• Marc Kroop

A Taxing Development In Sex Harassment Law

Congress recently enacted new legislation limiting an employer's ability to deduct a settlement or payment related to a sex harassment or sex abuse case as an ordinary and necessary business expense. This new legislation, Section 13307 of the Tax Cuts and Jobs Act, disallows deduction of such settlements or payments when the settlement or payment is made pursuant to a confidentiality/non-disclosure agreement. It also prevents an employer from deducting any such payment made for attorneys fees.

Our opinion is that this new tax law's implications will have a wholly negative impact on employers and employees ability to resolve cases of sex harassment and abuse.

In every case in which we have ever represented a client regarding sex harassment or abuse claims that resulted in a settlement, a non-disclosure/confidentiality agreement has been included in the settlement agreement. Not once have we ever settled a case without such a provision.

In our experience, the inclusion of a non-disclosure/confidentiality agreement in a settlement agreement is always one of the chief reasons for the employer's agreement to settle a sex harassment or abuse case. Employers are always concerned about limiting public information regarding potentially embarrassing facts in a sex harassment or abuse case.

Now that inclusion of a non-disclosure/confidentiality provision in a settlement agreement limits an employer's ability to deduct a settlement payment, a large incentive to settle sex harassment or abuse cases has been removed. More employees will now face ongoing litigation of their cases due to the reduced financial incentive to employers to settle these cases.

Moreover, now that attorneys fees that are regularly paid by the employer to the employee's counsel pursuant to a settlement agreement are no longer deductible, the value of settling the case from the employer's point of view is even further decreased.

Going forward, the impact of the new law is that an employer may be more willing to extend a sex harassment and abuse lawsuit through trial or appeal and take on more financial risk. Obviously, in taking cases further down the litigation road, an employer's own defense costs will increase. However, those costs will now be weighed by the employer against its costs of making a non-deductible settlement offer to the employee that also involves the payment of non-deductible attorneys fees to the employee's counsel.

Employee victims of sex harassment or abuse may be further victimized by ongoing litigation when their cases become non-resolvable due to tax implications for the employer.

In sum, we do not view this new tax law as positive for either the employer or the employee. It is a law, that while passed with the good intention of shedding public light on sexual harassment, in practical application, will hurt the victims of sexual harassment. At the same time, it will cause a substantial burden on the court system due to ongoing litigation of cases.

Kroop Labor Law has the knowledge and experience to help you with your sex harassment or sex abuse case. We have successfully litigated and/or resolved numerous sex harassment or sex abuse cases in 25 years of practice. Now that Congress has increased the risk in sex harassment and abuse cases with the passage of this ill-conceived new tax law, having the assistance of experienced counsel is more important than ever. If you have questions or concerns about sex harassment or abuse, you may contact Kroop Labor Law's managing attorney, Marc G. Kroop, direct. (925) 989-8264 Otherwise, you may email us with your concerns and we will immediately respond to you in writing. info@krooplaborlaw.com

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