Category: Harassment

Tax Reform Affects Sexual Harassment and Employee Benefits

Tax Reform Affects Sexual Harassment Settlements and Employee Benefits

On December 22, 2017, President Donald Trump signed sweeping tax reform legislation. The controversial tax bill includes many changes that directly affect the employment relationship. These range from sexual harassment settlements and paid family and medical leave to reimbursed employee expenses and retirement plans.

Although I am neither a tax lawyer, nor an accountant, I offer a synopsis of these changes here.

Tax Deductions for Sexual Harassment Settlements

In response to the ongoing #MeToo movement, Senator Bob Menendez (D-NJ) introduced a new provision to the Internal Revenue Code’s section on tax deductions for ordinary trade or business expenses. The provision prohibits deductions for:

  • any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement; or
  • attorney’s fees related to such a settlement or payment.

The tax reform bill doesn’t expand on the meanings of the terms used in this new provision. That leaves its application open for debate, at least until the IRS issues guidance and begins to apply the restriction to actual returns.

Clearly, this new tax code provision will affect settlements of employment claims. This may include both cases of an asserted claim involving sexual harassment or sexual abuse and those where the employer seeks a general release to cover all employment-related claims. In the latter scenario, the employee may not have specifically alleged sexual harassment/abuse. But a broad release would typically reference Title VII and similar state laws that could encompass sexual harassment claims. Employers (and employees) will need to weigh the trade-off between release coverage, confidentiality, and tax deductibility.

Employer Credit for Paid Family & Medical Leave

Employers can now claim a tax credit starting at 12.5% of wages paid to qualifying employees on family and medical leave. Wages paid must be at least 50% of the employee’s normal wages. The credit increases by 0.25% for each full percentage point by which the employer’s wage payment exceeds 50% of the employee’s normal wages, up to a maximum 25% credit.

To be eligible to take the credit, the employer must provide all qualifying full-time employees at least two weeks of paid family and medical leave each year under a written policy. The employer must also provide part-time employees leave on a pro-rata basis.

Qualifying employees are only those who have been employed for one year or more and whose wages do not exceed $72,000 (in 2018, indexed for inflation).

The credit is limited to 12 weeks of paid leave per employee in a tax year. It is only in place for 2018 and 2019 and does not apply to paid leave mandated by state or local law.

Certain Reimbursed Expenses No Longer Excluded from Employee Income

The 2017 tax reform bill repeals certain exclusions from employees’ taxable income. One such exclusion previously applied for certain moving expenses reimbursed by their employer. Another permitted employees to exclude up to $20 per month of qualified bicycle commuting expenses reimbursed by their employer. Under the new tax law, neither of these exclusions apply between January 1, 2018 and December 31, 2025. Subject to future Congressional action, these exclusions are scheduled to return in 2026.

The reforms also indefinitely eliminated employer deductions for certain transportation benefits provided to employees. Specifically, these deductions applied to up to $255 per month for employee mass transit commuting and parking and up to $20 per month in bicycle costs.

There are also changes to tax treatment of qualified equity grants to employees, employee achievement awards, and length of service award plans.

Retirement Plans

The tax changes also affect employer-sponsored defined contribution plans. It gives employees more time to roll over loan balances to an IRA following plan termination or separation from employment. Under the old rules, employees had 60 days to avoid having the loan treated as a distribution. They now have until the due date for filing that year’s tax return.

Other earlier drafts included additional changes that were ultimately dropped. These included reducing the age for beginning in-service distributions from defined benefit and state and local governmental plans to 59 1/2 and changing rules regarding hardship distributions.

Health Care

The new tax bill eliminates the penalty connected to the Affordable Care Act’s individual mandate as of 2019. The penalty still applies to individuals who haven’t maintained sufficient health insurance coverage in 2017 and 2018.

It also reduces the threshold for claiming itemized deductions for qualified medical expenses from 10% to 7.5% of income in 2017 and 2018. The 10% threshold returns in 2019.

Response to Employment-Related Tax Reform Issues

Most of these issues do not require employers to take action (other than paying taxes differently). However, because they will affect taxation of both the employing organization and the employees, questions are likely to arise. Proactive employers should consider the tax impacts and plan accordingly.

Businesses should seek further guidance from appropriate professionals in considering their approach in response to these developments. Often that will mean accounting or tax law professionals. But it will also include attorneys involved in settling disputes with employees, especially (but not only) those involving sexual harassment allegations. An experienced employment lawyer can also assist in preparing a credit-qualifying paid family and medical leave policy.

The IRS indicates that it will provide updates and resources about the new tax reforms here.

Cuomo Proposal on Workplace Sexual Harassment

First Look: Governor Cuomo’s Proposal to Combat Workplace Sexual Harassment

On January 2, 2018, New York Governor Andrew Cuomo announced his plan to “Combat Sexual Harassment in the Workplace”. Cuomo’s agenda includes a multi-faceted approach that would affect both governmental and private employers. It includes at least five measures to address workplace sexual harassment in New York.

Introducing these initiatives, Governor Cuomo stated:

“2017 brought a long overdue reckoning where the secret and pervasive poison of workplace sexual harassment was exposed by brave women and men who said this ends now. Our challenge in government is to turn society’s revulsion into reform, and we in New York must seize the moment and lead the way. There must be zero tolerance for sexual harassment in any workplace, and we can and will end the secrecy and coercive practices that have enabled harassment for far too long.”

Though there are already pending bills that pursue similar objectives, the Governor has only laid out his specific agenda relatively generically. So let’s just take a preliminary look at how he seeks to change New York employment law.

Note: In this post I raise questions and suggest some downsides to these proposals. That certainly does not mean that I’m opposed to combating workplace sexual harassment. The employers I work with would welcome more effective means of preventing sexual harassment. But this is a very difficult area to legislate, with the potential for many undesirable consequences. So, I think it’s valuable to give them some thought and critical analysis.

Prevents Use of Taxpayer Dollars to Fund Individual Sexual Harassment Settlements

It’s not yet clear how far this proposal intends to go. Would it be limited to harassment claims against elected State officials? Or would it extend to all claims based on the actions of governmental employees at every level of government in New York?

The latter approach could be particularly game-changing. Employees claiming employment discrimination in the form of sexual harassment usually name their employer directly. In fact, under Title VII (the federal law that prohibits workplace sexual harassment), individual employees can’t be held liable. Even though the New York Human Rights Law permits individual liability in some situations, employees almost always include the employing entity itself in lawsuits.

What happens if an individual doesn’t have enough money to settle a sexual harassment claim? Does the governmental employer still have to defend the claim, perhaps without the ability to settle? Can a governmental entity still be liable and responsible for paying damages to an aggrieved employee?

There are many complicated aspects to what seems like a straightforward policy matter. Is it feasible to implement this approach? We’ll see.

Proposes Uniform Code of Sexual Harassment for All Branches of State and Local Government

Presumably, this would essentially write a new sexual harassment policy, with consistent complaint procedures, for all governmental employers in New York.

Notably, this proposal includes an “anonymous whistleblower process to help individuals communicate complaints across state and local government without fear of retribution or consequence.”

One can reasonably question how effectively employers can respond to anonymous sexual harassment reports. Even assuming the report names the alleged perpetrator, a good investigation usually begins with speaking with the victim of harassment. If the employer doesn’t know who that is, then they may have little to go on other than asking the named employee whether they have sexually harassed anyone. That may not yield tremendous results.

Hopefully any such initiative would recognize the value of victim involvement in the investigation of sexual harassment. Emphasizing existing anti-retaliation laws, for example, should be a valuable component.

Prohibits Confidentiality Agreements Relating to Sexual Assault or Harassment for All Branches of Government — State and Local — Unless Express Preference of the Victim

This addresses the concern that employees often agree not to discuss their claims in exchange for a financial settlement. Reasonably, the risk is that the perpetrator may commit further harassment because the previous victim could not warn everyone else.

From my experience, in most employment discrimination cases the employer is less concerned about the employee telling others what actually happened to them. They are more concerned about the employee telling others that they received money to go away. This is a valid fear where the employer credibly doesn’t think it did anything wrong, but doesn’t want to spend years litigating the employee’s claim. . . . And also doesn’t want every other unhappy employee, or more often former employee, to come seeking the same payout.

So, one potential downside to this rule would be a greater reluctance to settle cases. Without the confidentiality agreement, the defendants may perceive even greater value in litigating cases out to a decision by judge or jury. If everyone will know about the allegations (and assuming the defendant reasonably believes they did nothing wrong), then the defendant may be better off proving their innocence.

The proposal does purport to permit confidentiality agreements upon the “express preference of the victim”. One might question how to make that a workable standard. What’s the difference between an employee agreeing to confidentiality (as they must usually do now) and demonstrating an “express preference” for it? Will this just mean that the defendant can agree to observe confidentiality, but not the complaining employee?

Mandates Private Companies That Do Business with the State Report Sexual Assault and Harassment Statistics to Prevent Secrecy

We don’t yet know the scope of which companies would be covered or what exactly they must report.

Happily, the majority of companies that do business with the State probably won’t have any incidents to report. But some will. How many will depend on how those terms are defined, etc.

How will the State use this data? Will it cancel the contracts? Pursue litigation? Issue press releases?

Again, the details will matter.

Voids Forced Arbitration Policies or Clauses in Employee Contracts that Prevent Sexual Harassment Cases from Consideration in Law Enforcement Investigation and Trials

Frankly, it’s already unlikely that any arbitration policy or clause in employee contracts would prevent “law enforcement investigation” of sexual harassment cases . . . . Even to the extent that includes investigation by the New York State Division of Human Rights or the federal Equal Employment Opportunity Commission. The National Employment Law Project, a prominent employee-rights group, through its Senior Counsel Patricia Smith (former New York Commissioner of Labor under Governors Eliot Spitzer and David Paterson and U.S. Solicitor of Labor under President Obama), has also acknowledged this, along with expressing some doubts about other aspects of the proposal.

Thus, the primary effect of this piece of the legislation (if enforceable despite potential federal preemption arguments) would be to preserve employees’ default rights to go to court with a claim of workplace sexual harassment. It at least seems fairly straightforward, with few unintended consequences to victims of sexual harassment. Most likely, employees could still readily agree to arbitrate sexual harassment cases if they want to and employers are interested.

What New York Employers Should Already Be Doing to Combat Workplace Sexual Harassment

Again, my scrutiny of the Governor’s announced agenda only means to acknowledge the difficulty of addressing this serious issue. With or without new State legislation, all New York employers should be proactive in avoiding sexual harassment.

Keep in mind: the New York State Human Rights Law prohibits workplace sexual harassment for all New York employees. Other aspects of the State employment discrimination law only apply to employers with at least 4 employees. But the sexual harassment provisions apply to every employer.

For now, here are some basic elements every employer should implement to combat workplace sexual harassment:

 

I will continue to monitor these proposals and the related legislation. To make sure you don’t miss any important updates, sign up for my email newsletter!

Anti-Harassment Training

5 Best Reasons for Anti-Harassment Training

The media is full of devastating reports of sexual harassment these days. This is the time for us all to figure out how to put an end to it, along with all other forms of harassment. This is especially critical to employers. Not just because harassment is wrong and bad for business. But also because of their legal obligations under employment discrimination laws. Anti-harassment training is a key component of avoiding liability in this area.

Yes, training employees involves costs. You not only have to pay someone to conduct the training, but you also must invest the time of your employees to participate. But, even though most employers are not strictly required to provide anti-harassment training, it’s really too costly not to.

Still not convinced? Here are the 5 Best Reasons for providing Anti-Harassment Training in your workplace:

1. The Law Requires It (Where Applicable)

A few states require employers to provide sexual harassment training.

In California and Connecticut, employers with 50+ employees must provide 2 hours of sexual harassment prevention training to all supervisors in the state.  Covered employers must provide the training within 6 months of hire or promotion. California also requires retraining of these employees at least every 2 years.

Maine requires employers with 15+ employees to conduct an sexual harassment education and training program for all new employees in their first year of employment. More in-depth training is required for management and supervisory employees.

Several other states require training for certain employees, most typically those employed by the state itself. Most states, however, do not affirmatively require employers to conduct anti-harassment training.

The few laws that require training are limited to sexual harassment. However, I think it is very important not to limit anti-harassment training to harassment based on sex. This approach disproportionately victimizes women. A discussion of various protected characteristics brings everyone into the mix as a potential victim and harasser–obviously with the goal of having everyone be neither!

2. It Creates a Defense to Employee Claims

Even employers who are not in states that require them to provide anti-harassment training have good law-based reasons for doing so. Under most state and federal employment discrimination laws, the courts recognize a possible defense for employers who have taken reasonable efforts to prevent harassment. This is commonly known as the Faragher/Ellerth defense, based on the names of two U.S. Supreme Court cases.

This defense doesn’t help where the alleged harassment resulted in a “tangible employment action,” which could include reduction in pay, denial of promotion, or termination, for example.

In other cases, the employer the Faragher/Ellerth defense may apply if the employer can show that:

(a) The employer exercised reasonable care to prevent and promptly correct any harassing behavior; and

(b) The employee unreasonably failed to take advantage of any preventive or corrective opportunities by the employer or otherwise unreasonably failed to avoid harm.

As a practical matter, establishing this defense requires the employer to at least have an anti-harassment policy and an effective complaint procedure. Okay, so where does the training come in?

If nothing else, anti-harassment training goes a long way in helping an employer establish that employees knew about the anti-harassment policy and how to file a complaint! Ideally, the training will also encourage employees to report relatively minor incidents earlier so they don’t escalate into more serious situations. The employer’s prompt response in such cases can further prove the effectiveness its policy and procedures.

Click for more on Responding to Employment Discrimination Complaints.

3. Good Employees Will Behave Better

No one is arguing that if every employer provided anti-harassment training it would stop workplace harassment entirely. There’s not even good data that it will meaningfully deter the people most likely to engage in unlawful harassment. But let’s look at what it does do.

Think about your model employee, at least from a behavior standpoint. This may be the person most likely to change behavior following anti-harassment training. He or she hardly ever makes inappropriate comments to co-workers in the first place. But that doesn’t mean they are perfect and always avoid making others uncomfortable. Good training will demonstrate subtle ways they may occasionally offend others. Well-behaved employees will readily pick up on these examples and conform their behavior. They’ll become even more pleasant to work with and less likely to offend other employees.

Perhaps even more important, training can empower these good employees to recognize when others cross the line. Ideally, it will give them the knowledge and encouragement to speak up, either directly to the harasser or to human resources, etc. Or at least it will show them the value of speaking to those who suffer harassment from others to offer support.

4. Bad Employees Will Be Stopped

It would be nice to think that good training will deter employees from engaging in harassment. But the employees most likely to offend others may also be those least likely to accept readily that they’re doing anything wrong.

The good news is that because you hopefully have many more “good employees” than “bad” ones, the training can still reduce incidents of harassment. Training can show employees how to stand up for themselves and others. This can help end harassment as soon as it start. Or, if harassment persists, the victims and their co-workers will know how to report it. Then its just up to the organization to investigate appropriately and take the right action to correct the situation.

Related: What does it mean to have a “Zero-Tolerance” Anti-Harassment Policy?

5. It Sends the Right Message

Admittedly, most employees don’t look forward to attending anti-harassment training. But they can’t deny that workplace harassment is a very serious matter. And many, especially those who have felt victimized by harassment, will appreciate their employer’s efforts to address the subject.

Put differently, what does it say if you don’t provide anti-harassment training? At best, it suggests you accept harassment as inevitable and unavoidable. At worse, it appears your organization is indifferent to harassment. Providing the training doesn’t cost enough to justify either message.

You may also be interested in this webinar, where I discuss my Top 7 Tips for Investigating Workplace Harassment Complaints.