On December 22, 2009, President Obama signed the 2010 Department of Defense Appropriations Act (H.R. 3326), which includes a provision prohibiting government contractors from entering into or enforcing arbitration clauses with regard to claims by employees or independent contractors for Title VII violations or torts relating to sexual assault or harassment. The provision, contained in Section 8116 of the Act, applies to government contracts worth more than $1 million. It was introduced into the Act in the form of an amendment offered by Senator Al Franken of Minnesota.

The law imposes conditions on the expenditure of funds appropriated under the Act for contracts in excess of $1 million. First, the contractor must agree not to enter into any agreement with its employees or independent contractors that requires the employee or independent contractor to resolve through arbitration “any claim 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.” Second, the contractor must also agree not to attempt to enforce any existing agreement of this type. Furthermore, contractors will be required to certify for contracts awarded more than 180 days after the effective date of the Act that any subcontractor holding a subcontract worth more than $1 million has agreed to abide by these restrictions. Each of these requirements is subject to waiver by the Department of Defense if it concludes that it is necessary to avoid harm to national security interests of the United States.

This legislation stems from a much-publicized case in which a female employee of a government contractor in Iraq claimed to have been gang-raped by fellow employees after unsuccessfully requesting from her employer a berth in all-female housing. The contractor insisted that any legal claims the employee might have were subject to mandatory arbitration. The employee objected, claiming that arbitration would veil her claim in secrecy and prevent her from being publicly heard. She testified before Congress in support of Senator Franken’s amendment. She also sued in federal court. Ultimately, the U.S. Court of Appeals for the Fifth Circuit ruled that she could pursue her assault-related claims in court rather than arbitration because they were not related to her employment and thus did not fall within the scope of the arbitration clause. Jones v. Halliburton, 583 F.3d 228, 242 (5th Cir. 2009).

Broader legislation that would preclude enforcement of mandatory arbitration clauses in a wider array of cases is still pending before Congress. The Arbitration Fairness Act of 2009 (H.R. 1020), introduced in the House by Representative Johnson of Georgia and in the Senate by Senator Feingold of Wisconsin, is currently before the Judiciary Committees of both the Senate and the House. This Act would potentially prohibit the enforcement of nearly all mandatory agreements to arbitrate employment, civil rights, franchise, or consumer matters. It is unclear what impact, if any, the passage of H.R. 3326 will have on Congress’ consideration of this broader bill, which is expected to resume in 2010.