Mediation or Arbitration?

Have you ever signed a contract without reviewing the fine print, or misunderstood the rigidity of something you thought was negotiable? Disputes over contracts are more common than we think, especially in the business world. In this blog post, we've invited a specialist to walk you through an alternative to resolving contract disputes inside a courtroom.  

Most business managers review and sign contracts for services and equipment throughout the business day. Some contracts, like your credit card agreement, are standard form deals, and if you want to use the benefits of the card or purchase those supplies, you must agree to generally non-negotiable and hard-to-understand terms. Other contracts are more the product of face-to-face negotiation. In that case, you should understand some things about the different dispute resolution options many contracts contain.
 
The development of alternative dispute resolutions
Many years ago, contracts lacked special dispute resolution language. Under the American justice system, when you have a grievance or complaint you generally have a right to go to court to seek justice and relief, either monetary or equitable. If you were unsuccessful using self help methods like negotiating with the adversary depending on the amount in controversy, you would either go to small claims or district court, or circuit court. You have the right to have a trial by jury if the dispute is filed in a general trial court. However, as court dockets became more crowded and great backlogs of administrative cases in government agencies developed, alternative dispute resolution (ADR) methods increased in popularity.
 
ADR is a catchall term referring to numerous, confidential processes that are used to help resolve disputes outside the courtroom. Businesses generally opt for ADR because it is less expensive and quicker than the court system.
 
Two types of ADR
With the growth of different dispute resolution methods, it is important to understand two of the chief ADR processes and the advantages and drawbacks of each.

• Arbitration. Arbitration is like having a private court make decisions. The arbitrator, like a judge, issues a decision on the dispute based on the law and/or contract that established the arbitration requirement. Arbitration is generally binding, and is driven by the rules of the particular arbitration system that is specified in the underlying agreement (i.e. American Arbitration Association or National Arbitration Forum). While arbitration can get very expensive and be as litigious as going to court, simplified arbitration rules can lead to a very quick decision on the case. If the disputed contract language requires arbitration, you do not have a right to go to court to resolve the issue.
   
• Mediation. Mediation is a process where a neutral third party facilitates communication between the parties in dispute. Mediation is a much more flexible process than arbitration, and allows for the two parties in dispute to come to a resolution together. Mediation decisions are binding if they are entered into a court order or are signed by the parties involved. The process is a great option for those looking to preserve the relationship between the parties in dispute.

We recommend discussing dispute resolution options at the beginning of a contractual relationship, before an opportunity for dispute can occur. You’ll want to ask yourself several questions before you jump into a new partnership: Do you view this as a long-term relationship? Is this provider or vendor easily replaceable if things don’t work out? If the answer to the first question is yes, you might want to consider requesting a mediation provision in your contract. If your answer to the second question is yes, then arbitration may be a good option for you.
 
Blog content contributed by Ellen Kandell, Esq., President of Alternative Resolutions, LLC. Alternative Resolutions provides conflict resolution services, team and retreat facilitation and training. Further information about her company can be found at www.alternativeresolutions.net.You can also email her for mediation advice at ek@alternativeresolutions.net.