Defense Appropriations Act Prohibits Mandatory Arbitration

Courtesy of Mark Baker and Jon O’Connell of Holland & Knight

As a result of legislation recently signed into law by President Obama, most defense contractors will no longer be permitted to subject employees to mandatory arbitration for the resolution of certain types of claims.

The new restrictions, included in the Department of Defense Appropriations Act for 2010 (the Act), provide that no funds made available under the Act may be used for a federal contract worth more than $1 million unless the contractor does both of the following:

• Agrees to refrain from entering into or enforcing existing agreements with any employee or independent contractor that requires the resolution through arbitration of any claim under Title VII or any tort related to sexual assault or harassment – including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision or retention
• Certifies that it requires each subcontractor with a subcontract in excess of $1 million to agree not to enter into and not to enforce any such mandatory arbitration provision

The restrictions involving prime contractor employees go into effect for prime contracts awarded more than 60 days following the effective date of the Act. The restrictions involving subcontractor employees go into effect for prime contracts awarded more than 180 days following the Act’s effective date. Although the Act does not specify its effective date, the usual practice is that appropriations bills take effect immediately upon the President’s signature, in this case, December 19, 2009.

Waivers Expected to be Rare

Given the broad wording of the Act, the prohibition on mandatory arbitration does not appear to be limited to prime contractor employees working on the contract funded by the Act. However, the Act does limit the arbitration prohibition to subcontractor employees performing work related to the subcontract.

Although the Secretary of Defense has the authority to waive application of the new restrictions for a particular contract or subcontract when necessary to prevent harm to national security interests, such exemptions will likely be rare.

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