What You Need to Know About Alternative Dispute Resolution
Alternative dispute resolution is becoming an increasingly popular means for resolving business disputes.
Without a doubt, litigation can be expensive and time-consuming. For many businesses, it is simply not a cost-effective means of resolving their disputes. As a result, alternative dispute resolution has become increasingly popular and is even considered standard in some industries. However, you need to understand what alternative dispute resolution means for you before agreeing to it. If you are mired in a dispute but are reluctant to file a lawsuit, a business dispute attorney can help you understand your options and what may be the best means for resolving your business disputes.
What is Alternative Dispute Resolution?
The term “litigation” typically refers to legal proceedings in court. In other words, one of the parties to a dispute files a lawsuit. Once filed, there are rules regarding how you must proceed, strict deadlines, and various steps along the way. The legal process can be complicated and, depending on the complexity of the dispute, may take months or even years to get resolved.
By contrast, then, alternative dispute resolution (ADR) refers to any method of resolving a dispute outside of litigation. Generally speaking, alternative dispute resolution is less expensive, offers greater flexibility, and is less time-consuming than traditional litigation. For these reasons, it has become a popular option for settling business disputes. However, you should be aware that alternative dispute resolution has some limitations. Accordingly, it is important to understand what methods may be available to you and the implications of pursuing ADR instead of traditional litigation.
There are two main types of ADR that deserve consideration:
Mediation
Arbitration
Unfortunately, these two terms are often used interchangeably even though they are fundamentally different in several important ways.
What is Mediation?
Meditation typically involves the parties attempting to resolve the dispute with a trained mediator. The mediator is a neutral party, and their role will be focused on facilitating a resolution. They will not make a decision or determine whether one party is right or wrong. By involving a neutral third party who is solely focused on helping the parties resolve their dispute, mediation can be a great way to solve a problem when the relationship between the parties is fragile or deteriorating.
Mediation is typically voluntary, which means that both parties have to agree to mediate. You can agree to go to mediation at any time during your dispute, even after a lawsuit has been filed. The process is relatively informal but will usually involve holding a conference of some sort, either in-person or via conference or video call. The parties may be represented by counsel but are not required to have an attorney present. The conference will usually incorporate the following elements:
Each party will summarize the facts and circumstances that have led to the dispute from their perspective.
The parties will discuss potential solutions with the mediator. This may be done with or without the opposing party present.
If the parties agree, they will collaborate on preparing a written agreement. The mediator may offer some guidance in writing the document, but it is primarily up to the parties to decide which terms are appropriate or agreeable.
The Advantages of Mediation
Mediation is an attractive option for many parties for several reasons, but it isn’t for everyone or every dispute. Below are some of the advantages of mediation that can make it an attractive option:
Mediation allows for more flexible or creative resolutions that may not be available in traditional litigation. For example, the parties may agree that one of them will donate to a specific charity instead of making an admission of wrongdoing.
Mediation is less expensive than litigation. Mediation only requires one step - the conference. There are no motions to make or other hearings to hold. Also, while it is true that most mediators charge an hourly rate, the cost is often far less than that of most attorneys. Also, the parties typically agree to split the mediator’s fee.
The parties are in control of the resolution. Because there is no external decision-maker (such as a judge), it is up to the parties to resolve their dispute. This fact alone can sometimes help settle disputes sooner rather than later.
There is no penalty if you fail to reach a resolution. Sometimes, the parties simply can’t reach an agreement. However, other than the cost of the mediator, attempting to resolve the dispute via mediation doesn’t “cost” the parties anything. You will not be penalized by being ordered to pay the other side’s attorney’s fees or ordered to pay damages.
Despite these advantages, mediation does have its limitations. You should discuss your dispute with a business attorney and carefully consider your options.
The Disadvantages of Mediation
While meditation is inexpensive and allows for the parties to resolve their disputes on their own terms, there are some disadvantages to the process that you should consider.
It is often non-binding. Unless you have agreed to be bound by mediation, this means that neither party is obligated to comply with any agreement you may reach. It can be incredibly frustrating for you when the other party fails to comply with the negotiated settlement.
Mediation can cause unnecessary delays. If you cannot reach an agreement or the other party fails to comply, you may feel like you have wasted your time. Sometimes one party may offer mediation as a stall tactic. If your dispute is time-sensitive, mediation may not be the best option for you.
Mediation is sometimes unrealistic. Most people will try to resolve their disputes long before engaging a lawyer or considering litigation. If you have already tried to negotiate a resolution, mediation may not have anything to offer that hasn’t already been discussed. Furthermore, if the other party is unable to make a payment or otherwise perform for some reason, reaching an agreement via mediation is not likely to change the situation.
It’s important to keep in mind that mediation requires the parties to negotiate. If the relationship has deteriorated or become adversarial, it is unlikely that they will resolve their dispute via mediation.
What is Arbitration?
Arbitration is the second main type of alternative dispute resolution. It is less formal than litigation but more formal than mediation. Many people refer to it as a quasi-judicial proceeding, as it looks more similar to litigation than mediation. Similar to mediation, it is less time-consuming and less expensive than litigation. However, it differs from mediation in some key respects:
When you participate in arbitration, your dispute is heard by an arbitrator who will decide the outcome of your dispute.
Arbitrators are often lawyers and retired judges who can consider complex legal issues.
While arbitration may be less formal than litigation, the proceeding itself can be quite complex. For this reason, the parties engaged in arbitration will often hire attorneys to help them prepare and present their cases at the hearing.
Arbitration often involves a much more significant investment from the parties and often carries more severe consequences. However, it is ideally suited for parties that cannot resolve their dispute on their own or for business disputes with complex legal issues. If you are considering arbitration, an Atlanta business dispute attorney can provide you with invaluable guidance.
Alternative Dispute Resolution Clauses
As businesses look to control their legal expenses in the event of disputes, mediation and arbitration clauses are becoming increasingly prevalent in all types of business contracts and other agreements such as partnership agreements and executive contracts.
These clauses can be relatively simple but can also be extraordinarily complex. Some of the potential issues you may encounter are as follows:
Venue: this is where you agree to participate in arbitration or mediation. Unfortunately, this could be thousands of miles away in the state where the other party maintains its main office. You want to make sure that you can participate in arbitration or mediation in a convenient location for you. On a side note, the venue may be discussed in a separate provision from the arbitration or mediation clause.
Selection of arbitrators: arbitrators are supposed to be neutral, but some people will try to control the selection of the arbitrator who will preside over your dispute. Some clauses may require that your dispute be heard by a panel of arbitrators. You want to make sure that you have some control over who will be appointed as the arbitrator in your dispute.
Timing and notice: the arbitration and mediation clause may lay out when you can proceed with dispute resolution and what you may have to do before proceeding. It may include a cumbersome notice requirement or language that says you have waived your dispute if you don’t follow the timeline laid out in the dispute resolution clause. For example, you may be required to send notice of your dispute to the other party within 14 days or you will be deemed to have waived your rights. You want to make sure that this clause does not jeopardize your rights in the event of a dispute.
Attorney’s fees: The dispute resolution clause may specify that the prevailing party is entitled to recover their attorney’s fees. Unfortunately, some contracts are one-sided, and attorney’s fees may not be available to both parties. In other contracts, neither party may be entitled to seek recovery of their attorney’s fees. While arbitration and mediation are less expensive than litigation, you should know ahead of time whether you will be able to recover your attorney’s fees in the event of a dispute.
These provisions can be complex and are often subject to misinterpretation. If you are engaged in a dispute that is heading towards ADR, a business dispute attorney can help you navigate the process.
Frequently Asked Questions About ADR
1. What does voluntary and mandatory mean in the context of ADR?
Voluntary ADR requires that both parties agree to participate in mediation or arbitration. Mandatory ADR, on the other hand, requires the parties to submit their dispute to either mediation or arbitration, typically pursuant to a contract or other agreement. As a result, you may be required to participate in ADR even if you don’t want to.
2. What is the difference between binding and non-binding?
When mediation or arbitration is binding it means that the parties agree to be bound by the outcome. This means that you may not be able to file a lawsuit or otherwise appeal the result except in very limited circumstances.
In non-binding ADR, the parties are not obligated to comply with the outcome of the proceeding. Either party may proceed with litigation if they are dissatisfied with the outcome.
Mediation is often non-binding, while arbitration is often binding.
3. Do I need a lawyer to participate in arbitration or mediation?
You are not required to hire a lawyer to participate in either arbitration or mediation. However, you are allowed, perhaps even encouraged, to have a lawyer present at either type of proceeding. Business disputes are often complex and working with a lawyer can ensure the best possible outcome.
4. I’m in a dispute and the other party says we have to go through ADR. Is this true?
This depends on whether your dispute is subject to a contract or other agreement that has a mandatory arbitration clause. If there is no contractual requirement, it is likely that you are not required to go through ADR - you are not obligated to agree to ADR even though the other party would prefer that option.