Congress Limits Arbitration of Employment Disputes by Defense Contractors and Subcontractors

On December 22, President Obama signed into law the 2010 Department of Defense Appropriations Act (H.R. 3326). The spending bill includes a significant amendment, offered by Senator Al Franken of Minnesota, prohibiting certain government contractors from entering into or enforcing arbitration clauses in employment agreements.

The amendment, Section 8116 of the Act, specifies two conditions for receipt of contracts in excess of $1 million from "funds appropriated . . . by this Act." First, defense contractors and other entities receiving funds pursuant to the DoD Appropriations Act must, as a condition of receiving such funds, refrain from entering into any agreement with their employees or independent contractors that contains a mandatory arbitration clause for claims under Title VII of the Civil Rights Act of 1964 or for certain torts related to sexual assault or harassment. Second, such contractors must refrain from enforcing such arbitration provisions in existing employment agreements. In addition, in 180 days, covered contractors will be required to certify that any subcontractor holding subcontracts in excess of $1 million has agreed to abide by these restrictions.

Approval of the DoD Appropriations Act with Senator Franken's amendment may be just the first volley in a broader Congressional battle over mandatory arbitration of employment disputes. The Arbitration Fairness Act of 2009 is pending before the Judiciary Committees of both the Senate and the House. The Act, introduced in the House by Rep. Johnson of Georgia and in the Senate by Sen. Feingold of Wisconsin, would dramatically revise the Federal Arbitration Act by prohibiting the enforcement of nearly all pre-dispute agreements to arbitrate employment, civil rights, franchise, or consumer matters. All employers who are utilizing, or are considering moving to, mandatory arbitration of employment disputes have a stake in the battle that will resume in 2010.