What the Senate tax bill would do for sexual harassment victims

Explaining the language of sexual harassment
Explaining the language of sexual harassment

An amendment to the tax reform bill working its way through Congress would deny businesses the ability to write off sexual harassment settlements as business expenses.

The Senate tax bill, passed by the Senate Finance Committee Thursday, includes an amendment that says businesses cannot deduct settlements, payouts, attorney fees or other expenses related to sexual harassment or sexual abuse, if such payments are subject to a nondisclosure agreement.

The amendment was proposed by New Jersey Democratic Senator Bob Menendez.

The proposal could affect sexual harassment settlements in a couple of ways. Businesses would no longer be allowed to write off legal settlements, fines and other expenses associated with sexual assault and harassment as "ordinary and necessary business expenses." And by denying these deductions, the amendment would make it costlier for companies to cover up misconduct.

"Right now a company can secretly settle allegations of sexual harassment in the workplace, silencing the victim and making it harder for other victims to come forward to seek justice," wrote Juan Pachon, spokesperson for Menendez, in an email to CNNMoney. "To add insult to injury, these same corporations can actually take a tax break for those payouts. Senator Menendez believes it's wrong for corporations who fail to protect their employees from sexual harassment to be able to write it off as an 'ordinary business expense."

A similar amendment to the House tax bill was proposed by Colorado Republican Representative Ken Buck earlier this week, but was not included in the final version of the House bill passed by the entire House on Thursday.

"As Congress rethinks our tax code, we need to rethink the way we treat Hollywood by eliminating the business expense deduction for hush money associated with sexual assault and sexual harassment cases," Buck wrote in a statement Tuesday.

Related: The words we use to describe sexual harassment

The proposed amendment would create transparency, according to Lauren Leader-Chivee, CEO and co-founder of All in Together, a non-partisan women's organization. Leader-Chivee applauded the amendment's focus on non-disclosure agreements, which advocates say play a key role in covering up incidents of sexual harassment.

But, she says, looking at tax deductions isn't going to solve some of the main problems plaguing harassment victims.

"At this point, anything we can do to hold institutions accountable [helps]," she says. But "it doesn't change some of the core issues, around secrecy and reporting. I would prefer to see companies are required, for instance, in their annual reports to list any settlement, make public any settlement or conduct-based settlement."

Daniel Hemel, assistant professor of law at the University of Chicago law school, says the amendment's specific mention of non-disclosure agreements seems intended to disincentivize them -- a move that stops short of banning their use altogether.

"This is a pretty soft punishment if you're trying to deter closed agreements," he says. "I would think of this as largely symbolic legislation, but not exclusively so. It may change the way that some subset of sexual harassment cases are handled. But look, if an employer has a very strong preference for a closed agreement, then the tax deduction is unlikely to convince them to have an open agreement."

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