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New Jersey Crime Categories

As explained in our previous posts, the most serious offenses are categorized as “felonies” and less serious as “misdemeanors.”  While this is true in nearly every state, there is an exception (of course) and that exception is New Jersey.

In New Jersey, crimes are not categorized as felonies and misdemeanors but as “indictable crimes,” “disorderly person offenses,” and “petty disorderly person offenses.”

According to New Jersey law, indictable offenses are the equivalent of felonies in other states. Courts classify charges into first, second, third, and fourth-degree charges. A first-degree offense is the most serious of all charges. “Indictable” means that a grand jury has found enough evidence against the defendant to make them face trial.

“Disorderly person offenses” and “petty disorderly person offenses” (sometimes referred to as “DP offenses”) are the equivalent of misdemeanors in other states because they are less serious offenses and are punishable by less than one year in jail.

Civil Cases and Garnishees

A common occurrence when searching civil case records for a company is to locate a record that identifies the company’s role in the case as a “garnishee.” What’s a garnishee and should these cases be included in background reports?

A garnishee can be any company (or person) who holds property (including money) owed to a debtor – that is, someone who has an unpaid judgment against them.

Employers often become a garnishee because they hold wages to be paid to an employee who is a debtor. A creditor can use a procedure called a wage garnishment, which is a court order, that requires the debtor’s employer to hold the debtor’s wages to pay the creditor. The employer as garnishee simply pays the employee-debtor’s wages to the court.

Because a garnishee’s involvement in a civil case is neither negative nor noteworthy, it typically should not be included in the report.  

Reporting Disclosed Criminal Records — Non-Convictions

Previously, we emphasized the limitations that several states and the District of Columbia place on reporting criminal convictions even though a job applicant discloses the conviction during the application process. What about limitations on reporting disclosed criminal records that do not result a conviction? Criminal records of non-convictions include: 

  • Arrest record (no charges filed) 
  • Dismissed charges 
  • Not guilty verdicts 
  • Deferred prosecution (no plea entered, and charges dismissed if conditions met) 
  • Nolle prosequi or nolle prosse (not prosecuted) 

Although the federal Fair Credit Reporting Act (FCRA) permits convictions to be reported regardless of when the conviction occurred, the FCRA limits the time for reporting non-convictions. Records of non-convictions are reportable for seven years from the earliest file date for the record and can appear on a background report for seven years. After seven years, the record cannot be reported unless the candidate is or will be earning more than $75k annually.

The FCRA seven-year rule applies in all states except California, Kentucky, New York, and New Mexico. These states prohibit reporting any records non-convictions, regardless of date of the record. California, New York, and New Mexico provide an exception for records of pending criminal cases. 

Legal considerations when recruiting, hiring out-of-state WFH employees

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Since the COVID-19 pandemic, employees working from home (WFH) have created a host of new wrinkles for employers, many of which are still being ironed out.

For employees, the WFH option can be safer (less chances of contracting COVID) and easier (no more commute); for employers, WFH reduces the cost of overhead and can result in happier, more productive employees.

While it may sound easy to simply hire a worker on the other side of the country, there are several legal questions for employers who want to recruit and hire an out-of-state employee who will WFH. The following are some of the important issues that employers should consider.  

  • Recruiting. Looking for a new employee beyond state lines appears to present a limitless supply of potential new workers. But employers need to familiarize themselves with the laws of the state where the applicant lives, particularly with regard to issues such as background checks, criminal record searches and compensation.

Several states – including New Jersey and New York – prohibit employers from inquiring about a job applicant’s salary, benefits and other compensation history.

Other factors may make certain locations a more advantageous space to find new WFH hires.

Some states offer financial incentives to remote workers. Alabama, Georgia, Oklahoma, and West Virginia offer bonuses to entice remote workers, ranging from reimbursement of moving expenses to $12,000 in cash (West Virginia will pay $10,000 divided over the course of 12 months with $2,000 paid at the end of the second year in residence).

  • Employee benefits and protections. Once an out-of-state employee has been hired to WFH, employers have a whole new list of individual state laws to learn. Each state has its own variations on employee benefits as well as legal protections – and in many cases, additional differences at the county and/or municipal level.

These differences can present the possibility of additional liability for employers on issues such as paid sick leave, paid family leave, minimum wage, disability, unemployment and vacation days, among others. 

State laws on minimum wage vary widely, along with differences for tip credits and minimum salary thresholds for exemptions. The current minimum wage in Texas is $7.25 per hour, for example, while New York’s minimum wage is $11.00.

Paid family leave is now mandatory (or will be soon) in California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, Washington, and Washington, D.C.

As for overtime, most states follow the standard payment of time-and-a-half for hours worked over 40 in a workweek, but a handful (including California) have more stringent requirements, while some states (California again) mandate that earned vacation days never expire. 

Without a physical location in the state where a WFH employee resides and a breakroom to hang various notices, an employer must still remember to fulfill poster and notification obligations as well as various mandatory training. Remote employees do not need to tape posters up on their walls to satisfy state laws, but employers do need to provide certain information and documentation to out-of-state WFH employees to achieve compliance by sharing – and updating – federal, state, and local notices.

Even if an employer has a single WFH employee in another state, workers’ compensation insurance is necessary, along with registration with the appropriate state agency. Some states have their own fund that employers must contribute into, while a third-party insurance company will suffice in others.

In addition, each state has different laws on employee protections, sometimes with variations at the local level. Employers should be careful to consider state, county and/or municipal statutes and regulations with regard to non-compete agreements, discrimination and retaliation protections and the requirements to legally terminate an employee.

  • Tax implications. Employees must be registered for tax purposes in the state where they reside, which means the company itself needs to register its presence in those states for tax purposes. That potentially newfound “tax nexus” to another state may mean sales and use taxes, income taxes and franchise taxes for the employer as well, depending on the requirements of the other state. The failure to properly register and pay the appropriate taxes can result in fines and penalties.

The registration process requires paperwork, time and patience, as it can take several weeks for an employee and the employer to be property registered. And some states – Pennsylvania, for example – also have local city or township registration requirements in addition to those at the state level.

Employers may also be subject to higher corporate income tax rates, which is calculated in part based on the employee’s role and seniority. So a WFH executive in a state with a high tax rate may cost an employer more money than a lower-level WFH employee in that state.

WFH employees themselves may face a tax conundrum with the “convenience of employer” rule that applies in seven states. In Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York and Pennsylvania, if an employee works in a different state than her employer by choice – not because the job mandates – then the employer’s state has the right to tax her, and the employer would be required to withhold taxes from her paycheck in both her home state and the employer’s.

Alternatively, some states have reciprocity agreements that expressly forbid this double taxation. A total of 16 states and Washington, D.C. have such deals, where an employee who lives in Wisconsin and works for an Illinois employer, for example, only pays income taxes in Wisconsin. States that have reached such agreements typically share a border, although Arizona has gone above and beyond, with reciprocity in California, Indiana, Oregon and Virginia.

One additional complication: some states have issued temporary guidance to deal with the out-of-state WFH situation during COVID. Alabama and Georgia stated that they would not enforce payroll withholding requirements for employees who are temporarily working from home due to government-mandated stay-at-home orders; Connecticut said that employees WFH due to the pandemic is a necessity for work but New York reached the opposite conclusion, stating that it is for the employee’s convenience.

Employers should consider all of the legal ramifications before hiring an out-of-state WFH employee.

Tips for Employers on IRS’ Payroll Tax Deferral

Last month, the IRS issued guidance (notice 2020-65) on the President’s recent executive order to defer certain payroll tax obligations. Specifically, employers could offer to suspend their workers’ Social Security payroll taxes from Sept. 1 through Dec. 31, 2020. This deferral would apply only to employees whose wages are less than $4,000 for a biweekly pay period, including salaried workers earning less than $104,000 per year.

When determining whether suspend collection of eligible employees’ Social Security payroll taxes, here are a few things that employers must consider:

As a tax deferral, the Social Security payroll tax obligations are not eliminated; they are merely delayed. Employees would need to repay the deferred payroll taxes during the first four months of 2021. And the responsibility falls on the employers to ensure that the previously deferred payroll taxes are collected from workers’ paychecks. Some employees may not understand that the payroll tax suspension is not permanent and requires future repayment. If employers do not return the previously deferred tax amounts to the IRS by April 30, 2021, penalties and interest will begin to accrue on tax amounts that have not been repaid.

Therefore, if a company does indeed decide to defer some of its employee’s payroll taxes, it would be wise for the employer to create an agreement with employees acknowledging that the deferral is short-term and that they will pay the money back beginning 2021, even if they leave the company.  

Even if an employee requests the payroll tax deferral, the employer is not required to provide deferral. It is up to the employer to determine whether to provide the relief, but they are not obligated to do so. If, however, an employer does decide to offer temporary tax suspension, the employer may want to provide employees with an opt-in or opt-out option, as some may choose not to defer a portion of their taxes.

Since the deferral period ends at the end of 2020, employers should decide soon if they want to offer the option to their employees. There a number of considerations that may go into an employers’ decision, such as working with vendors to make payroll system changes and budgeting for the repayment of taxes in the event collection from employees is not possible. Employers do not need to decide right away if they want to implement the program, but they should not wait too long. The deferral only lasts until the end of the year and taxes are not retroactive, meaning that employers cannot adjust payrolls processed in the past. For example, if an employer begins the deferral in October, they cannot refund employees for amounts that were deducted for Social Security taxes in September.

All in all, whether an employer decides to offer the deferral to its employees, the employer should monitor for additional guidance from Treasury, the IRS, and legislative bodies. There have been discussions of forgiving the deferral, but, ultimately, only time will tell.

Q1 2020: UPDATE OF LAWS AFFECTING EMPLOYMENT BACKGROUND SCREENING

As the year and a new decade unfold, we bring you this update on ban-the-box legislation and laws that restrict credit report usage in employment decisions. And no update would be complete without a reminder about a standard-setting federal appellate opinion from 2019 interpreting the Fair Credit Reporting Act (FCRA) disclosure requirement for an employment background check.

Let’s start with a reminder

In January 2019, the Ninth Circuit’s opinion in Gilberg v. California Check Cashing Stores, LLC made clear that any extraneous information in an FCRA disclosure form regarding an employment background check — even if the information is related to state-mandated expansions of consumer rights — violates the FCRA’s requirement that the disclosure must be “in a document that consists solely of the disclosure.”

Even seemingly innocuous content, such as asking for an acknowledgment that the candidate received the FCRA summary of rights or including a statement that hiring decisions are based on legitimate non-discriminatory reasons may run afoul of the FCRA. And any state and local notices regarding the background check must be provided in separate documents, as applicable to each candidate.

Experts believe that the number of class-action lawsuits brought under the FCRA for technical errors will continue to increase. But there is an easy way to comply:

Present the disclosure to the candidate in a separate, standalone, conspicuous document. Make it clear and simple. Keep it short.

Ban-the-box laws continue to proliferate

“Ban-the-box” measures – which generally prohibit employers from inquiring about a candidate’s criminal history (including performing background checks) until later in the hiring process – continue to proliferate. Currently, 14 states (California; Colorado; Connecticut; Hawaii; Illinois; Maryland (effective February 29, 2020); Massachusetts; Minnesota; New Jersey; New Mexico; Oregon; Rhode Island; Vermont and Washington) and 22 local jurisdictions (Austin, TX ;Baltimore, MD; Buffalo, NY; Chicago, IL; Cook County, IL; Columbia, MO; District of Columbia; Grand Rapids, MI; Kansas City, MO; Los Angeles, CA; Montgomery County, MD; New York City, NY;  Philadelphia, PA; Portland, OR; Prince George’s County, MD; Rochester, NY; Saint Louis, MO (effective January 1, 2021); San Francisco, CA; Seattle, WA; Spokane, WA; Waterloo, IA (effective July 1, 2020 but lawsuit filed to strike down the ordinance); and Westchester County, NY) have such laws in place for private employers.

Be mindful of credit restrictions

Less popular than state and local legislatures on ban-the-box and prohibitions on salary history inquiries, credit check restrictions remain an important consideration for employers. Ten states California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada,Oregon, Vermont, and Washington – as well as Chicago, District of Columbia, New York City, and Philadelphia all place restrictions on employers’ use of credit reports with exceptions for the use of such checks when required by law or the responsibilities of the position.      

Arguably, the most imposing local credit report law to date continues to be the New York City’s Human Rights amendment that went into effect on May 6,2015, and made requesting and using consumer credit history for hiring and other employment purposes, with certain exceptions, an unlawful discriminatory practice. The law provides that a “consumer credit report” includes “any written or other communication of any information by a consumer reporting agency that bears on a consumer’s creditworthiness, credit standing, credit capacity or credit history.”Many legal experts hold that the broad scope of this definition not only prohibits obtaining a consumer credit report but also searches of liens, judgments, bankruptcies, and financially-related lawsuits if there is no exemption. There is no case law on this matter. 

On the national level the U.S. House of Representatives on January 29, 2020, passed legislation that prohibits employers from using credit reports for employment decisions, except when required by law or for a national security clearance. The bill also prohibits asking questions about applicants’ financial past during job interviews or including questions about credit history on job applications. The U.S. Senate, however, is not expected to introduce the legislation.

Avoiding Holiday Legal Entanglements

It’s the happiest time of year – except for employers facing the potential of a religious discrimination lawsuit from employees due to holiday decorations, gift exchanges, and other festivities.

While it may seem Grinch-like, such lawsuits are not uncommon. Just a few months ago, the Equal Employment Opportunity Commission (EEOC) filed suit on behalf of Shekinah Baez against her former employer, Pediatrics 2000. According to the New York federal court complaint, Pediatrics 2000 violated Title VII by denying Baez a reasonable accommodation for her religious beliefs and terminating her because of her religion.

A Jehovah’s Witness, Baez was instructed to plan the company’s 2018 holiday party. The EEOC alleged that Baez’s employer knew that her religious beliefs prevented her from attending a party for another religion (such as a Christmas party) or attend a party that involved drinking or dancing.

During the planning of the party, Baez learned that it would have holiday-themed decorations and entertainment that would make it inappropriate for her to attend, the EEOC said, such as dancers wearing sexy outfits and encouraging the employees to dance. Although other employees were excused from attendance for reasons unrelated to religion, the complaint accused Pediatrics 2000 of refusing Baez’s religious-based request to skip the bash and instead fired her.

That case is ongoing, but there are some ways for employers to avoid becoming a defendant in a similar action.

Title VII prohibits employers from discrimination based on religion and requires them to “reasonably accommodate employees’ sincerely held religious practices” unless it will cause the employer an “undue hardship.”

During the holidays, concerns about religious discrimination can arise in a host of situations, including the context of requests for time off. A Muslim employee may ask to have a break scheduled after sunset during Ramadan when fasting ends, or a Christian worker on the night shift may seek a night off for Christmas Eve mass. Applying the mandates of Title VII, that means employers should generally accommodate reasonable requests for religious observance unless it would cause an undue hardship.

To help reduce complications with time off, floating holidays might be a good option for some employers. This type of excused absence provides employees with the option to take time off for religious observances that they believe in without being required to take time for holidays they do not observe.

Office décor can also be an issue. The U.S. Supreme Court has actually spoken on the legality of holiday decorations. In 1989, the justices ruled in County of Allegheny v. ACLU Greater Pittsburgh Chapter that trees and wreaths are secular symbols, while decorations like a menorah or a creche send a religious message. The EEOC has adopted this position in its Compliance Manual.

Although that ruling applied to a public employer, leaving private employers with the leeway to endorse a religion and display religious symbols in their workplaces, employers may prefer to avoid any potential issues with holiday-neutral decorations – think snowflakes or candy canes – instead of setting up nativity scenes in the conference room and break area.

Employees interested in decorating their own space raise similar concerns. Prohibiting employees from displaying religious-themed holiday decorations in their own workspace could form the basis of a religious discrimination claim, but other employees working nearby could also be offended by an overt religious display. Employers should be careful not to suppress religious expression if the employee decorates their own personal workspace that is not visible to the public and doesn’t imply the employer’s endorsement of the religion.  

Many companies have done away with the annual holiday party for a variety of reasons, from cost to inappropriate behavior by employees to concerns over inclusion. But for those that decide to celebrate the end of the year with their workers, proceed with caution.

To avoid problems, make sure that the party is a voluntary event. Jehovah’s Witnesses don’t celebrate holidays, for example, so requiring an appearance could constitute discrimination. Do not tie the party to a specific holiday and don’t schedule the celebration when it might conflict with a religious observance (such as the night Hanukkah begins).

Food can be tricky, so offer a variety of choices that include vegetarian options as well as items that can meet halal and kosher dietary needs. If alcohol is offered, be sure that nonalcoholic beverages are stocked as well. Similarly, any employer-sponsored gift exchanges should be entirely optional and not holiday-specific – avoid the “Secret Santa” moniker.

A case out of Arizona provides a cautionary tale about many of the dangers of the holiday season for employers. Marcy Rich sued her employer for creating a hostile work environment due to religious discrimination.

Rich, who is Jewish, alleged that her supervisor placed crosses on invitations to a mandatory company holiday party and hired carolers who sang songs with Christian lyrics (like “Christ our Lord”). The supervisor – a born-again Christian – told Rich it was inappropriate to decorate her cubicle with cutouts of a dreidel and a menorah and “Happy Hanukkah” cards.

The employer filed a motion to dismiss the suit, arguing that Rich’s claims were related to Christmas activities, not religion. But the court disagreed.

“This argument lacks merit,” the Arizona federal court wrote in Rich v. Arizona Regional Multiple Listing Service, Inc. “Title VII defines the term ‘religion’ to include ‘all aspects of religious observance and practice, as well as belief.’”

Keeping this principle in mind, employers can strive for a happy holiday season.

Planning ahead for calamity days

Hurricanes. Snowstorms. Wildfires. Although the events differ based on where an employer is located, such natural disasters pose uniform questions about how to handle potential closures and payment to employees who may not be able to make it into work because of extreme weather or other forms of emergency. 

Sometimes called “calamity days,” such disruptions pose practical problems – Should we close the office? Can people work from home? – as well as legal ones.

Employers need to establish a written policy for calamity days with an aim toward setting expectations with regard to emergency situations. The policy should begin with a definition of the term, such as “the closure of an office by reason of hazardous weather conditions, law enforcement emergencies or disease epidemic.”

The definition should be tweaked depending on the nature of the employer’s business and the geographic location, possibly including the events that will trigger a closure (a specific snowfall amount, a declaration of emergency by government officials or an electrical outage or loss of heat, for example).

Other policy details should include how employees will be contacted and informed in the event of such a day, whether and how employees will be paid for calamity days and instructions on how a worker should proceed if he or she cannot make it into the office.

In terms of legal considerations, several federal statutes come into play.

The Occupational Safety and Health Act’s promise of “safe and healthful working conditions” applies to all national employers with one or more employees. The statute places the responsibility to protect employees from unreasonable danger in the workplace (including natural phenomenon) on the shoulders of employers. Employers should keep this requirement in mind when making decisions about asking employees to come into work in the event of severe weather conditions or other emergencies.

What about paying employees for calamity days? The analysis begins with the Fair Labor Standards Act. The Department of Labor has stated that if employers close for less than a full workweek because of inclement weather or a related emergency, employees need to be paid their normal salary. Closure for a full workweek or more relieves the employer from paying exempt employees.

If an exempt employee elects to take time off under such circumstances, the employer may require the use of vacation time or other paid leave or deduct from the worker’s salary if they don’t have any paid leave remaining. This scenario often presents itself as a snowstorm that results in schools or day care providers closing, requiring parents to remain home with their children even though the employer remains open.

For non-exempt employees, different rules apply. Generally speaking, hourly employees do not need to be paid if they do not come into work, even if the employer closes the business because of an emergency. A partial closing, where an employee reports for work and the employer later decides to halt operations, does require payment for the hours worked.

Adding to the calculus: state laws, which have varying requirements. Some states may require compensation for non-exempt employees in certain circumstances, such as reporting time pay laws or jurisdictions that have “secure” or “predictable” scheduling laws. Many of the state and local laws do feature exceptions for extreme weather scenarios or other emergencies, however.

Employers also have the option to permit employees to work from home (where possible) or pay employees for such days. Although not legally required, these options can cement a better relationship with workers.

Even after a natural disaster ends, employers may face tricky issues.

The Americans with Disabilities Act provides that workers who are physically or emotionally injured as a result of a catastrophe may be entitled to reasonable accommodation by the employer, as long as it would not place undue hardship on the employer’s business operations.

Similarly, the Family and Medical Leave Act permits employees to take leave for a serious health condition caused by a disaster, not just for themselves but to care for a child, spouse or parent (such as the need to help someone who requires refrigerated medicine or medical equipment in a power outage).

Although extreme weather and emergencies will always present concerns, employers can minimize the uncertainty and unknowns of calamity days with some planning and organization.

Unconscious bias in the workplace

A new advertisement from Procter & Gamble features an African-American man going about his day. While walking down a street, a mother shuts her car window as he walks by; he garners suspicious glances while shopping and a couple elects not to sit near him in a restaurant.

The commercial, dubbed “The Look,” ends with the statement: “Let’s talk about the look so we can see beyond it.”

Intended to spur conversation about racial bias, the spot attempts to depict unconscious bias in daily life.

“Unconscious bias” refers to the stereotypes – both positive and negative – that exist in the subconscious and affect behavior. For employers, such stereotypes are particularly hard to handle as people often don’t even realize they exist, let alone that they are being used in the workplace.

Take resumes, for example. In 2012, scientists at Yale conducted a study of identical resumes that differed only in the candidate’s first name. They found that the candidate with the male name was viewed as more experienced and talented, more likely to get hired and to be paid more than the candidate with the female name.

Similarly, a study comparing identical resumes with either a “white”-sounding name or an “African-American-sounding”-name documented unconscious racial bias. The researchers found that the “white” names received 50 percent more callbacks for interviews, across occupations and industries.

Unconscious bias can take other forms, such as “similarity” or “affinity” bias, where people turn toward those with a similar background (individuals who attended the same college, for instance, or who grew up in the same town) or the “halo effect,” where one good thing about a person colors an opinion about all aspects of their personality – i.e., because she went to a good school, she is smart and trustworthy and deserves a promotion.

The opposite impact is known as the “horns effect,” when one negative trait (an employee was late to work one morning) impacts the perception of all characteristics about him (late to work means he is generally lazy and incompetent).

For employers, unconscious bias can limit the pool of candidates being hired and promoted, which in turn can decrease diversity, inclusivity and the growth of the company. Unconscious bias can also negatively infect the interactions between employees at a workplace.  

To combat unconscious bias, employers can begin by raising awareness and starting a conversation about the issue. A few other tweaks can help reduce the opportunity for unconscious bias to arise. Employers can consider a switch to “blind” application forms that eliminate gender, age, religion or ethnicity so that such factors are less likely to come into play for applicants.  

Another option at the hiring stage would be adding more decision makers. By getting more than one person involved in the hiring process, the chance of different opinions and perspectives could open the door to more candidates and move away from the assumptions of just one person. Widening the net when recruiting and making personnel decisions accountable (by requiring people to explain the reasoning behind rejecting a candidate or promoting one individual over another), also help.

For existing staff, employers can continue the conversation about unconscious bias and institute training. Formal mentorship relationships where the employer partners up junior employees with more senior workers – and not ad hoc mentorships, where individuals tend to seek out those with similar backgrounds – can also improve the representation of different perspectives. 

The hot trend in legal agreements: Weinstein clauses

The #MeToo movement has triggered a sea of change with regard to sexual harassment in the workplace, including a new trend in legal agreements.   

Dubbed the “Weinstein clause,” the new addition to the standard roster of representations and warranties in a sales agreement focuses on a company’s knowledge or awareness of accusations of sexual misconduct against its executives and managers.

For example, if Company A decides to purchase Company B, the practice has always been for the soon-to-be acquired company to disclose any information about its financial situation as well as ongoing litigation or threats of lawsuits, and represent that it has complied with certain laws. Issues like allegations of sexual misconduct were not previously part of the consideration.

Now, in the wake of the disclosures of decades of alleged sexual harassment and abuse by former Weinstein Company CEO Harvey Weinstein, a new clause has appeared. Company B is now being asked to represent to Company A that individuals holding leadership positions have not been accused of sexual misconduct and that Company B has not entered into a settlement agreement related to sexual misconduct.

A typical clause may read: “To the Knowledge of the Company, (i) no allegations of sexual harassment have been made against (A) any officer or director of the Acquired Companies or (B) any employee of the Acquired Companies who, directly or indirectly, supervises at least eight (8) other employees of the Acquired Companies, and (ii) the Acquired Companies have not entered into any settlement agreement related to allegations of sexual harassment or sexual misconduct by an employee, contractor, director, officer or other Representative.”

In some cases, Company B has been asked to put some of the purchase price in escrow for a period of time to cover costs shouldered by Company A in the event allegations of sexual misconduct arise after a transaction. Other clauses feature a time period going back several years, often past the actual statute of limitations for claims based on the conduct at issue.

A review of agreements involving public companies by Bloomberg revealed the clauses are being used by companies in a host of industries, from real estate to hospitality to entertainment to healthcare. While the use of the clauses was at first limited to large deals, they are now being found in deals of all sizes.

A variation on the Weinstein clause is also making its way into employment agreements. Companies have reportedly started to change their contracts with executives to be more explicit about sexual harassment and misconduct with regard to termination for cause, in the hopes of reducing (or eliminating) severance pay or the acceleration of stock options when a high-ranking employee is asked to leave.

Previously, cause for termination was generally limited to triggering events such as conviction of a crime.

In addition, companies are asking incoming executives to affirmatively represent that they have not been the subject of a sexual harassment claim, reached a settlement agreement involving allegations of sexual misconduct and/or engaged in harassment or misconduct.

The updated employment agreements serve a two-fold purpose: to create an incentive for executives to avoid such behavior and to protect the company in the event the executive does engage in sexual misconduct.

Allegations of sexual misconduct are now a significant business risk to companies, as evidenced by the drop in $3.5 billion in value to shareholders of Wynn Resorts after sexual harassment allegations surfaced against Steve Wynn; Weinstein’s production company, valued at $200 million, filed for bankruptcy as the claims against him mounted. 

Whether in an employment agreement or sales deal, the so-called Weinstein clauses demonstrate the concrete effect of the #MeToo movement that continues to play out for employers and businesses, with greater scrutiny on culture, diversity, sexual harassment claims and preventative measures.