The Department of Defense has released a final rule barring the use of mandatory arbitration agreements by certain defense contractors and subcontractors.

The final rule took effect on December 8, 2010. The final rule applies to funds appropriated or otherwise made available by the DOD Appropriations Act for Fiscal Year 2010 involving contracts that exceed $1 million. Such appropriations are banned if the contractor or subcontractor limits its employees to arbitrating claims under Title VII of the Civil Rights Act of 1964 or arbitrating torts 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. The final rule does not apply to the acquisition of commercial items.

The final rule allows the Secretary of Defense to waive the ban for particular contracts or subcontracts under limited circumstances. The Secretary or Deputy Secretary must personally determine that (1) waiver is necessary to avoid harm to national security interests of the United States, and that (2) the term of the contract or subcontract is not longer than necessary to avoid such harm. Such determinations must set forth the grounds for waiver with specificity, state any alternatives considered, and explain why each alternative would not avoid harm to national security interests.

A contractor or subcontractor must submit a request for waiver in accordance with agency procedures. The Secretary of Defense will then forward his determination on the waiver request to Congress and simultaneously publish it in the Federal Register no fewer than 15 business days before the contract or subcontract is awarded.

If you have any questions about this new rule, please contact Brian D. Pedrow, 215.864.8108 or pedrow@ballardspahr.com.


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