Harassment, Discrimination and Retaliation

The new Tax Cuts and Jobs Act (the “Act”) makes many changes to federal tax law, but one provision of the Act should be of interest to employers and claimants settling claims of sexual harassment and abuse.

In the wake of the Harvey Weinstein scandal, some have argued that the use of nondisclosure agreements in harassment and abuse cases may lead to continued abuse by perpetrators.  In an effort to discourage the use of nondisclosure agreements, New Jersey Senator Robert Menendez introduced a provision that penalizes perpetrators by taking away the tax incentive for their businesses to pay their legal fees and settlements in such cases.

New section 162(q) in the Tax Code provides as follows:

(q) Payments Related to Sexual Harassment and Sexual Abuse—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.

(emphasis added).

This provision has been widely criticized as hastily enacted and, as a result, overbroad and even unclear.  Many have noted the provision’s unintended adverse effects.

First, often the business’ reputation and the victim’s privacy are deemed to be more valuable than the tax deduction, so the provision may not in fact deter companies and victims from entering into nondisclosure agreements.  Moreover, it should be noted that the provision does not apply to the government (e.g., members of Congress) and tax-exempt entities (e.g., Catholic Church), because they are not “taxpayers.”

Another important criticism is that the provision says “under this chapter,” which applies to all income tax, both business and personal.  As a result, the provision may hurt the victim as well, who will be unable to deduct legal fees from the settlement amount received.  Currently, the tax law provides an above-the-line (dollar-for-dollar) deduction for legal fees in employment cases, resulting in tax to the claimants on net recoveries, not the gross settlement amount.

In addition, the reference to claims “related to” sexual harassment makes it difficult to know how to treat a settlement payment, and related legal fees, where numerous claims are asserted, only some of which relate to sexual harassment.  This provision will encourage the claimant and the employer to agree on an express allocation of some portion of the settlement amount to sexual harassment claims.

Finally, Section 13307(b) of the Act states that the new provision applies “to amounts paid or incurred after the date of the enactment.”  This means that it applies to settlements entered into before the enactment date, if part of the settlement has not yet been paid.  Thus, it could potentially force victims to seek renegotiation and/or revocation of existing nondisclosure agreements.

Nondisclosure agreements are a mainstay of sexual harassment settlements and often the key provision for which employers are bargaining, even if they deny the allegations, as there is significant value in keeping their reputation and eliminating “me too” suits.  Accordingly, it is unlikely that the new tax law provision will deter employers from requiring nondisclosure agreements, although it may affect the amounts for which these cases settle in order to account for the extra cost to all parties.

The new tax provision eliminating the deduction for payments related to sexual harassment and abuse cases raises many issues, some of which are not easily resolvable.  In addressing such claims and negotiating settlements, employers and claimants are well-advised to consider the impact of this new law and its far reaching implications.

While sexual and other unlawful harassment issues have been present in the workplace for decades, the current news cycle has made the term a household name.  One cannot turn on the television, open a newspaper or surf the web without being inundated with daily reports of sexual harassment.  Politicians, news reporters, entertainers, and others are accused of sexual harassment and sometimes sexual assault, on a daily basis.

Harassment (both sexual harassment and harassment based on national origin, religion, LGBTQ status, etc.) is toxic in the workplace and can lead to a loss of talent, poor morale, negative publicity and, in the case of legal action, monetary damages and legal fees.  Still, many employers overlook the importance of developing and communicating effective anti-harassment policies and procedures and conducting anti-harassment training, often relegating this “compliance” issue to the bottom of the corporate “to do” list.  The current environment presents an opportune time to remind employers of the importance of addressing these issues and ensuring that they are providing a workplace that is free of sexual and other unlawful harassment.  In addition to helping to prevent harassment incidents in the first place, comprehensive anti-harassment policies and training also provide employers with an affirmative defense to any legal claims of harassment under both state and federal law.

The message to employers is clear – ignore these issues at your own peril!  Although the law in this area has been clear for some time, many employers do not appreciate the importance of addressing these issues proactively.  Employers are well served to review their anti-harassment policies and practices in light of the current social climate.

New York City Mayor Bill de Blasio recently signed into law an amendment to the New York City Human Rights Law (the “NYCHRL”) prohibiting discrimination on the basis of uniformed service.  The amendment takes effect on November 19, 2017.

The term “uniformed service” is defined in the amendment to mean current or prior service in:

The United States Army, Navy, Air Force, Marine Corps, Coast Guard, the Commissioned Corps of the National Oceanic and Atmospheric Administration, the Commissioned Corps of the United States Public Health Services, Army National Guard, or the Air National Guard;

The organized militia of the State of New York;

Any other service designed as part of the “uniformed services” pursuant to the Uniformed Services Employment and Reemployment Rights Act;

Membership in any reserve component of the United States Army, Navy, Air Force, Marine Corps, or Coast Guard; or

Being listed on the state reserve list or the state retired list as described in certain military laws or the state equivalent.

The amendment gives both veterans and active military personnel all protections afforded under the NYCHRL, including safeguarding against employment discrimination.  Specifically, these protections include representing that a position is not available when it actually is, refusing to hire or employ, or to bar or discharge from employment, someone in the uniformed services, or to discriminate against uniformed service members in the compensation, terms, and conditions of their employment.  Likewise, the amendment prevents employers from discriminating against uniformed service members in matters of public accommodation, housing, real estate, and lending.  The Chair of the New York City Commission on Human Rights, Carmelyn P. Malalis, cogently stated that: “Veterans and active military and other uniformed personnel routinely put their lives on the line for people in this country.  The least we can do is guarantee them the same freedom, respect and opportunities as everyone else. This law will give veterans and active military and other uniformed personnel direct protection under the New York City Human Rights law.”  Please click here to view the full article.

New York based employers are encouraged to review their human resources and hiring policies to ensure compliance with the amendment to the NYCHRL prior to its November 19, 2017 effective date.

Thinking about tying one on this year to get into the holiday spirit, or about finally asking out that cute girl or guy from the office at the holiday party after the spirit moves you?  Think again!  With the holiday season upon us, employers and employees would be well-served to review their Employee Manuals’ harassment, discrimination and social media policies to avoid the embarrassment, and pricey lawsuits that pop up at this time of year following otherwise festive celebrations.

Remember, just because an event takes place off premises, or in the office after hours, does not mean that the employment relationship and policies that attach do not follow everyone to the party.  Employers are urged to be proactive to avoid claims of harassment and discrimination, reminding managers and employees to be on their best behavior.  The old adage, “If you would not say it to your mother, don’t say it,” is still a fair yardstick to apply to nearly anything employees and managers might say to one another, in the office or at the holiday party.  Remind all to be courteous and mindful of the company’s policies, including social media policies, at all times.  Videos or pictures of drunken or inappropriate behavior from the holiday party posted on social media can only lead to trouble and discomfiture.

The chief source of mischief at any holiday party – free flowing libations – should be monitored closely to ensure the party does not devolve into a bacchanal.  Company sponsored events place ultimate responsibility for employee behavior on the company.

Hiring an outside vendor to tend bar – with its own liability insurance and procedure to monitor guests’ alcohol intake – is an excellent suggestion.  Avoid at all costs the serve it yourself bar, or employees pouring drinks for each other – both recipes for excess.  If the party takes place at an outside venue, consider providing drink vouchers for a maximum of number of drinks to employees, closing the bar an hour before the party ends and providing coffee and dessert to stay or to go.  Offering taxis, buses or designated drivers to get people home safely are also excellent recommendations.

Importantly, do not discriminate.  Make the party secular, nondenominational and welcoming to all, but not mandatory.

Holiday celebrations can be great opportunities for employees and employers to connect on a social level, talk about things other than work and boost morale.  Don’t let the opportunity slip away.  Happy Holidays!

The Second Circuit recently invoked a 17th century fable in reviving an employee’s retaliation claim against her employer even where the employer had no retaliatory intent.  In Vasquez v. Empress Ambulance Service, SDNY, 15-CV-3239, the Plaintiff, Andrea Vasquez, an Emergency Medical Technician, alleged that she was subjected to sexual advances by her dispatcher in part by sexually explicit text messages.  Vasquez complained to her employer, who immediately launched an investigation.  Unbeknownst to Vasquez or her employer, the dispatcher manufactured false text messages which showed that Vasquez was the aggressor.  Indeed, one of the messages displayed a “racy photo” that Vasquez allegedly sent the dispatcher, though the photo did not contain Vasquez’s face.  The employer credited the dispatcher’s story, and Vasquez was fired.  She subsequently commenced a lawsuit.

Southern District Judge Naomi Reice Buchwald dismissed Vasquez’s retaliation claims, finding that the employer could not have retaliatory intent because the employer was unaware that the text messages were manufactured.  On August 29, 2016, the Second Circuit reversed, citing a 1679 fable authored by Jean de La Fontaine, entitled the “Monkey and the Cat”.  According to the fable, a mischievous monkey lured an unsuspecting cat to fetch chestnuts from a burning hearth under the auspices that they will share the chestnuts.  The monkey, however, stole the chestnuts, leaving the cat with nothing but burnt paws.  In citing the fable, the Second Circuit held, “The employer plays the credulous cat to the malevolent monkey and, in doing so, allows itself to get burned – i.e., successfully sued”.  The Second Circuit held that an employer exposes itself to liability where it automatically credits one employee’s accusations over another, and refuses to consider contrary evidence easily ascertained.  This case serves as a lesson to employers in New York to conduct careful investigations of any claims of employee misconduct, lest they be left with burnt paws.