How many times have you signed a contract that requires mediation or mandatory arbitration of disputes? Do you know what you’re signing?
In alternative dispute resolution (ADR), a neutral third party helps parties to a dispute reach a resolution outside of the court system. The most common types of ADR are mediation, arbitration and mini-trials.
Mediation lets two or more parties solve disputes through the use of a mediator, a trained neutral third party. The mediator opens the lines of communication and helps parties work out their own solutions in an informal, confidential and non-binding process.
You do not need an attorney for mediation, although you may choose to have your attorney present. The mediator will decide what role attorneys will play during mediation. The mediator does not decide who is right or wrong or issue a decision. Because it’s voluntary, parties to mediation may exit at any time. A decision arrived at through mediation does not legally bind the parties, so any party may choose to file a lawsuit after mediation.
Arbitration is the most common form of alternative dispute resolution. Many contracts require the use of binding arbitration, so it pays to know what exactly arbitration is.
More formal than mediation, arbitration involves a trained arbitrator, who listens to both parties to a dispute and issues a decision. The arbitrator’s decision is final, binding and enforceable in a court of law.
Many arbitrators have expertise in technical or specialized areas. The parties involved in arbitration can provide input into the selection of an arbitrator. If your dispute involves technical or specialized information, arbitration can save you time and money you’d otherwise spend educating a judge or jury.
Arbitration does not require formal discovery. However, most arbitrators follow the rules of the American Arbitration Association, which allow arbitrators to require parties to a dispute to produce relevant information and documents.
Mini trials involve a structured settlement process. The process begins with both parties (or their attorneys) presenting abbreviated summaries of their case to a panel. The panel consists of mediators, who advocate for their respective parties and work out a settlement. It may also include a neutral member, who serves as an expert or advisor on applicable law.
Summaries contain explicit information about the legal bases and the merits of the case. The process generally follows more relaxed rules for discovery and case presentation than might be found in a court, and the parties usually agree on specific limited periods of time for presentations and arguments.
Mediators will then advocate for their respective parties and work out a settlement. Your mediator will go into the process having authority to settle the matter according to criteria that you spell out—such as a specific dollar amount or other conditions.
If mediators cannot come to a suitable resolution, they might ask the neutral advisor to predict the outcome of the case if it goes to litigation. Since mini trials are often used after a lawsuit has been filed, we’ll focus the rest of our discussion on techniques you can use to avoid litigation.
What You Need to Know about ADR
Advantages of mediation: Court cases become a matter of public record, while mediation remains private. As a non-adversarial process, mediation allows two parties to reach a mutually agreeable solution and preserve a working relationship. It also costs less than litigation or arbitration, is less adversarial and usually takes less time. Mediation is not binding, so parties unsatisfied with mediation can bring their dispute to court.
Disadvantages of mediation: A mediator might not have the expertise or discovery and evidentiary resources of the court system to come to a decision that’s truly fair to both parties. In a personal dispute, a more aggressive party might also have an unfair advantage over a quieter, meeker one.
Advantages of arbitration: As with mediation, arbitration remains private and disputes do not become a matter of public record. However, decisions are enforceable by the courts.
Informal rules of evidence streamline the discovery process and allow the case to come to a decision faster. Arbitrators can have expertise in specialized areas, which could result in a fairer, more informed decision. That, and relaxed hearing procedure rules, can speed the process.
Finally, arbitration could limit your settlement costs. Most arbitrators do not award attorney fees to the prevailing party. Some states prohibit arbitrators from awarding punitive damages for certain types of claims. This could be an advantage or disadvantage, depending on which side of the dispute you’re on.
Disadvantages of arbitration: When you have an agreement that disputes must be resolved through arbitration, you do not have access to summary judgment or other tactics to dismiss a claim without a trial. Even claims that could prove frivolous will likely be heard on their merits.
Decisions rendered by an arbitrator are binding. You don’t have access to a court appeal, except in very rare, limited circumstances.
Arbitration agreements can limit your legal rights. Before signing a contract with an arbitration clause, or before including an arbitration clause in your employment and other agreements, please ask an attorney for advice. For more information on protecting your organization from the high cost of legal disputes, please contact us.