Two recent developments, generated from the tidal forces of the #MeToo movement should get manufacturers’ attention.
On December 22, 2017, Congress adopted a comprehensive tax reform law. Included in the statute is an amended Section 162(q). That provision states that manufacturers may no longer deduct from federal income tax “(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement [“NDA”], or (2) attorney’s fees related to such a settlement or [p]ayment.”
Written broadly and without any significant legislative analysis, Section 162(q) arguably sweeps within its reach “plain vanilla” severance or separation agreements. Typically, most severance agreements contain broad waivers and releases of claims, including gender-based discrimination claims, in exchange for payment of severance. Such agreements typically include NDA provisions. Because “sexual harassment” or “sexual abuse” are not separate statutory claims under most discrimination statutes, but simply labels for a more egregious form of gender-based discrimination, any waiver or release of a sexual discrimination claim which contains an NDA may be impacted by Section 162(q). Further, Section 162(q) makes clear that attorneys’ fees payments “related to” such a settlement similarly may not be deducted. This limitation may include payments to the manufacturer’s own legal counsel.
Before we could digest the full impact of this tax law change, on February 11, New York Attorney General Eric Schneiderman filed a 38-page, 143-count complaint against Harvey Weinstein, Robert Weinstein and their company, the Weinstein Company LLC. The complaint alleges a pattern and history of sexual harassment and abuse by Harvey Weinstein, and a failure to act to prevent or remedy such conduct by the other defendants. In his press release, Attorney General Schneiderman admits he filed the lawsuit to prevent a planned private sale of the Weinstein Company to other investors. “Any sale of The Weinstein Company must ensure that victims will be compensated, employees will be protected going forward, and that neither perpetrators nor enablers will be unjustly enriched.”
These two developments potentially signal a new front in efforts to combat workplace harassment in this #MeToo era. While most of the national media has focused on the impact of #MeToo in the entertainment and technology sectors, manufacturers have not been immune. See “How Tough Is It to Change a Culture of Harassment? Ask Women at Ford,” New York Times (December 17, 2017) available at https://www.nytimes.com/interactive/2017/12/19/us/ford-chicago-sexual-harassment.html (last accessed February 14, 2018).
Rather than find themselves on the receiving end of unwanted publicity, litigation or tax challenges, manufacturers may wish to proactively examine their policies, practices, reporting procedures and safeguards to ensure their workplaces are ready for the next chapter.