Rule updated on defense contractors’ mandatory arbitration agreements

An interim rule prohibiting certain defense contractors from requiring employees or independent contractors to use arbitration agreements has been finalized. One commenter urged the Department of Defense (DoD) to require prime contractors only to certify compliance by their covered first-tier subcontractors. Unfortunately, the DoD refused, and decided that the obligation to certify compliance by subcontractors goes all the way down the chain of covered subcontractors (75 Fed Reg 76295, Dec. 8, 2010, and 75 Fed Reg 27946, May 19, 2010).

The prohibition on using these mandatory arbitration agreements generally applies to employers with defense contracts or subcontracts worth over $1 million (other than purchases of commercial items), when the source of the federal funds is the Department of Defense Appropriations Act for Fiscal Year 2010. Contractors must also require each covered subcontractor to obey the same restrictions. See our Model Form, Federal Contractor Notices to Vendors and Subcontractors (1604).