On May 19, 2010, The Department of Defense issued an interim rule ("Restrictions on the Use of Mandatory Arbitration Agreements") implementing section 8116 of the DoD Appropriations Act for FY 2010 (the "Act").  The rule prohibits the use of funds appropriated or otherwise made available by the Act for any contract in excess of $1 million, if the contractor requires its employees to arbitrate claims under Title VII of the Civil Rights Act of 1964; or torts 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.

Although the rule applies to federal contractors and subcontractors at any  tier, the Department of Defense explains that the term "contractor" is narrowly applied only to the entity that has the contract.  Accordingly, unless a parent or subsidiary corporation is a party to the contract, it is not affected.  The rule also does not apply to contracts for the acquisition of commercial items, including commercially available off-the-shelf items.  

The interim rule is effective immediately.  After June 17, 2010, contractors must certify (by signature on the contract) compliance by subcontractors.  The Secretary of Defense may waive applicability to a particular contract or subcontract, if determined necessary to avoid harm to national security.  Comments on the rule will be received through July 19, 2010.