The problems and benefits of using alternative dispute resolution

As in-house counsel, you are faced with a myriad of problems every day. They span the gamut from routine contract drafting to bet-the-company litigation. As to the latter, while not every dispute rises to the level of “bet the company,” you likely face a wide range of disputes that need resolution. Your job as in-house counsel is to find the best way to resolve them. 

Fortunately, you have a wide range of options, with litigation being the last resort. And, if you have Practical Law, you will be able to get up to speed quickly on these types of alternative dispute resolution (ADR), including tool kits, forms, checklists, and up-to-date research. 

See Practical Law’s ADR Mechanisms in the US: Overview and Before You Litigate in the US: Practical Considerations Checklist

Types of alternative dispute resolution

While many companies resort to litigation first, the smart in-house lawyer analyzes the situation and brings forward various alternatives to resolve the dispute. In short, they are: 

Self help

Phone call – Trying to work out a quick resolution by picking up the phone.

Settlement conference – A more formal process where the parties meet in person to see if they can resolve the issue.

Third-party help

Mediation – A non-binding process where a neutral mediator tries to bring the parties together to reach an agreement on a resolution.  

See Practical Law’s Mediation Tool Kit

Neutral evaluation – Similar to mediation, except the parties receive a written opinion from the neutral evaluator who gives their decision on how the dispute should turn out. It is non-binding.

Summary jury trial – A private process where the parties submit their dispute using a mini-trial and allow a judge or jury to give a binding decision.

Arbitration – A contractual process similar to litigation with binding decisions and limited ability to appeal.  

See Practical Law’s Arbitration Toolkit

Examining the problems and benefits of ADR

While we generally think of alternative dispute resolution as a better way to resolve disputes, ADR has several disadvantages versus traditional litigation. As in-house counsel, considering and presenting the bad with the good is how you best add value to the business. 

See Practical Law’s Arbitration vs. Litigation in the US

Here are the advantages and disadvantages of alternative dispute resolution.

Benefits of ADR

Helps limit the hostility between the parties: Generally with alternative dispute resolution, the parties are both committed to finding a resolution by working together in good faith.

Hear what you need to hear: Clients —including in-house counsel — can get wrapped up tight in their version of the case. Sometimes, hearing from the other side and hearing the thoughts of a neutral third party can get both sides to focus on the realities of the dispute versus the dug-in positioning.

Utilizes a simplified process to resolve issues: ADR generally avoids the formalities and complexity of litigation.

Less expensive: For many reasons, alternative dispute resolution is usually less expensive than traditional litigation.

Flexible: In most instances, the parties can create their own process to help resolve their fight, that is, there’s total flexibility.

Speedier resolution: ADR almost always leads to a faster resolution of the dispute, meaning both parties can get back to business quicker.

Confidentiality: Alternative processes are typically confidential, meaning the fight is out of the public eye and — more importantly — sensitive documents, trade secrets, etc. are protected from disclosure.

Involves experts: Depending on how the parties structure their process, ADR allows for the use of experts to conduct the process or decide critical issues where a judge or jury may not have the time or ability to quickly grasp the nuances of the dispute.

Acknowledges the fact that few cases go to trial: On average, 90% of litigation settles before ever going to trial. If so, then ADR is a simpler, faster, and less expensive way to get the parties to where they are most likely to end up anyway.

Problems with ADR

No appeal: Unless you write an appeal process into your agreement or, for very limited circumstances, a binding ADR procedure lacks the ability to appeal the decision. For example, if you have a single arbitrator and they “go rogue,” your ability to fix it is limited. Likewise, while not binding, a bad mediator can mean a wasted day or two.

Dubious objectivity: Let’s face it, people are people and both sides are striving to find “neutrals” who will best support their position. In many arbitrations, each party picks one arbitrator and the service picks the chair of the panel. You can bet that the arbitrators picked by the parties are pre-disposed to their respective party’s position.

Not binding: Unless the parties are using a binding process, settlement negotiations and mediation are not binding. A party is free to say no or even renege on an agreement reached during the process — in other words, there is no guarantee of resolution.

Expensive: Parties to ADR often make the mistake of thinking that the cost will be minimal; it’s not. It can be very expensive when you consider that, unlike the court system, you must pay for the time of the neutrals, for the meeting/hearing room, for the service (AAA, JAMS, etc.) managing the process, along with your counsel, travel, discovery costs, etc. 

And, if the hearings are broken up due to scheduling conflicts or illness, the cost can be significantly more than either party anticipated. Similarly, summary relief is rarely granted, meaning you will most likely be headed to a hearing regardless of the strength of your summary judgment motion.

Can be a stalling tactic: If the process isn’t binding, one of the parties may use ADR as a way to stall and push the dispute out into the future. And, if the parties are not cooperating, the process can drag on and on and on.

Power imbalances can play out: The party with the most money and power can often sway the process. This imbalance can play out in their favor, which is why Congress recently banned mandatory arbitration for sexual harassment cases.

Lack of precedents: In court, you can generally rely on years of precedents to help determine and guide how the process should turn out. With ADR, however, precedents are merely suggestions in many instances. The arbitrator or summary jury can decide pretty much how they wish, based on whatever evidence they want to rely on and however their sense of “fairness” dictates. 

This can be frustrating to in-house counsel and the business, especially if the other side plays dirty. It is also why you hear “split the baby” when in-house lawyers refer to arbitration.

Compromise is expected: For most paths you must come to the table expecting to compromise your claim — the parties use ADR to avoid protracted litigation. Unfortunately, many business leaders want to roll the dice for complete and total victory; they will not likely get that outcome with ADR. If that is what the business wants, alternative dispute resolution may not be the best path.

As you can see, there is a lot to weigh when considering whether alternative dispute resolution is the right path for your company.  

See Practical Law’s Why Arbitrate (Practice Note)  

One thing that can make it easier is a well-written dispute resolution provision in your contracts. Here you are limited only by your imagination and what the other party will accept. So, it’s better to be as specific as possible as to how disputes will be resolved. Likewise, before agreeing to mediation or other non-binding ADR, get the core principles of how the ADR will proceed in writing.  

See Practical Law’s What’s Wrong with My Arbitration Clause?

It’s one way to ensure the benefits outweigh the disadvantages. With Practical Law, you are only minutes away from having what you need, when you need it when it comes to ADR.  

See Practical Law’s AAA Arbitration (Commercial Rules): A Step by Step Guide