Legal Blog

The Curious Problem of Adding Arbitration Clauses in Government Contractor Employment and Consultant Agreements

A not so funny thing happened to Leidos, Inc. at GAO. It lost a protest for doing what many other companies do, and Leidos probably never saw any of it coming.  You can read the GAO decision here.

Things started out fine for Leidos.  It had won a $41 million Department of Navy Seaport-E task order for the operation of a towed array facility.  Then, L3 Unidyne protested.  From there, it went downhill.

One of L3’s arguments challenged the right of the Navy to award a contract to Leidos “because Leidos required certain of its proposed new (not yet hired) key employees to enter into binding arbitration agreements as a condition of employment.”  The problem with Leidos’ employment arbitration agreements was that they ran afoul of the Department of Defense Appropriations Act and underlying Department of Defense FAR Supplement provisions which precluded expenditures of funds on contracts in excess of $1 million unless the contractor agrees not to enter into or enforce certain mandatory arbitration agreements with employees and consultants.

Specifically, the statute provides that for awards in excess of $1,000,000, the contractor cannot enter into or enforce “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 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 statute also provides that the contractor must certify that “each covered subcontractor” (a subcontractor with an agreement in excess of $ 1,000,000 on a contract subject to the arbitration prohibition rule) also has agreed not to enter into or enforce these types of arbitration provisions.   The Secretary of Defense can waive application of this law, but the waiver must be announced and sent to Congress at least 15 business days before the contract or subcontract may be awarded.   111 P.L. 118, 123 Stat. 3409, 3454-3455.

DFARS repeats these provisions and includes a form contract clause containing them.  It also specifies that these provisions do not apply to the acquisition of commercial items.  48 C.F.R. § 222.7403.

So, the take away here is clear: check your employment and consultant agreements.  If you have mandatory arbitration clauses, make sure that they exclude Title VII claims (claims of improper discrimination and harassment) or claims relating to sexual assault and harassment, such as assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.  And, if you don’t already mandate arbitration by employees and consultants, don’t do it unless you have drafted your arbitration clauses carefully.

For more information about this topic or other government contracting issue, please contact Edward Tolchin at etolchin@offitkurman.com.

 

ABOUT EDWARD TOLCHIN

etolchin@offitkurman.com | 240.507.1769

Edward Tolchin is a Principal and Chair in the firm’s Government Contracting practice group. Mr. Tolchin’s practice is focused on government contracting, business litigation, and technology matters. In government contracting issues, Mr. Tolchin represents prime and subcontractors in contract negotiation and formation matters and in disputes involving both government and commercial business issues. He has been involved in procurement cases before many of the federal and state boards of contract appeal, Government Accountability Office, Small Business Administration, United States Court of Federal Claims, Court of Appeals for the Federal Circuit and other federal and state courts across the United States.

 

 

 

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