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Over the past several years, employers have increasingly included clauses in their employee agreements requiring that all disputes between the employer and employee be resolved through arbitration. In general, the law has encouraged this trend, finding arbitration clauses to be broadly enforceable. However, in the 2010 Defense Appropriations Act, signed into law by President Obama on December 19, 2009, Congress veered sharply away from this trend, restricting the use of arbitration clauses in employee and independent contractor agreements for Department of Defense (DOD) contractors.

Now, any DOD contractor with a prime contract over $1 million may no longer require its employees or independent contractors to arbitrate claims under Title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment. This applies to all workers of the DOD prime contractor, and is not limited solely to workers performing the DOD contract. Any such arbitration clauses in existing agreements are now unenforceable, and any new employee or independent contractor agreements may not contain such clauses.

Moreover, effective June 17, 2010, subcontractors with DOD subcontracts exceeding $1 million may not enter into or enforce any provision of an employee or independent  contractor agreement requiring arbitration of Title VII or sexual assault or harassment torts.  With respect to subcontractors, however, the new law applies only to workers on the DOD subcontract itself.

It is essential that contractors currently performing, or expecting to perform, DOD contracts or subcontracts ensure that their agreements and policies comply with this new law.

If you are a DOD contractor or subcontractor, you should have your employee and independent contractor agreements reviewed and revised immediately to comply with this new law. Please contact our Business Law department at (301) 340-2020 for assistance in this process.