Tennessee Employers Have Fewer Options for Confidentially Settling Sexual Harassment Claims

In the wake of public outrage over Harvey Weinstein, who escaped public notice of numerous sexual harassment complaints against him through The Weinstein Co.’s use of non-disclosure agreements (NDAs) in settling the complaints, and Congress, which has reportedly spent millions of taxpayer dollars in the past 20 years to settle employment claims without public disclosure; Tennessee recently enacted a statute that limits sexual harassment non-disclosure agreements in the context of employment. According to the new law, Tenn. Code Ann. § 50-1-108, employers are prohibited from requiring an employee or prospective employee to execute or renew a non-disclosure agreement regarding sexual harassment in the workplace as a condition of employment. The law applies to agreements executed or renewed after May 15, 2018.

Notably, the law is limited to non-disclosure agreements that are required “as a condition of employment.” It does not apply to non-disclosure agreements in settlements with former employees. It also should not apply to non-disclosure agreements that expressly are not made a condition of new or continued employment. Presumably then, employers can still settle sexual harassment claims on a confidential basis with current employees, so long as the settlement agreement expressly states (and no facts contradict) that signing is not a condition of continued employment, but instead it is a condition of the right to receive a settlement payment.

Relatedly, the federal government has disincentivized confidential sexual harassment settlements. The Tax Cuts & Jobs Act of 2017 eliminated business deductions for sexual harassment/abuse settlements that are subject to NDAs. Even if permitted under state law, Tennessee employers may still opt to omit NDAs from sexual harassment settlements to preserve their federal tax deduction.

If an employer violates the Tennessee statute and terminates an employee for refusing to sign an NDA regarding sexual harassment, the employee may have a cause of action for retaliatory discharge under Tenn. Code Ann. § 50-1-304. It is not clear what remedy a prospective employee would have if not hired because of refusing to sign an NDA.

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The information contained on this blog is not legal advice, nor does this blog create an attorney-client relationship. Klein Bussell attorneys do not blog about pending matters handled on behalf of our clients and will never disclose client confidences.