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“Me Too” Movement and “Hush Money”

It reached a similar conclusion with respect to her FMLA claim:

With the ever increasing coverage and commentary regarding sexual harassment issues (even Speaker Mike Madigan’s office recently) there have been two (2) very interesting developments in the arena of sexual harassment/sexual abuse that Employers should be aware of.

Our brilliant legislators in the Federal Government, while dealing with the various machinations of the budgetary process, immigration, and other very challenging issues, did have the ability to pass a bit of legislation dealing with sexual harassment. This legislation makes it now the personal responsibility of any member of the House of Representatives to pay any sexual harassment settlement or related legal fees out of “his/her own pocket” rather than using their public budget. It is certainly gratifying to the author that the House of Representatives has become cognizant that individuals who are culpable for sexual harassment/sexual abuse are required to pay out of “their own pocket” rather than use tax payer funds! Certainly other “stunning legislation” is forthcoming.

Of course, Congress has also decided, in the new tax bill, to deal with the sexual harassment/sexual abuse issue and its impact on businesses. In a specific section, Section 13307, which is titled “Denial of Deduction for Settlements Subject to Nondisclosure Agreements Paid in Connection with Sexual Harassment or Sexual Abuse”, the new tax bill, which became effective December 22, 2017, provided for an Amendment to the Internal Revenue Code:

Section 162(q): No deduction shall be allowed under this chapter for (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a Nondisclosure Agreement, or (2) attorney’s fees related to such a settlement or payment.

Obviously, these new rules become effective with regard to any Agreement and/or amounts paid or incurred after December 22, 2017.

It is unclear as to how Section 162(q) will treat settlements of employment related claims when there is an assertion of multiple claims, some of which are not related to sexual harassment or sexual abuse. Will Section 162(q) require that any payment made for a totality of claims, one of which is sexual harassment and sexual abuse, covers the entire settlement payment and none of it is deductible as a “business expense”? Could the settlement payment be apportioned with regard to “actual payments made” related to certain other claims other than sexual harassment and then be deducted? Will the same apply to an apportionment of attorney’s fees?

It is also very uncertain as to how this Section 162(q) will effect settlements of a nonsexual harassment issue where the Employee agrees to a general release of any and all unasserted claims, some of which may include unasserted sexual harassment/sexual abuse claims. If the general release of all unasserted claims has application and includes a confidentiality provision, will that trigger Section 162(q) and therefore, no deduction may be made?

Obviously, there will be many developments regarding Section 162(q) and its specific application occurring in the future. The wise Employer who is dealing with execution of a Settlement Agreement will certainly consult with Labor Counsel prior to having that document executed.

Questions? Contact Attorney Walter Liskza in our Chicago office at (312) 629-9300 or by e-mail at waliszka@wesselssherman.com

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