No Joke: Franken Amendment Restricts Defense Contractors’ Use of Arbitration Agreements
By Ted Olsen
Some of our clients require their workers, as a condition of employment, to agree to arbitrate any and all future legal disputes that might arise between them and their workers. Although opinions differ on the matter, these businesses believe that arbitration is preferable to civil court litigation. It is generally believed that arbitrators are more conservative than juries when it comes to awarding damages to claimants, and that arbitration therefore prevents the "runaway-jury," multi-million dollar damage awards.
While the U.S. Supreme Court has generally supported the legality of such arbitration agreements, they have been assailed by the Equal Employment Opportunity Commission and Congress in recent years, generally under the theory that anything desired by some employers must necessarily be bad for employees. In 2010, Congress will likely vote on the so-called "Arbitration Fairness Act," which would ban employers from making the arbitration of employment disputes a condition of employment. A precursor of things to come, however, occurred in December 2009, when a former comedian, Congress and the President enacted a law effectively prohibiting the mandatory arbitration of certain employment disputes involving federal defense contractors and subcontractors.
On December 19, 2009, President Obama signed the Department of Defense Appropriations Act for 2010, which contained the so-called "Franken Amendment," named after its sponsor, Senator Al Franken (D-Minn.). The Amendment, Section 8116 of the Act, starting in 60 days (February 18, 2010), will require a defense contractor with a contract valued at over one million dollars to commit not to (a) enter into, or (b) take any action to enforce, any agreement with employees or independent contractors requiring the arbitration of certain legal claims (described further below). After the Act has been in effect 180 days, i.e., starting June 18, 2010, this requirement will also become applicable to federal defense subcontractors, as to subcontracts valued at more than one million dollars. Prime contractors will be required to obtain contractual commitments from such subcontractors that they will not enter into or enforce any arbitration agreement as to the specified legal claims.
The Secretary of Defense or his deputy may grant a waiver to a defense contractor or subcontractor if doing so is necessary to avoid harm to national security interests.
Senator Franken rallied support for the Amendment, based on the experience of a former employee of defense contractor Kellogg Brown & Root who claimed to have been raped by her coworkers in Iraq. When she filed a lawsuit for damages over her injuries, the contractor successfully contended that most of her claims could not be heard in court, due to an arbitration agreement she had signed. Although this background helps explain the Amendment, it also resulted in very confusing statutory language describing the legal claims that may not be subject to arbitration:
The most obvious and critical unanswered question is whether the phrase "related to or arising out of sexual assault or harassment" delimits the Title VII claims that may not be arbitrated (it clearly modifies the tort claims). In other words, could a defense contractor lawfully require an employee to agree to arbitrate Title VII claims of race, color, national origin, or religion discrimination? Likewise, could a defense contractor require arbitration of Title VII claims of sex discrimination, if the claims did not involve sexual assault or harassment? If Congress intended the phrase "related to or arising out of sexual assault or harassment" to delimit the affected Title VII claims, the statutory provision could have been written much clearer, with a simple rearrangement of the phrases: "any claim related to or arising out of sexual assault or harassment, including claims under title VII of the Civil Rights Act of 1964 or any tort, such as assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention . . . ." This suggests that the arbitration of all Title VII discrimination claims may be prohibited by the Franken Amendment.
Another unanswered question is whether the arbitration agreement ban extends to all employees and independent contractors of a covered defense contractor, or only those who work on the specific contract or subcontract involved. Part of the confusion arises from Amendment language regarding defense subcontractors, which are prohibited from entering into and enforcing arbitration agreements "with respect to any employee or independent contractor performing work related to such subcontract." There is no parallel language in the Amendment provisions regarding defense contractors, suggesting the possibility that the arbitration prohibition may extend company-wide for such a contractor.
Defense contractors and subcontractors should immediately:
All contractors and subcontractors should expect court litigation over the interpretation of the Franken Amendment, if they choose to use any arbitration agreements in the future.
Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.
©2010 Sherman & Howard L.L.C. January 5, 2010