Is Alternative Dispute Resolution Really in Your Best Interests?

February 15th, 2016

Over the past few decades, use of alternative dispute resolution (ADR) has grown steadily. Meant as alternatives to the traditional court processes, mediation and arbitration provide parties with avenues to resolve their legal problems, at the very least, keep them out of the public eye.

But while ADR has many advantages, one size does not fit all. Before simply assuming ADR is your best alternative, you should weigh not only its advantages, but also its disadvantages.

A frequent selling point for ADR is cost savings. But depending on the types of cases anticipated, ADR can actually increase litigation expense. While the clerks, judges and juries at the courthouse are provided at taxpayer expense, the parties to an individual dispute will have to pay any mediators, arbitrators, or ADR service companies who may handle their cases. Unless you anticipate making up these costs through other savings, you may well want to avoid, for example, including mandatory ADR in your form contract documents.

Many contract forms actually require a multi-tiered ADR process. In the construction field, for example, many standard forms require participation in mediation before binding resolution can be sought, and if mediation is unsuccessful in producing an agreement, the binding resolution can be pursued only in an arbitration. In our experience, mediation is an outstanding vehicle when both sides come to the table with strong interest in finding common ground and determined to hammer out details. When parties are far apart and entrenched, a successful mediation may be at its most valuable — but those same cases see lower success rates. And regrettably, in many cases one side has no desire to resolve matters at all. In those situations, mediation adds not just to the expenses incurred, but also to the delay in getting to the finish line.

Before signing any contract, consider whether the likely circumstances of a possible future dispute would lead you to prefer mandatory mediation, or arbitration instead of court litigation. When in doubt, or when you want to craft language tailored to your individual situation, ask your lawyer for help. Probably the best kind of lawyer to help is a litigator – someone who has seen cases like yours fall into disputes and who can apply experiences to help you plan ahead effectively. After all, the best way to avoid future disputes, or to control the scope of problems that prove unavoidable, is to make sure your contracts speak with clarity.

As examples, consider these two approaches as alternatives to any standard forms you may have presented to you:
Remove Required Mediation and the Multi-tier Process
If a dispute arises and both sides want to be in mediation at that point, nothing stands in their way. But requiring mediation before you even know what the future dispute might be about can lead to one party begging to settle while the other drags its feet, stonewalls, or sits at a conference table refusing to budge. No one benefits from that. Consider striking mandatory mediation clauses from forms provided by the American Institute of Architects, the Associated General Contractors, the Virginia Association of Realtors, or others.
Provide your Business with discretion to choose to Mediation
If you control the drafting of a form document, consider providing yourself with the right to elect, after the dispute arises, whether you can force the other party to participate in mediation, or whether you wish to pass on that process. Mediation may well prove beneficial in resolving complicated disputes, and it is especially valuable when important customer relationships are salvaged in the process. But you may not want to be delayed by mediation if, for example, you are merely trying to collect an unpaid account and speed is needed to improve your prospects of recovery.

Managing litigation – its risks, its costs, its time commitments, and its potential for bad publicity – is critical for any business. ADR can be a valuable tool to help on all those fronts. But like any good tool, sometimes it is the right one for the job, and sometimes it isn’t. Working with your lawyer ahead of time can help you to know which tool will suit you best.