Legislation to combat employers’ hush money payout schemes wins bipartisan support

Shhh. I’ll cut you a check. Just sign here. Now don’t tell anyone what happened – ever.

Employers have a habit of attaching nondisclosure agreements to sexual harassment or abuse settlements with former employees and classifying them as “severance payments.”

According to Rep. Heather Edelson (DFL-Edina), this difference in semantics allows employers to continue the victimization of survivors and adversely affects employees’ financial restitution.

She sponsors HF1056, which seeks to bar this practice in Minnesota.

“What we are talking about is a loophole in the law that benefits companies at the cost of victims of sexual harassment,” Edelson said.

The House Labor and Industry Finance and Policy Committee approved the bill, as amended, Thursday. It will be heard next in the House Judiciary Finance and Civil Law Committee.

Terming legal settlements as “wages” or “severance pay” has several effects for employees and employers. In regard to employees, settlements described in this way are subject to state income taxes while also disqualifying claimants for unemployment insurance benefits.

“In 2014, I signed a nondisclosure agreement with my previous employer for sexual harassment,” said Julie Risser. She received a settlement, but it was a sliver of what she had expected because of taxes. She was also kicked off the unemployment insurance rolls while the payments were being disbursed.

By contrast, employers are actually able to reduce their tax liability by claiming these payments and associated attorney fees as business expenses.

In light of this, the bill would do two main things.

First, when a sexual harassment or abuse claim is settled out of court, an employer could noy characterize the payouts as “wages” or “severance pay” if a nondisclosure agreement is also attached to the settlement.

Second, payouts made to employees would be non-taxable by the Department of Revenue, effective with tax year 2023. This would also be true of financial payments stemming from settlements that do not include a nondisclosure agreement.

The issue transcends money, however. Calling settlements “severance” continues the abuse survivors have experienced, according to Artika Roller, executive director of the Minnesota Coalition Against Sexual Assault.

“[This] compounds the harm and allows employers to hide the record of wrongdoing,” she said.