Legal Memorandum: Unenforceable Employment Agreement in VI

Issue: In the Virgin Islands court, are the arbitration provisions in an employment agreement unenforceable because they are unconscionable and demonstrate a breach of the duty of good faith and fair dealing?

Area of Law: Business Organizations & Contracts, Employee Law
Keywords: Employment agreement; Unconscionable; Breach of the duty of good faith and fair dealing
Jurisdiction: Federal, Virgin Islands
Cited Cases: 173 F.3d 933; 341 F.3d 256; 415 F. Supp. 264; 134 F.3d 1054; 368 F.3d 269; 907 P.2d 51; 32 F. Supp. 2d 800
Cited Statutes: Restatement (Second) of the Law of Contracts § 208; Uniform Commercial Code ("UCC") § 2-302; 11A V.I.C. § 2-302
Date: 06/01/2005

The presence of an unlawful provision in an arbitration agreement may serve to taint the entire agreement, rendering the agreement completely unenforceable.  See, e.g., Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1058 (11th Cir. 1998). 

The Virgin Islands law of unconscionability (for contracts not involving the sale of goods) is found in § 208 of the Contracts Restatement:

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable terms, or may so limit the application of any unconscionable term as to avoid any unconscionable result.


Restatement (Second) of the Law of Contracts § 208 (1979).  Section 208 is based on Uniform Commercial Code (“UCC”) § 2-302, codified in the Virgin Islands at 11A V.I.C. § 2-302.[1]  See Reporter’s Note to Restatement (Second) of Contracts § 208 (“This Section is new; it follows UCC § 2-302.”).  Thus, Virgin Islands courts must look to § 208 of the Restatement and § 2-302 of the UCC to determine whether a contract or clause is unconscionable.[2]  Neither of these two sections provides a definition of unconscionability, however.  And neither provides a litmus test for determining whether unconscionability exists.  See, e.g., Maxwell v. Fid. Fin. Servs., Inc., 907 P.2d 51, 57 (Ariz. 1995).  The drafters of the Restatement and the UCC obviously envisioned that courts in the various jurisdictions would fill […]

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