This provision had little discussion in the legislative process and appears to be a knee-jerk response to the “#Metoo” movement and recent publicity involving high profile sexual harassment cases. Unanswered questions include how attorneys’ fees related to the defense of a sexual harassment case will be treated for tax purposes, and whether a company can structure a settlement to separate out the sexual harassment claims if a plaintiff sues under multiple theories. For example, if a plaintiff sues for sexual harassment and wrongful discharge, could the company settle the sexual harassment claim for one dollar without confidentiality, then execute a separate agreement on the remaining claim with a full confidentiality clause protecting the bulk of the settlement amount?
No doubt, plaintiffs’ lawyers are already jumping on the bandwagon and pushing sexual harassment cases in the wake of the recent publicity. This law will provide even more leverage because the company will now have to decide whether it wants to risk losing the deduction as a business expense for the litigation fees and settlement of a claim, versus allowing a plaintiff to publicize a settlement (which could encourage more litigation). Neither of those options are good choices for employers.