As part of the recent spending bill for the United States Department of Defense, last week, President Obama signed into law a provision that will eliminate the ability of most military defense contractors to enforce mandatory arbitration clauses in their employment contracts.

Under the spending bill, no money can go to a defense contractor unless the contractor agrees not to enter into or enforce any employment contract “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,” or many tort claims.

In six months, the provision will also apply to subcontractors.  Contracts and subcontracts under $1 million will be exempt from the provision. The defense secretary or his deputy may also grant a waiver if doing so will be “necessary to avoid harm to national security interests of the United States,” though the waiver will become public.

This provision of the spending bill was sponsored by Senator Al Franken (D-Minn) after a former employee of the defense contractor, Kellogg Brown & Root (formerly Haliburton) sued after allegedly being raped by co-workers in Iraq.  Kellogg Brown & Root sought to enforce the mandatory arbitration clause in her employment contract, and the United States Court of Appeals for the Fifth Circuit held that the employee was required to arbitrate some, but not all of her, claims.  Specifically, the appellate court held that she was required to arbitrate her employment-related, her claim under Title VII for sexual harassment, hostile work environment, and retaliation, as well as her breach of contract and fraud claims.

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