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Legal Memorandum: Arbitration Clauses in Employment Agreements

Issue: Are the provisions of law that regulate arbitration clauses in employment contracts preempted by the Federal Arbitration Act?

Area of Law: Alternative Dispute Resolution
Keywords: Arbitration clauses; Employment contracts; Preemption by FAA
Jurisdiction: Virgin Islands
Cited Cases: 360 F.3d 322; 242 F. Supp. 2d 877
Cited Statutes: 24 V.I.C. § 74a (2004); § 2 of the FAA
Date: 03/01/2007

In 2002, the Virgin Islands Legislature added § 74a to Title 24 of the V.I. Code.  Section 74a provides:

§ 74a   Arbitration

(a)        Notwithstanding an employment contract that provides for the use of arbitration to resolve a controversy arising out of or relating to the employment relationship, arbitration may be used to settle such a dispute only if:

(1)        the employer or employee submits a written request after the dispute arises to the other party to use arbitration; and

 

(2)        the other party consents in writing not later than sixty (60) days after the receipt of the request to use arbitration.

(b)        An employer subject to this chapter may not require an employee to arbitrate a dispute as a condition of employment.

24 V.I.C. § 74a (2004). 

In Moore v. Hovensa, LLC (V.I. Super. Ct., Mar. 15, 2005) and Johnson v. Hovensa, LLC, Civ. No. 670/2003 (V.I. Super. Ct. Aug. 2, 2006) the court rejected the plaintiff’s argument that § 74a applied to the defendant’s motion to compel arbitration, holding that § 74a was preempted by the Federal Arbitration Act (FAA).  However, it appears that the court’s reasoning was incorrect. 

FAA pre-emption should not apply because § 74a is not a state law that precludes or disfavors arbitration.  In Virgin Islands v. deJongh, 28 V.I. 153 (D.V.I. 1993), the district court concluded that “[s]tate laws chosen by the parties to govern an agreement will only be pre-empted by the […]

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