Tuesday, January 12, 2010

To Defense Contractors, Al Frankin Amendment is No Laughing Matter

Prime contractors who want to be eligible for Department of Defense government contract awards will have to comply with a new law banning arbitration with employees for claims. Compliance with the new law will likely require defense contractors to review, revise and renegotiating existing agreements with many of their independent contractors and subcontractors. On December 19, 2009, President Obama signed a new spending bill into law which implemented this requirement. The amendment to the bill providing for the arbitration ban was originally offerred by Sen. Al Frankin (D- Miss).

Under the new law (Sec. 8118 of HR 3326 ), prime contractors under DOD contracts will have to agree not to "enter into any agreement with any of its employees or independent contractors that requires, as a condition of employment, that the employee or independent contractor agree to resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 (prohibiting employer descrimination on the basis of race, color, religion, sex or national origin) 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." The new law goes further to require that such prime contractors will also have to agree not to take any action to enforce any provision of an existing agreement which would require such arbitration. This provision applies only to government contracts in excess of $1,000,000 awarded more than 60 days after the effective date of the Act.

It is not entirely clear what is intended to be covered by phrase "independent contractors." Perhaps it is intended to cover temporary help staffing who are not technically employees. However, does it apply to subcontractors?

A second provision of the new law expressly deals with and uses the word "subcontractors." The fact that the new law uses the phrase "independent contractors" in one section and "subcontractors" in another, might suggest that the phrases were intended to apply to different groups of non-employee workers.

The second provision dealing with subcontractors requires the prime contractor to certify that it requires each "covered subcontractor" (a subcontractor with a subcontract in excess of $1,000,000) to abide by the first provision applicable to prime contractors. This second provision applies to contracts awarded more than 180 days after the effective date.

Prime contractors and subcontractor who have agreements with their employees, independent contractors or subcontractors which contain these types of arbitration provisions may very well have to revise their contracts. Contracts which have general arbitration provisions, will have to be revised to exclude these particular types of claims. This provision has already been construed to apply to all employees, not merely those working on the government contract.