June 3, 2010 Interim DOD Rule Clarifies Federal Contractor Law Prohibiting Mandatory Arbitration of Certain Claims



The Department of Defense ("DOD") issued an interim rule last week implementing the federal law that prohibits federal contractors and subcontractors with covered contracts from requiring their employees or independent contractors to arbitrate certain claims.  Click here to see a copy of the rule.  Contractors with covered contracts must also ensure that their subcontractors are in compliance with the non-arbitration rule and certify such compliance.


The Department of Defense Appropriations Act of 2010 ("2010 Appropriations Act") prohibits employers with a federal contract exceeding one million dollars, which is funded by the 2010 Appropriations Act, from arbitrating employee or independent contractor claims under Title VII or torts arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.  Employers with covered contracts cannot enter into new agreements or enforce current agreements with prohibited arbitration provisions.  The non-arbitration rule likely covers any allegation of discrimination, harassment and retaliation prohibited by Title VII, including claims based on sex, race, color, religion, or national origin.  The arbitration bar does not appear to cover claims arising under the California Fair Employment and Housing Act.

Notably, the non-arbitration rule is not applicable to federal contractors or subcontractors unless they have a single contract that is in excess of one million dollars appropriated or otherwise made available by the 2010 Appropriations Act.  The DOD's interim rule clarifies that the provision of funds, and not the value of the contract, will determine coverage.  For example, if a federal contract valued at 1.5 million dollars is awarded today, and only $10,000 in funds will be appropriated or otherwise made available by the 2010 Appropriations Act, the contract will not be covered by the non-arbitration rule.  Additionally, the rule does not apply to federal contracts for the acquisition of commercial items, including commercially available off-the-shelf items.

The DOD issued the interim rule on an emergency basis and, after receiving public comment, will later issue a final rule.

What This Means

Employers must review their federal contracts to determine whether any contract is covered, or is likely to be covered, by the non-arbitration rule.  Employers with covered contracts cannot require any new employees or independent contractors to sign agreements that require arbitration of prohibited claims.  Nor can employers with covered contracts enforce such existing arbitration provisions.  Finally, employers should be on the lookout for the DOD's final rule, which may make additional changes to the non-arbitration requirements of the 2010 Appropriations Act.

This E-Update was authored by Brenda Kasper, Lisa Frank and Emily Fox.  For more information, please contact Ms. Kasper, Ms. Frank, Ms. Fox or any other Paul, Plevin attorney by calling (619) 237-5200.


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