--- url: 'https://www.fmjlaw.com/resolving-claims-of-sexual-harassment-under-new-federal-and-minnesota-laws/' title: Resolving Claims of Sexual Harassment Under New Federal and Minnesota Laws author: name: Adam url: 'https://www.fmjlaw.com/author/adam-brownfmjlaw-com/' date: '2023-09-21T20:57:07+00:00' modified: '2023-09-26T19:19:44+00:00' type: post summary: 'The #MeToo movement continues to reverberate in 2023, and the legal landscape regarding claims of sexual harassment continues to evolve.' categories: - Article - Thought Leadership tags: - abuse claim - attorney - Employment - employment law - HR - Human Resources - lawyer - litigation - settlement - settling harassment claim - sexual harassment - Speak Out Act - Tax Cuts and Jobs Act - TCJA published: true --- # Resolving Claims of Sexual Harassment Under New Federal and Minnesota Laws The #MeToo movement continues to reverberate in 2023, and the legal landscape regarding claims of sexual harassment continues to evolve. There are now at least four Federal or Minnesota state laws that specifically apply to resolving claims of sexual harassment, including limits on arbitration and changes involving disclosure and taxation. Employers and their counsel should be aware of all four. Chronologically, they are as follows: ## **The Tax Cuts and Jobs Act of 2017 (TCJA)** The Tax Cuts and Jobs Act of 2017 amended the U.S. Tax Code to add 26 U.S.C. Section 162(q), which provides that a payment to settle a claim of sexual harassment is not deductible from federal taxation if it is subject to a nondisclosure provision. Specifically, Section 162(q) states: *(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.* In other words, if an entity settles a claim related to sexual harassment or abuse that is subject to a confidentiality provision, the TCJA prohibits that entity from receiving a tax deduction for the amounts and attorney fees paid for the settlement. ## **The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021** The “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (“the Act” herein) was signed on March 3, 2022. The Act amends the Federal Arbitration Act (“FAA”) by prohibiting mandatory arbitration of sexual assault or sexual harassment claims. The law applies to arbitration agreements anywhere in the country, including Minnesota. The Act allows such claims to proceed to arbitration at the “election” of the person alleging the conduct. Some claimants may still decide to proceed with arbitration because of the confidentiality of arbitration proceedings. Claimants now also have the choice, however, to speak openly about their experience and pursue claims publicly in the court system. The Act applies to any claims that arise after March 31, 2022. Pre-existing claims are not affected. The Act states that it applies to any case that “relates” to a sexual harassment or sexual assault dispute. “Sexual assault dispute” is defined in the Act as “a dispute involving a non-consensual act or sexual contact, as such terms are defined in section 2246 of Title 18 or similar applicable Tribal or State law, including when the victim lacks capacity to consent.” “Sexual harassment dispute” is defined as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” Most commentators have interpreted the “relates” language to mean that the Act will apply to claims of retaliation resulting from complaints of sexual harassment or assault. Any issue as to whether the Act applies is to be determined under Federal law in Federal court. It is a best practice to explicitly exclude sexual harassment claims in arbitration agreements, and employers should review their arbitration agreements for compliance. ## **The Speak Out Act** **(became effective December 7, 2022)** The “Speak Out Act,” codified at 42 U.S.C. Sections 19401-19404, limits the judicial enforceability of pre-dispute nondisclosure and non-disparagement contract clauses relating to disputes involving sexual assault and sexual harassment. Section 19403(a) states as follows: *(a) In General. — With respect to a sexual assault dispute or sexual harassment dispute, no nondisclosure clause or non-disparagement clause agreed to before the dispute arises shall be judicially enforceable in instances in which conduct is alleged to have violated Federal, Tribal, or State law.* The term “nondisclosure clause” means a provision in a contract or agreement that requires the parties to the contract or agreement not to disclose or discuss conduct, the existence of a settlement  involving conduct, or information covered by the terms and conditions of the contract or agreement. There is an exception for protection of trade secrets. The term “non-disparagement clause” means a provision in a contract or agreement that requires one or more parties to the contract or agreement not to make a negative statement about another party that relates to the contract, agreement, claim, or case. Nothing in the Speak Out Act prohibits employers from entering into nondisclosure or non-disparagement clauses with employees after a claim is made as part of a settlement or other resolution. Settlement payments that are subject to a non-disclosure provision, however, will not be deductible to the employer under the federal or state tax code.  Ultimately, the Speak Out Act does not allow an entity to try and prevent another party from disclosing a claim of sexual harassment or assault based on agreements that were in place before the incident or dispute. The parties can agree to nondisclosure later, however, if they choose to do so. ## **Minnesota Statutes Sections 181.14 and 290.0132 (became effective January 1, 2023)** Minnesota recently passed a law similar to the Federal Tax Code provision discussed above. The law, codified in Minnesota Statutes Section 181.14, states as follows: Section 1. SEXUAL HARASSMENT OR ABUSE SETTLEMENT; PAYMENT AS SEVERANCE OR WAGES PROHIBITED. *In a sexual harassment or abuse settlement between an employer and an employee, when there is a financial settlement provided, the financial settlement cannot be provided as wages or severance pay to the employee, regardless of whether the settlement includes a nondisclosure agreement.* The state also revised Minnesota Statutes Section 290.0132 by adding a subdivision that reads: *Subd. 34. Damages for sexual harassment or abuse. The amount of qualifying damages received is a subtraction. For purposes of this subdivision, “qualifying damages” means:* *(1) damages received under a sexual harassment or abuse claim that are not excluded from gross income under section 104(a)(2) of the Internal Revenue Code because the injury or sickness for which the damages are paid are not physical; or* *(2) severance pay received under a financial settlement of a sexual harassment or abuse claim that does not include a nondisclosure agreement.* This law prevents anyone receiving payments related to sexual harassment or abuse from needing to include those payments as part of their taxable income. ## Conclusion The legal structures around claims of sexual harassment and abuse are changing, and confidentiality is no longer the default for resolution of these types of claims. Both employers and claimants may still want to keep these claims and the terms of their resolution confidential. That is still possible, although there are tax consequences. With the ban on mandatory arbitration of these claims, however, complete confidentiality can only be negotiated for and obtained as part of a pre-litigation settlement (or settling a state court claim after service but before filing). It is, therefore, more important than ever for employers to establish sexual harassment and misconduct policies and to provide education and training to try and mitigate the risk associated with these types of claims ahead of time. FMJ’s [HR & Employment Team](https://www.fmjlaw.com/practice-area/hr-employment/) is available to assist with policy and handbook reviews, training, and/or consultations regarding any legal questions that may arise. Our [Litigation Team](https://www.fmjlaw.com/practice-area/litigation/) is also available to help if any claims do arise, including claims of sexual harassment or abuse.  Please contact [V. John Ella](https://www.fmjlaw.com/professional/v-john-ella/) or [Shannon McDonough](https://www.fmjlaw.com/professional/shannon-m-mcdonough/) to discuss issues above and ways that we can help your organization navigate these complex situations. 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