As of last month, the hashtag “#MeToo” was tweeted more than 8.1 million times.^[1] Not surprisingly, what has now evolved into the #MeToo movement has drawn the attention of legislators, courts, and the Equal Employment Opportunity Commission (“EEOC”), which is the federal agency tasked with enforcing antidiscrimination laws in the United States. This has led to changes in the legal landscape. The use of nondisclosure requirements over agreements to settle sexual harassment claims has been restricted. Employer arbitration agreements have come under scrutiny if they require employees to arbitrate claims for sexual harassment. The EEOC is now directing special focus and enforcement dollars on sexual harassment claims.

The EEOC’s Enforcement of Sexual Harassment Claims

In the wake of the #MeToo movement, Congress added $16 million to the EEOC’s budget to tackle workplace sexual harassment and discrimination. The EEOC quickly got to work and reconvened its Select Task Force on Harassment. The Task Force conducted its first meeting titled “Transforming #MeToo Into Harassment-Free Workplace” on June 11, 2018. In its 2018 fiscal year (running from October 2017, when the #MeToo movement first went viral, through September 30, 2018), the EEOC filed 41 sexual harassment lawsuits, a 50 percent increase from the previous year. The EEOC also reported a 12 percent increase this year in EEOC charges filed by individuals alleging that they were victims of workplace sexual harassment. To date, the agency has reported recovering $70 million for victims of sexual harassment as compared to the $47 million it recovered the prior year.

Legislation Restricting the Use of Nondisclosure Agreements

In their settlement agreements, employers typically have included nondisclosure provisions that cover sexual harassment claims. As of the beginning of 2018, however, the Tax Cuts and Jobs Act eliminated an employer’s ability to take tax deductions over such claims. The Act applies to “any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement.”^[2] The Act also prohibits deductions for attorneys’ fees associated with such settlements. As a result, employers are largely faced with two options for handling confidentiality of sexual harassment settlements: (1) they may include a nondisclosure provision and assume the settlement costs without taking a deduction or (2) they may waive the nondisclosure provision to take the deduction and allow the settlement to be open for public scrutiny. Additional guidance from the Internal Revenue Service is expected to be released in the near future. For now, it remains unclear whether allocating a deductible portion to non-sexual harassment claims and fees is enforceable. Without the benefit of additional guidance from the IRS, implementing such strategies is not without risk.

Several states have followed suit and introduced similar provisions restricting confidentiality agreements that conceal “public hazards.” The legislatures of a handful of other states have introduced and enacted bills replicating or extending similar protections in non-disclosure agreements.

California Governor Jerry Brown, for example, recently signed Senate Bill 820 prohibiting settlement agreements that prevent individuals from disclosing factual information related to claims of sexual assault, harassment, discrimination, or retaliation. Senate Bill 1300 similarly prohibits employers, in exchange for a raise, bonus, or as a condition of employment or continued employment from: 1) requiring an employee to sign a release agreement stating that the employee does not have a claim or injury against the employer or that limits an employee’s right to file or pursue a civil action, or otherwise notify a government entity; or 2) requiring an employee to sign a non-disparagement agreement, restricting an employee’s “right to disclose information about unlawful acts in the workplace, including, but not limited to, sexual harassment.”^[3]

Businesses’ Use of Arbitration Agreements

Particularly in light of the U.S. Supreme Court’s decision upholding the enforceability of arbitration agreements that restrict employee class actions, many businesses are electing to have employees resolve workplace disputes through mandatory arbitration.^[4] In this #MeToo climate, however, employer’s arbitration agreements have come under legislative scrutiny. Despite courts typically favoring arbitration clauses, some states have introduced new laws banning them in the context of sexual harassment claims. Such legislation aims to remove the secrecy around sexual harassment claims and to deter harassment by affording alleged sexual harassment victims the chance to resolve their claims with the full transparency and publicity of a court proceeding.

Several states’ legislators have introduced legislation that would render mandatory arbitration in sexual harassment cases unenforceable. The same effort is also being introduced at the federal level. Notably, although the California legislature passed AB 3080 prohibiting mandatory arbitration agreements, the bill was recently vetoed by California Governor Jerry Brown. In his accompanying letter, Governor Brown recognized that the proposed bill restricting mandatory arbitration of sexual harassment claims “plainly violates federal law” in light of the Supreme Court’s recent decision upholding the enforcement of mandatory pre-dispute arbitration agreements.

How Are Businesses Staying Ahead of this Issue?

• Employers are considering retaining legal counsel to conduct internal investigations. The #MeToo movement has drastically increased the need for internal investigations to be conducted by outside counsel. Hiring outside counsel may help ensure the investigations are objective and independent, and that the findings are credible.
• Employers are considering re-training their workforces and auditing their workplace practices to ensure they are following company policies and procedures, and applicable law. Particularly if the workforce has not been trained for some time, or if you operate in a state where training may now be mandatory for the entire workforce, such as California, re-training may be critical to ensure employees know how to report concerns and that manager are prepared to respond correctly. With the #MeToo movement not showing any signs of subsiding, now may also be a good time to audit harassment prevention policies and procedures. Employers concerned that old complaints may resurface may want to consider taking measure of the work environment to consider whether additional preventive steps need to be taken to address any looming issues.
• Employers are considering revising company policies on workplace dating. Whether it is a clear case of sexual harassment, a miscommunication, or a consensual relationship turned sour, outlining clear expectations in company policies about conflicts of interest and other prohibited conduct may help employers avoid preventable costs associated with ensuing litigation.
• Employers are considering reviewing their contractual agreements with employees. As new legislation continues to be passed, particularly at the state level, employers may want to consider revising their employment, confidentiality, arbitration, settlement and release, and other agreements to ensure compliance with any new restrictions and to align them with their company’s culture.
• Employers are considering taking steps to mitigate possible reputational damage associated with sexual harassment claims. With social media, employers risk having their reputations damaged publicly by mere accusations of sexual harassment, even where a lawsuit has not been filed or where the claims are wholly unfounded. Employers may want to consider forming strategic legal and communications teams to navigate the potential publicity fallout of being accused of such #MeToo claims. Employers may want to consider forming such teams to develop a plan to protect the company’s rights against misappropriation and confidentiality breaches while avoiding bad publicity and preventing piggyback retaliation claims.

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^[1] Lisa Singh, #MeToo Movement Twitter Data Mined by Computer Science Professor (September 10, 2018), https://www.georgetown.edu/news/metoo-movement-twitter-data-mined-by-computer-science-professor.

^[2] 26 U.S.C.A. § 162(q) (West 2018).

^[3] SB 820 is added as Section 1001 to the Code of Civil Procedure.

^[4] Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 200 L. Ed. 2d 889 (2018), decided in conjunction with Ernst & Young LLP v. Morris (Docket 16-300) and National Labor Relations Board v. Murphy Oil USA, Inc. (Docket 16-307).