US defence firms are to be barred from lucrative government contracts if they refuse to allow employees access to the courts, after a woman working for a Halliburton subsidiary in Iraq was prevented from taking legal action over an alleged gang rape by fellow workers.

Al Franken, the Senate's newest member, has won an amendment to the defence appropriations bill prompted by the case of Jamie Leigh Jones. She alleges that she was drugged and raped by seven American contractors in Baghdad in 2005.

Jones, who was employed by KBR, which was fighting oil fires, says that a pattern of subsequent behaviour by the firm, including allegedly locking her in a container under armed guard and losing forensic evidence, amounts to a cover-up.

Halliburton/KBR used a clause in her contract requiring disputes to be settled by arbitration to block legal action – a policy which, her lawyer says, has encouraged assaults by creating a climate of impunity.

Franken described it as a denial of justice. "Contractors are using fine print to deny women like Jamie Leigh Jones their day in court," he said in a Senate debate.

In legal papers Jones, who was 20 at the time, says she was fed a knockout drug while drinking with KBR firefighters.

"When she awoke the next morning still affected by the drug, she found her body naked and severely bruised, with lacerations to her vagina and anus, blood running down her leg, her breast implants ruptured and her pectoral muscles torn‚ which would later require reconstructive surgery. Upon walking to the rest room, she passed out again," the papers say.

Jones was treated by a US army doctor who gave forensic evidence to company officials. She says the firm placed her under guard in a shipping container and she was released only after her father asked the US embassy to intervene. When the forensic evidence was handed to investigators two years later, crucial photographs and notes were missing.

Jones says she identified one of the men who attacked her after he confessed, but that Halliburton/KBR prevented her from taking legal action against him or the company by pointing to a clause in her contract requiring disputes to go to arbitration.

She told a Senate committee: "I had no idea that the clause was part of the contract, what the clause actually meant, or that I would eventually end up in this horrible situation."

Her lawyer, Todd Kerry, said that by forcing earlier assault cases to arbitration, Halliburton and other defence firms had created a climate in which some workers came to believe they could get away with sexual assaults and other crimes.

"I've received upwards of 40 calls to my office [about assault cases] in the past two years. A good number had been disposed of under arbitration," he said."Had there been public scrutiny to prevent such things happening and these cases taken to court, they might not have been repeated. Instead one of the men who raped Jamie was so confident that nothing would happen that he was lying in bed next to her the morning after."

Halliburton and KBR divided into separate companies in April 2007. Halliburton declined to comment on the case.

KBR has sought to discredit Jones's account by saying she was seen drinking and flirting with a firefighter before leaving the gathering with him, and that the man claims to have had consensual sex with her. The firm denies that Jones was held prisoner, but not that her injuries indicated serious sexual assault.

But KBR defended arbitration as a "fair process", saying: "Most large companies have a dispute resolution programme which is mandatory and is designed to address employee complaints quickly and efficiently. Under KBR's dispute resolution programme 95% of all employee complaints are resolved quickly to the employees' satisfaction without a mediation or an arbitration."

Franken and Kerry challenge the claim that arbitration is usually settled to the satisfaction of complainants. Other women have come forward to accuse the firms of not taking assault allegations seriously.

Mary Beth Kineston, who drove lorries in Iraq and survived a bloody ambush, has alleged that she was sacked after complaining of sexual assaults by several fellow workers.

"At least if you got in trouble on a convoy, you could radio the army and they would come and help you out. But when I complained to KBR, they didn't do anything. I still have nightmares. They changed my life forever, and they got away with it," she told the New York Times last year.

Linda Lindsey, who worked for KBR in Iraq for three years, has said that male supervisors regularly offered promotions and other benefits in exchange for sex. Lindsey said she filed complaints but they that were never acted on.Last month Jones won a court ruling against Halliburton and KBR that the arbitration clause in her contract did not prevent them from being sued. But the legal battle to get the case even heard is far from over. "Four years to fight to get in court is not a day in court," she said.

The legislation to end the bar on legal action passed the Senate with a clear majority but 30 Republican members voted against it, including the former presidential candidate John McCain. Among the objections were claims that the government had no business interfering in a private contract between a company and its workers.

• This article was amended on 16 October 2009. In the original, the year in which Halliburton and KBR divided into separate companies was omitted. This has been corrected.

Halliburton's controversial history

Halliburton and KBR, its former subsidiary, were the largest defence department contractors in Iraq. Critics allege that huge contracts were won in part because of ties to George Bush's government, particularly to his vice-president, Dick Cheney, a former Halliburton chief executive who left the company during the 2000 presidential campaign with a $36m pay-off.

The Texas-based firm has a controversial history. In the early 1990s it was fined $3.8m for breaking trade embargoes on Iraq and Libya. Last year, a former KBR president, Albert "Jack" Stanley, pleaded guilty to overseeing the payment of $182m in bribes to win engineering contracts in Nigeria.

Critics allege that Halliburton/KBR won a contract to plan oil-well firefighting in the Iraq invasion because no other firm was permitted to bid.

The Pentagon's auditor found Halliburton/KBR was linked to "the vast majority" of fraud cases investigated by the defence department in Iraq. Furthermore, a civil servant who oversaw contracts accused Halliburton of unlawfully receiving preferential treatment over contracts for work in Iraq, Kuwait and the Balkans. The firm reportedly severely overcharged the Pentagon for fuel deliveries to Iraq. Halliburton is headquartered in Houston, Texas but has recently opened a new joint head office in Dubai.