Executive Order Puts Mandatory Arbitration Provisions Back in the Spotlight

President Barak Obama recently issued an executive order that restricts the use of mandatory arbitration provisions by federal contractors.

The move is likely to reignite the debate over the continued use of such provisions in a number of other arenas. 

Under the Fair Pay and Safe Workplaces Executive Order, companies with federal contracts exceeding $1 million are, subject to certain exceptions, prohibited from requiring their employees to enter into predispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act or from torts related to sexual assault or harassment. These exceptions include agreements with employees covered by collective bargaining agreements negotiated between their contractor-employers and the labor organizations representing the employees. According to the Obama Administration, the order is intended to improve contractors’ compliance with labor laws and ensure that “employees get their day in court.”

The new restrictions take effect immediately for all new or renegotiated agreements covered by the executive order. Under other provisions of the order, prospective contractors will also be required to disclose labor law violations during the past three years before they can get a contract and, if a contract is awarded, to update these disclosures periodically thereafter. Companies with repeat violations may be denied contract awards and, in certain circumstances, may be declared ineligible for federal contracts.

While the Fair Pay and Safe Workplaces Executive Order may not impact many New Jersey businesses, it could spur momentum for further restrictions on the use of mandatory arbitration clauses. As previously discussed on this blog, lawmakers have been calling on the Securities and Exchange Commission (SEC) to exercise its authority under the Dodd-Frank Act to ban what they call the “abuse of forced arbitration contracts” in brokerage agreements. Legislation is also pending to limit companies ability to mandate arbitration in consumer contracts and private employment agreements.

This latest executive order and any legislation passed by Congress will have to survive legal challenges. The country’s highest court has been decidedly pro-arbitration in recent years, most notably ruling that the Federal Arbitration Act preempted a California law prohibiting class-action waivers.

If you have questions about the executive order or would like to discuss how your business may be impacted, please contact me, Charles Friedrich, or the Scarinci Hollenbeck Labor and Employment attorney with whom you work.