What do you do if you have a dispute with your landlord over conditions in your office suite? Or if one of your vendors or customers disagrees about the meaning of some term of the contract? Or, if one of your employees charges that he or she has been wrongfully terminated? Do you end up in court?
Perhaps. There are times when only the court system is appropriate. If a criminal action is alleged, then the case must go to court. But increasingly, people are choosing another option for civil disputes — some form of Alternative Dispute Resolution (ADR) such as arbitration, mediation, or a combination of these. In fact, an increasing number of businesses are requiring binding arbitration in the case of a dispute as a condition of doing business with them. The American Arbitration Association reported that in 1995 they did 60,000 arbitrations and mediations. By 2001 that number had jumped to 185,000. [1]
What Should You Know about Arbitration?
Requiring arbitration: If you did not read the fine print of all of the papers you signed, or the little inserts that come in monthly billing statements, you might be surprised to learn how often you agreed to binding arbitration. For instance, if you use a credit card, have a brokerage account, a mortgage or rental agreement, or health insurance, you very likely agreed to binding arbitration in at least one of these arrangements. You well may have agreed to it when you accepted your job.
You may have implicitly agreed to arbitration simply by using the service even if you were not aware of it. If your “agreement” is based on a small insert with very small print that comes in the mail with your billing statement, it is possible that would not withstand a court challenge should you wish to challenge it. However, agreements that are handled on a face-to-face basis, such as borrowing money from a bank, buying equipment on credit, or accepting a job, are likely to be upheld when they require arbitration. It is assumed that the person making that transaction is sophisticated enough to know what he or she is doing.
Many business people have become interested in requiring arbitration should disputes arise with clients, vendors, and/or employees. They think it is less expensive than litigation, and perhaps that the outcome is more controllable. If you are one of them, you need to understand what arbitration actually is and how it operates before you decide whether or not you want to require it as a condition of doing business. Equally important, there may be a better way to approach dispute resolution than either arbitration or litigation in many situations, and that is mediation.
Defining arbitration: Before going further, it is important to understand the terms. Arbitration is similar to a courtroom trial and the process is governed by law, but it is outside of the normal judicial process. A single arbitrator, or sometimes a panel of three arbitrators,[2]hears evidence and arguments from both parties and then takes the case under consideration and renders a decision. Subpoenas may be issued. Legal briefs may, or may not, be required. There is no jury and there are very limited grounds for appeal to a court. Arbitration often allows for some relaxation of the general rules of evidence, for instance, permitting some hearsay evidence, but the rules that are necessary for fair due process are retained. In fact, in some arbitration areas such as labor contracts, the court rules of evidence generally are followed. All of this suggests that both parties should have legal representation.
Arbitration proceedings are private rather than public, and the evidence and outcomes are likewise private unless the parties to the dispute choose to make them public. While arbitration is usually less expensive and faster than litigation, it is not necessarily inexpensive. Various difficulties also could stretch out the timeline. For instance, if the arbitrator had a scheduling conflict with another case, or one side or the other was having trouble getting all of the evidence together, the arbitration could take longer than anticipated.
Deciding whether to require arbitration: The business that requires clients to accept arbitration as a condition of doing business generally sets up the arbitration plan within the parameters of the law. There may be the temptation to include some features that will not only make the process more efficient and less-costly, but potentially bias the outcome in favor of the company — such as limiting the length of hearings or the type of discovery that is permitted. Not only may these violate the spirit and intent of the arbitration process, but if they are too severe, they invite the other party to challenge the requirements in court. The hoped-for savings may well be lost in a preliminary court battle over the arbitration plan itself.[3] In short, arbitration is appropriate when:
- The issue is already a win-lose situation.
- The parties agree that they will abide by an arbitrator’s decision.
- They do not need the state to enforce the decision.
- There is no attempt to set legal precedent.
In this situation, both sides make their best case, but at the end of the day, one side wins and one loses. There is no compromise.
Finding Arbitrators: Lacking some of the safeguards of the court system, including public trials and appeals, arbitration is very dependent upon the integrity of the persons who do it. This means the arbitrator must resist the temptation to give the benefit of the doubt to the company that set up the arbitration program even though future arbitration business may be thought to be dependent upon ruling in its favor. That being the case, how do you find or select an arbitrator who will be fair?
To find an arbitrator you would normally begin with an arbitration association such as the American Arbitration Association. The association will make recommendations or select someone who has specialized knowledge in the area of your dispute. While the actual arbitrators are independent contractors, a good association will have vetted the individuals on its panels and will require that they have certain training. The association should have codes of ethical conduct to which arbitrators must agree and have penalties for violation of it.
Most often the arbitrators on the list are former judges and lawyers who now make their living doing arbitration or mediation. While it is not legally necessary that the arbitrator be trained in law, if the case involves issues that have already gone to litigation, or has complex legal or evidence issues, it may be very difficult for a non-lawyer to understand and rule on them appropriately. In some disputes, however, such as some construction cases, non-lawyers who are very knowledgeable about the industry may be excellent arbitrators even when there are legal issues involved. These cases are often more factual than legal. What is really needed is someone who is an expert in that industry and who can determine if the construction defect, for example, really was caused by one or more of the contractors or by some kind of natural event.
Mediation is a Facilitated Resolution Process
How does mediation differ from arbitration? Unlike arbitration, where a neutral third party makes a final decision, the mediator facilitates a process that allows the disputing parties to arrive at a resolution. The mediator may also allow a certain amount of venting, and, if the parties cannot talk directly with each other, let them talk through him or her. The mediator does not make decisions about what the parties should do, although he or she will take proposals from one side to the other and might suggest to one party how the other is likely to respond to certain ideas. As opposed to the win-lose scenario of arbitration, the mediator is trying to help the parties reach some kind of resolution where all sides leave the table reasonably satisfied. Neither side may win everything it wanted, but both get something.
Mediation Skills:The skills required for mediation are very different than those needed for arbitration, although the reality is that many people who do one also do the other. It is probably important that an arbitrator has served as a lawyer or a judge, and he or she needs to be able to be decisive. Resolving legal-type disputes is at the heart of arbitration. Mediators, on the other hand, are often people who have been trained in the social sciences such as psychology, sociology, or group dynamics.
Mediators need to be skilled in active listening, facilitating, negotiating, and sometimes in identifying options. Furthermore, the mediator must do all of this without trying to impose a solution. Mediation is negotiation with a neutral third party as a facilitator. A mediator should be able to discern the underlying interests that are really behind the dispute — issues that even the parties may have difficulty verbalizing — and then help the parties deal with those. But the mediator is not a decision-maker, something that may be difficult for former judges who have been trained to take charge and make decisions. In mediation, only the parties to the dispute can actually decide what to do.
A good mediator must understand the negotiation process and be able to discern the tactics that each party to the mediation is attempting to use. This requires education and experience to do it well. At the same time, it is important that the mediator remember that he or she is not negotiating for one or the other of the parties. He or she must be scrupulously neutral and ethical in what is revealed or implied to either party.
This includes keeping the confidences of the parties. No one else hears everything the mediator hears. Possibly no one else would know if he or she “let slip” some bit of information that was supposed to be confidential but that might help sway the decision. But that is not appropriate, and it could well backfire on the mediator and the mediation process. If one party or the other did figure out that confidential information was shared, it would taint the process and the decision. It could also ruin the reputation of the mediator.
Benefits of mediation: Mediation is generally less expensive than arbitration or litigation. There is seldom a need for legal counsel, mountains of evidence, or other elements of the legal world. Once begun, the process normally proceeds with limited pauses until either the dispute is settled or an impasse declared. That is often only a matter of hours or days. If mediation does not work, and the parties cannot reach a settlement, then they may decide to try arbitration or some combination of mediation and arbitration. The courts may be a last resort.
Finding a Mediator: Arbitration associations can usually provide mediators as well as arbitrators. The same general standards will apply. Judges will sometimes appoint a mediator to see if a dispute can be resolved before it gets too far along in the justice system. However one is selected, all parties to the dispute need to feel comfortable with the person’s style and must trust him or her to be an honest broker.
Stages of the Mediation Process: In general, once a mediator has been selected, there are several identifiable stages to the process, some of which may be optional.
- Making necessary preliminary arrangements.
- Introduction of mediator.
- Opening statements.
- Opportunity to “vent” to the mediator. (Optional)
- Information gathering.
- Issues and interest identification.
- Agenda setting. (Optional)
- Caucus. (Optional)
- Option generation.
- Reality testing. (Optional)
- Bargaining and negotiation.
- Finally (hopefully) agreement is reached, and there is closure.[4]
Mediation and Business: While mediation is often used in situations such as divorce and child custody disputes, it can also be extremely valuable in the business setting. For example, disputes between landlords and tenants, between business partners over the distribution of effort and rewards, between franchisers and franchisees, or between insurance companies and those making claims can often be resolved with the help of a skilled mediator. It is particularly valuable to try mediation in situations where the parties are going to need to keep working together in the future if the business is going to survive. Mediation can often help the parties understand each other’s position. At the least it is less likely to create the hard feelings that can happen in arbitration or litigation’s win-lose approach.
Mediation, arbitration, and litigation are sometimes thought of as points along a continuum. The parties to the dispute give increasing levels of power to someone else to resolve their problems as they move from mediation to litigation. It is therefore useful for people to consider whether they might not be better off trying mediation before they move on to the next stage. Even having an arbitration clause does not preclude trying mediation first if all parties will agree to do so. When more disputes can be settled in this fashion, we will have a more civil society. It might even be one where we learn to negotiate civilly on our own so that we do not have to resort to the more formal procedures nearly as often.
[1] Anonymous. (2001) Arbitration and mediation. Executive Excellence, 18 (5) May, p. 7 – 8
[2] When the process calls for a panel of three arbitrators, normally each party selects one arbitrator and the two of them select the third.
[3] A recent example involved Travelers Property Casualty Corporation which was sued by one of its employees over its arbitration program. See Gibeaut, J. (2001) Detourd to ADR. ABA Journal, 87 (10), p. 50. The trial court upheld Travelers, but Brooks appealed. The lower court decision was affirmed. Howeer, the company had the expense of defending its program and the appeal.
[4] Kovach, K. K. (2000). Mediation: Principles and Practice (2nd edition). St. Paul: West Publishing Co.
