Recent action at the state, federal, and private corporate levels provides a window into the many ways to attack the problem of nondisclosure agreements in sexual harassment settlements.

Bar Nondisclosure Agreements in Settlements

A decade ago, the California Legislature changed the law to bar nondisclosure agreements in settlements of certain serious sexual abuse claims. The Legislature expanded it in 2016 to cover other types of claims with the passage of AB 1682. Now, Senator Connie M. Leyva (D-Chino) has announced her plan to introduce a bill to ban nondisclosure provisions in settlements of a broader list of sexual assault and harassment claims when the Legislature reconvenes in January. A similar bill is pending in the New York Legislature.

Remove Tax Deductibility of Payments if the Settlement Includes an NDA

In Congress’s new tax plan, there is a provision that takes away the business tax deduction for sexual harassment settlements that contain nondisclosure agreements. In the New York Times, University of Chicago Law School Professor Daniel Hemel called it “a nudge, not a hammer,” because most businesses will likely forego the deduction when forced to a choice.  It is also important to note that while the new provision impacts businesses, it does not affect government entities, such as the California Legislature.

Bar Mandatory Arbitration of Sexual Harassment Claims

Employers’ use of mandatory arbitration provisions has mushroomed over the last decade.  Now, over half the non-union U.S. employees are subject to such clauses.  In a series of cases, the U.S. Supreme Court has upheld employers’ rights to impose arbitration requirements, finding that federal law forbids states to limit them.  Given these holdings, a change in the law at the federal level is required to restrict employers’ use of arbitration provisions to keep women claiming sexual harassment out of court.

Now, California Senator Kamala Harris is one of several sponsors of a bipartisan bill the federal level that aims to end sexual harassment secrecy another way – by forbidding terms of employment contracts that require confidential arbitration, rather than an open lawsuit, for sexual harassment claims. The bill is co-authored by Rep. Cheri Bustos (D – Ill.) and Sen. Kirsten Gillibrand (D – N.Y.). According to Marina Fang’s reporting, the “Senate bill is also backed by Sens. Lindsey Graham (R – S.C.), Lisa Murkowski (R – Alaska)” and the “House version has support from Reps. Walter Jones (R – N.C.), Elise Stefanik (R – N.Y.), and Pramila Jayapal (D Wash).”

Private Action Instead of Legal Change

And a change in the law is not always necessary to address a problem like secret settlements, if powerful corporations decide, or can be nudged, to change on their own.  Microsoft recently announced that it will no longer force women alleging sexual harassment into mandatory arbitration.

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