New Law Bans Defense Contractors from Enforcing Arbitration Agreements
On February 18, 2010, the "Franken Amendment" to the Department of Defense Appropriations Act for 2010 will take effect, requiring defense contractors with contracts valued at more than one million dollars to commit not to: (1) enter into or (2) take any action to enforce, any agreement with employees or independent contractors requiring the arbitration of certain legal claims. Beginning June 18, 2010, the Amendment will also become applicable to federal defense subcontractors on contracts valued at more than one million dollars.1
Widely supported by plaintiffs' lawyers, this Amendment clears the way for more employment disputes to be taken to court, rather than decided in arbitration.
Claims covered under the Amendment include "any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention." There is speculation as to whether the scope of the Amendment extends beyond Title VII claims related to sexual assault or harassment, to prohibit arbitration regarding all Title VII claims, including allegations of race, color, national origin, religion or sex discrimination.
It is also likely that Congress will vote this year on the "Fairness in Arbitration Act," which would prohibit companies from locking employees, customers and franchisees into binding arbitration agreements as a condition of employment. Regardless of that bill's outcome, all government contractors will now be forced to balance the benefits of valuable federal contracts with the risks of costly employment litigation.
Government contractors and subcontractors who are concerned about the implications of these changes should contact one of our government contracts attorneys to discuss how this impacts their existing and potential government contracts.
1 Notably, the Amendment does include an exception allowing the Secretary of Defense to waive application of the ban to particular contractors or subcontractors where it is in the interest of national security.
Widely supported by plaintiffs' lawyers, this Amendment clears the way for more employment disputes to be taken to court, rather than decided in arbitration.
Claims covered under the Amendment include "any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention." There is speculation as to whether the scope of the Amendment extends beyond Title VII claims related to sexual assault or harassment, to prohibit arbitration regarding all Title VII claims, including allegations of race, color, national origin, religion or sex discrimination.
It is also likely that Congress will vote this year on the "Fairness in Arbitration Act," which would prohibit companies from locking employees, customers and franchisees into binding arbitration agreements as a condition of employment. Regardless of that bill's outcome, all government contractors will now be forced to balance the benefits of valuable federal contracts with the risks of costly employment litigation.
Government contractors and subcontractors who are concerned about the implications of these changes should contact one of our government contracts attorneys to discuss how this impacts their existing and potential government contracts.
1 Notably, the Amendment does include an exception allowing the Secretary of Defense to waive application of the ban to particular contractors or subcontractors where it is in the interest of national security.
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