than clear. In particularly, the following questions remain:
This law goes into effect on January 1, 2018 and will not affect the 2017 taxes. Until the implications of this statute come into focus, companies should consult with their attorneys regarding whether to include a non-disclosure provision in a settlement agreement if any claim of sexual harassment or sexual abuse was made by the claimant.
While the uncertainty of the answers to the above questions remains, the best course of action for companies is to keep investing into quality anti-discrimination and anti-harassment training so as to avoid the sexual harassment claims in the first place.
Leiza Dolghih represents companies in business and employment litigation. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.