• New Rule Addressing Restrictions and Obligations of Defense Contractors Use of Mandatory Arbitration Provisions
  • June 10, 2010 | Authors: Fred Gants; Otto W. Immel; Ely A. Leichtling; Marian M. Zapata-Rossa
  • Law Firms: Quarles & Brady LLP - Madison Office ; Quarles & Brady LLP - Naples Office ; Quarles & Brady LLP - Milwaukee Office ; Quarles & Brady LLP - Phoenix Office
  • A new interim rule prohibits employers from receiving federal defense contracts in excess of $1 million if they seek to enforce mandatory arbitration provisions against employees or independent contractors making Title VII or sexual assault and harassment claims. Beginning on June 17, 2010, defense contractors are also required to provide an affirmative certification that their subcontractors likewise comply with the mandatory arbitration prohibitions.

    The rule prohibits the use of funds appropriated or otherwise made available by the Appropriations Act for fiscal year 2010 for any contract in excess of $1 million, if the contractor or its subcontractors require mandatory arbitration of claims brought pursuant to Title VII of the Civil Rights Act of 1964 or tort claims arising out of or related to sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision or retention.

    Defense contractors covered by the rule (i.e., those with contracts utilizing fiscal year 2010 funds in excess of $1 million) with employees who executed mandatory arbitration agreements as a condition of employment can still comply with the rule by not taking any action to enforce the existing arbitration agreements when faced with claims of discrimination under Title VII or any of the covered tort claims. Title VII protects employees from discrimination on the basis of gender, race, color, religion and national origin. Defense contractors subject to the rule’s requirements should not enter into mandatory arbitration agreements with new employees or independent contractors that are contrary to this rule.

    The only apparent exception to the rule is a provision that the secretary of defense or a deputy secretary may waive the application of the rule to a contract, as determined on a case-by-case basis and if necessary to avoid harm to national security.

    The U.S. Department of Defense adopted the interim rule effective on May 19, 2010. The rule implements an amendment to the Appropriations Act signed by President Obama on December 19, 2009.