On May 19, 2010, the Department of Defense (DoD) issued an interim rule 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 any employee or independent contractor, 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. Covered contractors also must certify they require subcontractors to comply with the Amendment's restrictions. The interim rule, which is effective immediately, hews closely to the text of the Amendment and the class deviation DoD issued in February 2010 to implement the Amendment. See DoD Issues Class Deviation on Franken Amendment, February 19, 2010.

The interim rule creates DFARS Subpart 222.74 to address the scope and applicability of the Amendment, as well as DFARS clause 252.222-7006, which must be included in all covered contracts. As in the class deviation, the interim rule does not apply to contracts or subcontracts for the acquisition of commercial items. The interim rule also clarifies that "the contractor" for purposes of the DFARS clause is only the entity that is a party to the covered contract; the DFARS clause does not apply to a parent or subsidiary company unless it is a party to the contract. The interim rule, however, fails to address a source of confusion in the Amendment and class deviation-the statement that these provisions do not apply to employment agreements that "may not be enforced in a court of the United States." Although the interim rule repeats this language, it provides no guidance or interpretation regarding who should determine whether an agreement is enforceable in U.S. courts, or what criteria should be used to make that determination.

Despite requests from industry groups, the interim rule also does not limit the applicability of the Amendment to lower tier subcontractors. See Questions and Confusion Arise Regarding Scope of Franken Amendment, January 28, 2010. Instead, prime contractors whose contracts include the DFARS clause must certify that they require subcontractors at any tier who hold non-commercial item subcontracts valued at more than $1 million to agree to abide by the DFARS restrictions with respect to any employee performing work related to the subcontract. The requirement to certify subcontractor compliance is effective June 17, 2010. Prime contractors should incorporate into their subcontracting processes procedures to identify covered subcontracts and ensure subcontractor compliance in accordance with the DFARS clause.

DoD is accepting public comments on the interim rule through July 19, 2010.