Legislature Passes Laws Impacting Settlement Agreements, Damages for Claims of Sexual Harassment and Abuse, and Employers’ Ability to Inquire into Applicants’ Pay History

Recently, we have covered major legislation that was passed by the Minnesota legislature, including Statewide Paid Family and Medical Leave, Statewide Paid Sick Leave, a non-compete ban, and much more. While those pieces of legislation are rightfully receiving much attention, employers should also take note of new laws impacting settlement agreements, damages for employees’ claims of sexual harassment or abuse, and employers’ ability to inquire into applicants’ pay history that were slipped into larger pieces of legislation.

We expect these new laws to be signed by Governor Walz in the coming days.

Sexual Harassment and Abuse Settlements and Damages

First, the legislature included language in its omnibus tax bill prohibiting settlement agreements stemming from allegations of sexual harassment or abuse from including a financial payment to the employee in the form of wages or severance pay. Specifically, statute section 181.141 was amended to provide:

In a sexual harassment or abuse settlement between an employer and an employee, when there is a financial settlement provided, the financial settlement cannot be provided as wages or severance pay to the employee regardless of whether the settlement includes a nondisclosure agreement.

This language becomes effective the day following final enactment of the law.

Second, the legislature amended statute section 290.0132 to add a new subdivision addressing damages received by an employee resulting from a sexual harassment or abuse claim:

The amount of damages received under a sexual harassment or abuse claim that is not excluded from gross income under section 104(a)(2) of the Internal Revenue Code because the damages are not received on account of personal physical injuries or physical sickness is a subtraction.

This new section is effective for taxable years beginning after December 31, 2022.

Inquiries into Applicants’ Salary History Prohibited

Finally, Minnesota is poised to become the 29th state to prohibit employers from inquiring into an applicant’s salary history. The legislature included language in its judiciary bill that will amend the Minnesota Human Rights Act to provide:

An employer, employment agency, or labor organization shall not inquire into, consider, or require disclosure from any source the pay history of an applicant for employment for the purpose of determining wages, salary, earnings, benefits, or other compensation for that applicant. The general prohibition against inquiring into the pay history of an applicant does not apply if the job applicant’s pay history is a matter of public record under federal or state law, unless the employer, employment agency, or labor organization sought access to those public records with the intent of obtaining pay history of the applicant for the purpose of determining wages, salary, earnings, benefits, or other compensation for that applicant.

The new legislation makes clear that applicants are not prevented from “voluntarily” disclosing their pay history “for the purposes of negotiating wages, salary, benefits, or other compensation.” If the applicant voluntarily discloses their pay history, then the employer may consider or act on that “voluntarily disclosed salary history information to support a wage or salary higher than initially offered by the employer[.]” Further, the new legislation provides that employers are not prohibited from providing applicants with “information about wages, benefits, compensation, or salary offered in relation to a position” or from “inquiring about or otherwise engaging in discussions with an applicant about the applicant’s expectations or requests with respect to wages, salary, benefits, or other compensation.”

The ban on inquiries into applicant’s salary history is effective January 1, 2024. However, for employment covered by collective bargaining agreements, the legislation “is not effective until the date of implementation of the applicable collective bargaining agreement that is after January 1, 2024.”

Bottom Line

While other pieces of legislation may be grabbing the headlines, employers should take note of these important changes in the law. We will continue to review the new laws passed by the legislature and provide updates accordingly.