E-Alerts

Federal Contractors And Subcontractors: Re-evaluate Arbitration Provisions

The recently enacted Department of Defense Appropriations Act of 2010 (the “Act”), which provides fiscal year 2010 appropriations for Department of Defense military programs, conditions the award of any federal defense contract exceeding $1 million on the contractor’s agreement not to require arbitration of certain employment claims, including those brought under Title VII of the Civil Rights Act of 1964.  Notably, the new provisions apply to employees and independent contractors of both federal contractors and federal subcontractors. The anti-arbitration provisions apply to all such contracts awarded after February 17, 2010.

Many employers mistakenly assume that they are neither federal contractors nor subcontractors – until they receive a desk audit letter from the OFCCP.  For more information on determining contractor and subcontractor status, please see the Firm’s prior Update article on this topic.

The anti-arbitration provisions state as follows:

None of the funds appropriated or otherwise made available by this Act may be expended for any Federal contract for an amount in excess of $1,000,000 that is awarded more than 60 days after the effective date of this Act, unless the contractor agrees 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 to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, 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 that the employee or independent contractor resolve through arbitration any claim under Title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.

In addition, as a condition to receiving contracts exceeding $1 million under the Act after June 17, 2010, federal defense contractors must also certify that they require each subcontractor with a subcontract exceeding $1 million to agree not to enter into, and not to take any action to enforce any provision of, any arbitration agreement described above with respect to any employee or independent contractor performing work related to the subcontract.

There are, however, wo exceptions to these requirements:  (1) the prohibitions do not apply to contracts or subcontracts that cannot be enforced in theUnited States, and (2) the Secretary of Defense may waive the application of these provisions with respect to any contractor or subcontractor, for purposes of national security.

The Act’s anti-arbitration provisions reflect an Obama Administration policy against the continued expansion of arbitration as a means to resolve employment disputes.  In this regard, the U.S. Supreme Court held in 2001 that mandatory arbitration provisions in employment agreements are enforceable under the Federal Arbitration Act.  Last year, the Court further expanded the scope of arbitration in employment disputes by ruling that collective bargaining agreements can require the arbitration of discrimination claims as long as the intent to cover such claims is “clear and unmistakable.”  Shortly thereafter, the Supreme Judicial Court of Massachusetts adopted the “clear and unmistakable” standard in ruling that state discrimination claims are arbitrable.  The Act clearly seeks to alter this trend.

In light of the Act’s anti-arbitration mandate, federal defense contractors anticipating the award of one or more federal contracts exceeding $1 million should consider taking the following measures:

• Identify all existing arbitration requirements in employment agreements, independent contractor agreements, employee handbooks, and the like, and take steps to ensure that no action will be taken to enforce any such provision relative to the claims identified in the Act after the award of a covered federal contract;

• Review and revise all “model” or “template” employment and independent contractor agreements to ensure that employees and independent contractors hired after the award of a covered federal contract are not being asked to sign documents requiring the arbitration of claims identified in the Act;

• Review and revise all “model” or “template” subcontracts to ensure that covered subcontracts awarded after June 17, 2010 contain the required certification;

• Review and revise employee handbooks, policy manuals, management guidelines, and the like to ensure consistency with the Act; and

• Provide training to supervisors, managers, and human resources personnel relative to the Act’s anti-arbitration requirements.

Inclusion of arbitration restrictions in the Act may be a sign of things to come.  In this regard, employers should closely watch the proposed Arbitration Fairness Act of 2009.  Both the House and the Senate version of this statute (H.R. 1020; S. 931) would eliminate an employer’s right to enter pre-dispute arbitration agreements covering (a) employment claims and (b) civil rights claims.  Moreover, while the House version would exempt collectively bargained arbitration provisions, regardless of how broad, the Senate version would allow employees to bring court actions against their employers based on constitutional, statutory, or public policy claims,  notwithstanding any collectively bargained arbitration requirement.

Please do not hesitate to contact us if you have questions about the anti-arbitration provisions of the Department of Defense Appropriations Act, if you would like assistance drafting agreements or policies that comply with them, or for assistance in determining federal contractor/subcontractor status.