The decision has opened the door for other American women who have reported sexual assaults in similar circumstances to challenge clauses in their employment contracts restricting such claims to private arbitration and keeping them out of court.
It comes at a time when the US Congress is examining whether the Government is adequately protecting contractors who allege sexual assault.
In Britain, MPs are investigating allegations of sexual harassment and abuse at the Embassy in Baghdad. The allegations also concern employees of KBR, which was hired to maintain the Embassy's premises. The Commons Foreign Affairs Select Committee has written to the Foreign and Commonwealth Office to ask for a full explanation.
The ruling in America centres on the case of Jamie Leigh Jones, a 23-year-old Texan who alleges she was drugged and raped in her mixed sleeping quarters by fellow contract workers while working in technical support for KBR at Camp Hope in July 2005. "I woke up naked and I knew something really wrong had happened to me," Ms Jones told The Times. "I threw on my robe and I went to the restroom. I was bleeding between my legs."
After she reported the alleged assault, she said she was confined to a shipping container and told that if she left Iraq to seek medical attention she would not have a job on her return.
Ms Jones said she convinced one of the men guarding her to lend her his mobile phone. She rang her father, who contacted a US senator to secure her release and return home.
Back in America, Ms Jones tried to file a lawsuit against her employer. However, KBR, which split from Halliburton last year, requires its Iraq-bound employees to agree to take personnel disputes to private arbitration rather than sue companies in the US's public courts. Critics say the arrangement has discouraged some women from going public with allegations.
Ms Jones's lawyer argued that the clause should not apply to a claim involving sexual assault because it was not a "work-related" matter. In his decision, US District Judge Keith Ellison found in her favour, writing: "This court does not believe that plaintiff's bedroom should be considered the workplace, even though her housing was provided by her employer."
Asked how the decision could affect Iraqi employees of KBR who have alleged sexual assault, Stephanie Morris, Ms Jones's lawyer, said it would encourage others to come forward. "The decision means that anybody who is sexually assaulted can bring the claim against their employer to a court of law." It is unclear if Iraqi employees of KBR are required to sign contracts binding them to private arbitration.
When Ms Jones's story captured media attention in December it led to Congressional hearings, with the Senate Foreign Relations Committee convening this month to discuss closing the legal loopholes for prosecuting over violent crimes allegedly committed by Americans in war zones.
Dawn Leamon, an American paramedic working for a foreign subsidiary of KBR at Camp Harper, near Basra, testified that she was abused by a soldier and a coworker after drinking a cocktail. She told The Times that KBR employees discouraged her from reporting the alleged rape and pressured her into signing a false statement.
Her lawyer, Daniel Ross, described the decision as "a crack in the wall of KBR's arbitration fortress", but said the company would probably appeal.
KBR issued a statement saying: "KBR in no way condones or tolerates sexual harassment . . . Any reported allegation of sexual harassment is taken seriously and thoroughly investigated."
© 2008 Times Online