On February 17, 2010, the Department of Defense (DoD) issued a class deviation to implement the requirements of Section 8116 of the Defense Appropriations Act for Fiscal Year 2010 (Pub. L. No. 111-118), also known as the "Franken Amendment." The Amendment prohibits the use of fiscal year 2010 funds for DoD contracts of more than $1 million unless the contractor agrees not to require employees, as a condition of employment, to agree to arbitration to resolve claims under Title VII of the Civil Rights Act or any tort related to or arising out of sexual assault or harassment. See Questions and Confusion Arise Regarding Scope of Franken Amendment, January 28, 2010.
The class deviation is accompanied by a contract clause that must be included in all relevant contracts awarded after February 17, 2010. Although industry groups had requested that DoD limit the Amendment's applicability to only those prime contractor employees performing work on the covered contracts, the class deviation applies to employment agreements with all prime contractor employees and independent contractors—regardless of whether they are working on a covered contract. Contractors also must certify by signing the covered contracts that they require each covered subcontractor to abide by the Amendment's requirements. However, the subcontract requirements apply only with respect to those employees or independent contractors performing work related to the subcontract.
Importantly, the deviation does not apply to contracts and subcontracts for commercial items and commercially available off-the-shelf (COTS) items. The deviation, however, does apply to:
- Task or delivery orders using fiscal year 2010 funds and exceeding $1 million, even if the underlying contract is not subject to the deviation;
- Orders under GSA Schedule contracts using 2010 funds and exceeding $1 million; and
- Bilateral modifications that add new work to an existing contract after February 17, 2010, but not modifications that merely add more than $1 million in fiscal year 2010 funds to an existing contract.
As a practical matter, contractors will not be required to invalidate or re-write existing employment agreements in response to the class deviation, but they are prohibited from enforcing the arbitration clauses in those agreements. When drafting new employment agreements, contractors may consider alternative mechanisms for streamlining the claims process, including restrictions on jury trials. In addition, prime contractors will need to develop a mechanism for "requiring" subcontractors to agree to abide by the Amendment.
DoD intends to publish an interim rule to incorporate the class deviation into the Department of Defense Federal Acquisition Regulation Supplement (DFARS) and will consider comments received within two weeks of February 17, 2010, in formulating the interim rule. Wiley Rein will continue to track these implementation efforts, as well as similar pending legislation.