The ABCs of Mediation and Arbitration In response to today’s soaring litigation costs, more would-be litigants are using alternative dispute resolution (ADR), which includes mediation, arbitration, mini-trials and private judging. In fact, many contracts and employment agreements now have ADR clauses that require mediation or arbitration -- the two most popular methods of resolving disputes -- before or instead of going to court. If you run a business, chances are you will be involved in a dispute sometime. And you’ll likely try to resolve it by mediation or arbitration, because either your contract requires it or you and the other party so choose. So here’s a guide to the fundamentals of mediation and arbitration. The Differences in a Nutshell Mediators and arbitrators are neutral third parties, often attorneys, retired judges or experts in various professional and business fields. How is a mediator or arbitrator selected? Either the parties themselves choose a mutually acceptable mediator or arbitrator, or they ask a trade association they both belong to or a nonprofit agency -- such as the American Arbitration Association (AAA), the nation’s largest arbitration provider -- to appoint a neutral person from a roster of qualified candidates. Mediation is generally less formal, less costly and quicker than arbitration. Parties commonly complete the mediation process in a few days or weeks, while arbitration can take a few months, even if relatively less complex issues are involved. Litigation -- especially cases that go to trial -- may take years. Here are some other primary differences: Neutrals. A single mediator generally presides over mediation, while arbitration may involve a single arbitrator or a panel of arbitrators -- typically three. Conferences. A mediator conducts meetings and discussions with the parties -- both jointly and separately -- to discuss issues, facts and their respective positions. Arbitrators commonly hear testimony and receive evidence during more formal evidentiary hearings with both parties. Resolution. Mediators give nonbinding advisory decisions and settlements are voluntary. (Still, about 85% of disputes that go to voluntary mediation are resolved, according to the AAA.) Arbitrators, on the other hand, have the power to give a binding decision or an award that a court can enforce. Most business disputes that can be litigated can also be mediated or arbitrated including those arising from insurance, labor relations, environment, public policy, securities, technology, employment and international trade, among others. Then again, some issues may be less suited to these alternatives to litigation. More About Mediation Mediation procedure is more flexible than arbitration. A mediator who feels that joint discussions (where both parties are present) are no longer fruitful can meet with each party separately in caucuses. In these cases, a mediator may shuttle between the parties, trying to counsel them individually, advising each on the strengths and weaknesses of the two positions and urging specific compromises, before bringing them together for a final settlement attempt. Even if a settlement doesn’t result, the mediation process can help clarify and narrow the issues, reveal problems or overlooked opportunities, and defuse anger by letting the parties see the dispute from each other’s point of view. More About Arbitration Arbitration takes place in a more formal setting, with sworn witnesses who testify and are cross-examined. Arbitrators usually don’t meet with parties individually. Before an arbitration hearing begins, the parties may have an opportunity to stipulate one or more of: o The range of issues to be resolved, o The structure of an award, o Who will pay the arbitrators’ fees, or o Procedural aspects of the hearing -- such as whether it will be private and how trade secrets will be protected. One significant limitation of arbitration is that the parties may give up any right to appeal the panel’s decision. Some notable variations on the “standard” arbitration procedure include: Nonbinding arbitration. Here the arbitrators’ decision is only advisory -- not legally enforceable. Mediation-arbitration. In these proceedings, the parties must first attempt mediation, with the proviso that if they don’t settle they must submit the dispute to binding arbitration. Min-max arbitration. The goal of this type of hearing is to establish a minimum and maximum for any future damage award. Final-offer arbitration (also called baseball arbitration). Here each party submits a final best offer, and the arbitrator chooses one without alteration or compromise. A Faster, More Sensible Solution ADR is usually quicker, cheaper and more private than litigation. The evidence rules are more relaxed, and the result is often more amicable than with formal courtroom proceedings. This is important when the parties want to preserve a productive business relationship. Indeed, ADR benefits are so great that you should first consider mediation or arbitration every time a dispute arises. Please contact us if you would like more information on ADR -- or advice on inserting ADR clauses in your contracts or employment agreements. When Mediation and Arbitration May Not Work Resolving disputes through mediation or arbitration rather than litigating can be beneficial to both parties. But these alternatives might not be appropriate in some disputes, such as if it involves: o The constitutionality of a law, o Disputants who are extremely hostile or unwilling to change their stance and lack an ongoing business relationship, o Complex issues that require a lot of expert testimony, or o Disputants with disparately unequal power. In most cases, mediation or arbitration may be just the right road for you to take. Contact | Legal Disclaimer