The Department of Defense Appropriations Act for fiscal year 2010, which was signed into law on December 19, 2009, contains a provision (section 8116) that prohibits defense contractors from enforcing employment contract arbitration provisions. This Act prohibits the use of funds appropriated for any Defense Dept. contract of more than $1 million, awarded more than 60 days after the effective date of the Act unless the defense contractor agrees not to enter into any agreement with employees or independent contractors which would  require, as a condition of employment, the employee or independent contractor to resolve claims 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 through arbitration.  It also prohibits defense contractors from enforcing the arbitration provision of any existing employment or independent contractor agreements for the same types of claims.  This prohibition effects all agreements for all a contractor's employees and independent contractors, not just those employees and independent contractors working on the Defense contract triggering the requirement.

In addition, for all Defense contracts awarded more than 180 days after the effective of the Act will also require contractors to certify that each of its subcontractors or vendors receiving a subcontract in excess of $1 million also do not have or will not enforce the same provisions mandating arbitration in their employment and independent contractor agreements.  And, the obligation applicable to subcontractors/vendors also applies to all of their employees and independent contractors, not just those working of the specific Defense subcontract involved.  Incorrect certifications by prime contractors, based upon incomplete, inaccurate representations from subcontractors or vendors, can expose those prime contractors to later claims by the Government of False Statements Act or False Claims Act violations.  This liability may prompt prime contractors to require subcontractors to indemnify them from any damages resulting from a subcontractor's erroneous representation of compliance as a condition of future subcontract awards.     

Section 8116 provides that Defense contractors may seek a waiver of the application of this Act, but only if the Secretary or the Deputy Secretary of Defense personally determines that the waiver is necessary to avoid harm to national security interests of the United States and that the term of the contract or subcontract is not longer than necessary to avoid such harm.  In the current political climate, it is not expected that the waiver provision will be a viable option.

Companies bidding of Defense contracts can expect to see these restrictions in Invitations for Bid and Requests for Proposals being issued as early as next month, February 2010.