• Attention Federal Contractors: Your Arbitration Agreement May be Unenforceable
  • June 14, 2010 | Author: Sean M. Golden
  • Law Firm: Vandeventer Black LLP - Richmond Office
  • At the end of 2009, President Obama signed the Fiscal Year 2010 Department of Defense Appropriations Act.  Included in this Act is The Franken Amendment, which dramatically restricts the use of mandatory arbitration clauses in employment contracts between defense contractors and their employees or independent contractors. 

    The Franken Amendment provides that any federal contractor who receives funds appropriated from the Defense Appropriations Act in excess of $1 million must agree not to:

    1. Enter into any agreement with any of its employees or independent   contractors that requires, as a condition of employment, that the employee or independent contractor agree to resolve through arbitration any claim under Title VII of the Civil Rights Act of 1964 or any tort related claim arising out of sexual harassment or sexual assault, including false imprisonment, intentional infliction of emotional distress, assault and battery, or negligent hiring, supervision or retention; or

    2. Take any action to enforce any provision of an existing agreement with an employee or independent contractor that mandates the employee or independent contractor resolve such claims through arbitration.

    Thus, this Act not only restricts the future use of the foregoing arbitration provisions, but a qualifying federal contractor cannot enforce existing arbitration agreements related to the aforementioned claims.  Subcontractors are covered by the Amendment provided that the subcontractor performs work directly related to a covered defense contract and if the subcontract exceeds the $1 million threshold. 

    Qualifying federal defense contractors and subcontractors should take a close look at their contracts or any subcontracts and modify those agreements in accordance with the Franken Amendment.  Those contractors and subcontractors should also notify their employees and independent contractors who have existing arbitration agreements that any arbitration agreement that includes Title VII or other sexual harassment/assault claims that portion of the agreement will not be enforced.  Federal defense contractors can and should expect that Congress will seek to implement permanent restrictions beyond 2010.