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Legal Memorandum: Ability to Consent to a Contract

Issue: Under federal law as applied in the U.S. Virgin Islands, may financial necessity be viewed as a factor that overrides a person’s ability to freely consent to all provisions of a contract?

Area of Law: Employee Law
Keywords: Consent to a contract; Financial circumstances
Jurisdiction: Federal, Virgin Islands
Cited Cases: 400 F.3d 370; 565 F.2d 255
Cited Statutes: None
Date: 11/01/2007

The Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d 370 (6th Cir.) court reasoned that the foremost factor was that most of the plaintiff employees had not finished high school and badly needed money at the time they applied for employment and signed the waiver.  Id. at 381.  The court observed that many of the plaintiffs were in “desperate” need of the low-wage jobs offered by the employer and were “in dire financial circumstances” at the time they signed the arbitration agreements.  Id. at 374.  The Walker court held that the district court did not err when it found that this factor demonstrated that the plaintiffs did not knowingly and voluntarily agree to arbitration.  Id. at 381.  A “gross inequality in bargaining power suggests . . . that [an] asserted waiver was neither knowing nor intentional.”  Nat’l Equip. Rental, Ltd. v. Hendrix, 565 F.2d 255, 258 (2d Cir. 1977) (holding that lessee’s purported waiver of right to jury trial was neither knowing nor intentional, especially given that he “did not have any choice but to accept the [defendant’s] contract as written if he was to get badly needed funds”).

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