New Law Bans Certain Arbitration Agreements for Recipients of Federal Funds

On December 19, 2009, President Obama signed into law a new Defense Appropriations Act. The Act contains a provision with important implications for federal defense contractors and subcontractors that have implemented arbitration agreements for their employees. Specifically, the Act prohibits the federal government from awarding funds appropriated by the Act for any federal contract in excess of $1,000,000 if a contractor requires its employees or the employees of an independent contractor to arbitrate certain claims. The Act sets out two conditions that a defense contractor must meet in order to receive federal contracts in excess of $1,000,000. First, the contractor must agree not to enter into any agreement 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." Second, the contractor must agree not to take any action to enforce any agreement by an employee or independent contractor to arbitrate such claims. The new provision also covers defense subcontractors. It provides that defense contractors must certify that any subcontractor that has a federal contract in excess of $1,000,000 also agrees not to enter into or enforce arbitration agreements with its employees and independent contractors.