Alternative Dispute Resolution (ADR)
Alternative dispute resolution (ADR) is a term that refers to several different methods of resolving disputes outside traditional legal and administrative forums. These philosophically similar methodologies, which include various types of arbitration and mediation, have surged in popularity in recent years because companies and courts became extremely frustrated over the expense, time, and emotional toll involved in resolving disputes through the usual legal avenues. "The adversarial system is expensive, disruptive, and protracted. More significantly, by its very nature, it tends to drive the parties further apart, weakening their relationship, often irreparably" pointed out Whayne Hoagland in Business Insurance. ADR programs emerged as an alternative, litigation-free method of resolving business disputes.
Analysts also trace the rise of ADR methods to changing attitudes within the American judicial system. Business Horizons contributor Stephen L. Hayford observed that until the 1980s, "attempts by business firms to avoid litigation … were frustrated by a longstanding hostility on the part of the courts toward any devices that infringed on their jurisdiction." But during the 1980s, Hayford noted that a new body of case law emerged that sanctioned the use of binding arbitration provisions in commercial contracts between companies, business partners, employees and employers, etc. This body of law continued to evolve in the late 1990s. For example, the Alternative Dispute Resolution Act of 1998 extended ADR mechanisms throughout the federal district court system. As Simeon Baum stated in CPA Journal, "the act recognizes that ADR, when properly accepted, practiced, and administered, can not only save time and money and reduce court burdens, but also 'provide a variety of benefits, including greater satisfaction of the parties, innovative methods of resolving disputes, and greater efficiency in achieving settlements.'"
Today, legal and corporate acceptance of alternative dispute resolution as a legitimate remedy for addressing business disagreements is reflected in the language of business contracts. ADR contingencies have become a standard element in many contracts between companies and their employees, partners, customers, and suppliers. As U.S. News & World Report noted, "virtually every state has experimented with some form of ADR." With the growth of ADR has come a growing number of organizations and associations designed to assist commercial entities in the use of these alternative dispute resolution methods.
Arbitration Associations and Organizations
There are several U.S. organizations and agencies that are directly involved in arbitration and arbitration issues. These include the National Academy of Arbitrators (NAA), the American Arbitration Association (AAA), and the Federal Mediation Conciliation Service (FMCS). The NAA was founded in 1947 as a non-profit organization to foster high standards for arbitration and arbitrators and to promote the process. The NAA works to attain these objectives through seminars, annual conferences, and educational programs. The non-profit AAA offers its services for voluntary arbitration as part of its mandate to promote the use of arbitration in all fields. The FMCS, meanwhile, maintains a roster from which arbitrators can be selected and champions procedures and guidelines designed to enhance the arbitration process.
PRIMARY FORMS OF ADR
Arbitration is the procedure by which parties agree to submit their disputes to an independent neutral third party, known as an arbitrator, who considers arguments and evidence from both sides, then hands down a final and binding decision. This alternative, which can be used to adjudicate business-to-business, business-to-employee, or business-to-customer disputes, can utilize a permanent arbitrator, an independent arbitrator selected by the two parties to resolve a particular grievance, or an arbitrator selected through the procedures of the AAA or FMCS. A board of arbitrators can also be used in a hearing.
After the arbitrator is selected, both sides are given the opportunity to present their perspectives on the issue or issues in dispute. These presentations include testimony and evidence that are provided in much the same way as a court proceeding, although formal rules of evidence do not apply. Upon completion of the arbitration hearing, the arbitrator reviews the evidence, testimony, and the collective bargaining agreement, considers principles of arbitration, and makes a decision. The arbitrator's decision is generally rendered within 60 days. Hayford noted that "[binding arbitration] minimizes pre-hearing machinations with regard to discovery, motion practice, and the other preliminary skirmishes that extend the time, expense, and consternation of court litigation. In exchange, the parties to a contractual binding arbitration provision agree to accept the risk of being stuck with an unacceptable decision."
Other forms of arbitration include the following:
- Expedited arbitration is a process intended to speed up the arbitration process with an informal hearing. Under this process, decisions are generally rendered within five days. It was first used in 1971 in settling disputes in the steel industry.
- Interest arbitration is the use of an arbitrator or board of arbitrators to render a binding decision in resolving a dispute over new contract terms.
- Final offer selection arbitration is an interest arbitration process in which the arbitrator or board of arbitrators selects either the union or management proposal to the solution. There can be no compromised decisions. This process is also termed either-or arbitration.
- Tripartite arbitration is a process wherein a three-member panel of arbitrators is used to reach a decision. Both labor and management select an arbitrator and the third is selected by the other two arbitrators or the parties to the dispute as a neutral participant.
In contrast to arbitration, mediation is a process whereby the parties involved utilize an outside party to help them reach a mutually agreeable settlement. Rather than dictate a solution to the dispute between labor and management, the mediator—who maintains scrupulous neutrality throughout—suggests various proposals to help the two parties reach a mutually agreeable solution. In mediation, the various needs of the conflicting sides of an issue are identified, and ideas and concepts are exchanged until a viable solution is proposed by either of the parties or the mediator. Rarely does the mediator exert pressure on either party to accept a solution. Instead, the mediator's role is to encourage clear communication and compromise in order to resolve the dispute. The terms "arbitration" and "mediation" are sometimes used interchangeably, but this mixing of terminology is careless and inaccurate. While the mediator suggests possible solutions to the disputing parties, the arbitrator makes a final decision on the labor dispute which is binding on the parties.
Mediation can be a tremendously effective tool in resolving disputes without destroying business relationships. It allows parties to work toward a resolution out of the public eye (the courts) without spending large sums on legal expenses. Its precepts also ensure that a company will not become trapped in a settlement that it finds unacceptable (unlike an arbitration decision that goes against the company). But Hayford commented that "mediation only works when the parties employing it are willing to go all out in the attempt to achieve settlement," and he warned that "the mediator must be selected carefully, with an eye toward the critical attributes of neutrality, subject matter and process expertise, and previous track record." Finally, he noted that with mediation, there is a "lack of finality inherent in a voluntary, conciliation-based procedure."
Other forms of mediation often employed in labor disputes include "grievance mediation" and "preventive mediation." Grievance mediation is an attempt to ward off arbitration through a course of fact-finding that is ultimately aimed at promoting dialogue between the two parties. Preventive mediation dates to the Taft-Hartley Act (1947) and is an FMCS program intended to avoid deeper divisions between labor and management over labor issues. Also termed technical assistance, the program encompasses training, education, consultation, and analysis of union-management disputes.
An ombudsman is a high-ranking company manager or executive whose reputation throughout the company enables him/her to facilitate internal dispute resolutions between the company and employees. Hayford points to several benefits of ombud-based ADR: "It provides a confidential, typically low-key approach to dispute resolution that keeps conflicts 'in the family.'…. Properly effected, the ombuds mechanism can do much to enhance the perception that the company is concerned and eager to address the problems of its employees by providing them with an accessible, nonthreatening avenue for seeking redress when they believe they have been wronged." The primary drawback of ADR by the ombud process, however, is that many companies—whether large or small—do not have an individual equipped with the reputation, skills, or training to take on such a task.
In neutral evaluations, a neutral individual, with a background in ADR, listens to each party lay out its version of events. After their perspectives have been considered, the neutral evaluator offers his/her opinion on the disagreement. This opinion is not binding in any way, but if the neutral party is respected and trusted by both sides, it can help the parties reassess their negotiating positions with an eye toward finding common ground.
The popularity of alternative dispute resolution has increased dramatically in recent years. Small- and medium-sized businesses have contributed to this surge in use, drawn by the promise of cost and time savings. But ADR provisions need to be weighed carefully before they are incorporated into any business agreement with partners, employees, vendors, or clients. The questions to ask are: when is an ADR resolution method preferable to litigation; when is it to be avoided; and, if ADR is preferred, what form of ADR should be pursued? Legal assistance is particularly vital for small business owners who wish to fully answer these questions and incorporate ADR provisions into their contracts and agreements.
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Hillstrom, Northern Lights
updated by Magee, ECDI
Alternative Dispute Resolution
ALTERNATIVE DISPUTE RESOLUTION
Procedures for settling disputes by means other than litigation; e.g., byarbitration, mediation, or minitrials. Such procedures, which are usually less costly and more expeditious than litigation, are increasingly being used in commercial and labor disputes, divorceactions, in resolving motor vehicle andmedical malpracticetort claims, and in other disputes that would likely otherwise involve court litigation.
In the late 1980s and early 1990s, many people became increasingly concerned that the traditional method of resolving legal disputes in the United States, through conventional litigation, had become too expensive, too slow, and too cumbersome for many civil lawsuits (cases between private parties). This concern led to the growing use of ways other than litigation to resolve disputes. These other methods are commonly known collectively as alternative dispute resolution (ADR).
As of the early 2000s, ADR techniques were being used more and more, as parties and lawyers and courts realized that these techniques could often help them resolve legal disputes quickly and cheaply and more privately than could conventional litigation. Moreover, many people preferred ADR approaches because they saw these methods as being more creative and more focused on problem solving than litigation, which has always been based on an adversarial model.
The term alternative dispute resolution is to some degree a misnomer. In reality, fewer than 5 percent of all lawsuits filed go to trial; the other 95 percent are settled or otherwise concluded before trial. Thus, it is more accurate to think of litigation as the alternative and ADR as the norm. Despite this fact, the term alternative dispute resolution has become such a well-accepted shorthand for the vast array of nonlitigation processes that its continued use seems assured.
Although certain ADR techniques are well established and frequently used—for example, mediation and arbitration—alternative dispute resolution has no fixed definition. The term alternative dispute resolution includes a wide range of processes, many with little in common except that each is an alternative to full-blown litigation. Litigants, lawyers, and judges are constantly adapting existing ADR processes or devising new ones to meet the unique needs of their legal disputes. The definition of alternative dispute resolution is constantly expanding to include new techniques.
ADR techniques have not been created to undercut the traditional U.S. court system. Certainly, ADR options can be used in cases where litigation is not the most appropriate route. However, they can also be used in conjunction with litigation when the parties want to explore other options but also want to remain free to return to the traditional court process at any point.
Of the many ways to resolve a legal dispute other than formal litigation, mediation, arbitration, mediation-arbitration, minitrial, early neutral evaluation, and summary jury trial are the most common.
Mediation—also known as conciliation—is the fastest growing ADR method. Unlike litigation, mediation provides a forum in which parties can resolve their own disputes, with the help of a neutral third party.
Mediation depends upon the commitment of the disputants to solve their own problems. The mediator, also known as a facilitator, never imposes a decision upon the parties. Rather, the mediator's job is to keep the parties talking and to help move them through the more difficult points of contention. To do this, the mediator typically takes the parties through five stages.
First, the mediator gets the parties to agree on procedural matters, such as by stating that they are participating in the mediation voluntarily, setting the time and place for future sessions, and executing a formal confidentiality agreement. One valuable aspect of this stage is that the parties, who often have been unable to agree on anything, begin a pattern of saying yes.
Second, the parties exchange initial positions, not by way of lecturing the mediator but in a face-to-face exchange with each other. Often, this is the first time each party hears the other's complete and uninterrupted version. The parties may begin to see that the story has two sides and that it may not be so unreasonable to compromise their initial positions.
Third, if the parties have agreed to what is called a caucusing procedure, the mediator meets with each side separately in a series of confidential, private meetings and begins exploring settlement alternatives, perhaps by engaging the parties in some "reality testing" of their initial proposals. This process, sometimes called shuttle diplomacy, often uncovers areas of flexibility that the parties could not see or would have been uncomfortable putting forward officially.
Fourth, when the gap between the parties begins to close, the mediator may carry offers and counteroffers back and forth between them, or the parties may elect to return to a joint session to exchange their offers.
Finally, when the parties agree upon the broad terms of a settlement, they formally reaffirm their understanding of that settlement, complete the final details, and sign a settlement agreement.
Mediation permits the parties to design and retain control of the process at all times and, ideally, eventually strike their own bargain. Evidence suggests that parties are more willing to comply with their own agreements, achieved through mediation, than with adjudicated decisions, imposed upon them by an outside party such as a judge.
An additional advantage is that when the parties reach agreement in mediation, the dispute is over—they face no appeals, delays, continuing expenses, or unknown risks. The parties can begin to move forward again. Unlike litigation, which focuses on the past, mediation looks to the future. Thus, a mediated agreement is particularly valuable to parties who have an ongoing relationship, such as a commercial or employment relationship.
Arbitration more closely resembles traditional litigation in that a neutral third party hears the disputants' arguments and imposes a final and binding decision that is enforceable by the courts. The difference is that in arbitration, the disputants generally agreed to the procedure before the dispute arose; the disputants mutually decide who will hear their case; and the proceedings are typically less formal than in a court of law. One extremely important difference is that, unlike court decisions, arbitration offers almost no effective appeal process. Thus, when an arbitration decision is issued, the case is ended.
Final and binding arbitration has long been used in labor-management disputes. For decades, unions and employers have found it mutually advantageous to have a knowledgeable arbitrator—whom they have chosen—resolve their disputes in this cheaper and faster fashion. One primary advantage for both sides has been that taking disputes to arbitration has kept everyone working by providing an alternative to strikes and lockouts and has kept everyone out of the courts. Given this very successful track record, the commercial world has become enthusiastic about arbitration for other types of disputes as well.
Now a new form of arbitration, known as court-annexed arbitration, has emerged. Many variations of court-annexed arbitration have developed throughout the United States. One can be found in Minnesota, where, in the mid-1990s, the Hennepin County District Court adopted a program making civil cases involving less than $50,000 subject to mandatory nonbinding arbitration. The results of that experimental program were so encouraging that legislation was later enacted expanding the arbitration program statewide. As of 2003, most cases were channeled through an ADR process before they could be heard in the courts. A growing number of other federal and state courts were adopting this or similar approaches.
As its name suggests, mediation-arbitration, or med-arb, combines mediation and arbitration. First, a mediator tries to bring the parties closer together and help them reach their own agreement. If the parties cannot compromise, they proceed to arbitration—before that same third party or before a different arbitrator—for a final and binding decision.
The minitrial, a development in ADR, is finding its greatest use in resolving large-scale disputes involving complex questions of mixed law and fact, such as product liability, massive construction, and antitrust cases. In a mini-trial, each party presents its case as in a regular trial, but with the notable difference that the case is "tried" by the parties themselves, and the presentations are dramatically abbreviated.
In a minitrial, lawyers and experts present a condensed version of the case to top management of both parties. Often, a neutral adviser—sometimes an expert in the subject area—sits with management and conducts the hearing. After these presentations, top management representatives—by now more aware of the strengths and weaknesses of each side—try to negotiate a resolution of the problem. If they are unable to do so, they often ask for the neutral adviser's best guess as to the probable outcome of the case. They then resume negotiations.
The key to the success of this approach is the presence of both sides' top officials and the exchange of information that takes place during the minitrial. Too often, prelitigation work has insulated top management from the true strengths and weaknesses of their cases. Mini-trial presentations allow them to see the dispute as it would appear to an outsider and set the stage for a cooperative settlement.
Early Neutral Evaluation
An early neutral evaluation (ENE) is used when one or both parties to a dispute seek the advice of an experienced individual, usually an attorney, concerning the strength of their cases. An objective evaluation by a knowledgeable outsider can sometimes move parties away from unrealistic positions, or at least provide them with more insight into their cases' strengths and weaknesses. Of course, the success of this technique depends upon the parties' faith in the fairness and objectivity of the neutral third-party, and their willingness to compromise.
Summary Jury Trial
Summary jury trials have been used prima-rily in the federal courts, where they provide parties with the opportunity to "try" their cases in an abbreviated fashion before a group of jurors, who then deliberate and render an advisory opinion.
Like an early neutral evaluation, an advisory opinion from a summary jury trial can help the parties assess the strengths and weaknesses of their cases and sometimes can facilitate the settlement of the dispute. Another advantage of the summary jury trial, which it has in common with the minitrial, is that it can be scheduled much sooner than a trial. When early evaluations help the parties settle their cases, the parties typically avoid much of the delay, expense, and anxiety that occurs in litigation.
ADR by Statute and Regulation
Since the late 1980s, Congress has recognized that ADR provides a cost-efficient alternative to traditional methods for dispute resolution. In 1988, Congress enacted the Judicial Improvements and Access to Justice Act, 28U.S.C.A. § 652 (1993 & Supp. 2003), which permitted U.S. district courts to submit disputes to arbitration. Congress amended this statute with the enactment of the Alternative Dispute Resolution Act of 1998, Pub. L. No. 105-315, 112 Stat. 2994 (28 U.S.C.A. § 652), which requires each district court to require, by local rule, that litigants in all civil cases consider using an ADR process at the appropriate state of litigation.
Local rules of U.S. district courts typically provide a wide array of ADR methods. For example, the U.S. District Court for the Western District of Texas recognizes early neutral evaluation, mediation, minitrial, moderated settlement conference, summary jury trial, and arbitration as acceptable forms of ADR. W.D. Tex. Loc. R. CV-88. According to these rules, the court may order ADR on the motion of a party, on agreement of both parties, or on its own motion. Most other district courts have adopted similar rules. Congress has also included ADR provisions in a number of statutes to resolve a variety of disputes. For instance, the Board of Directors of the Office of Compliance, which reviews complaints brought by employees of Congress, may order counseling or mediation, in addition to holding a board hearing or initiating a civil action in federal court. 2 U.S.C.A. § 1401 (1997). Similar statutes apply to such conflicts as labor disputes and claims by individuals with disabilities.
State legislatures have similarly provided for ADR in many of their statutes. Judges in Florida, for example, possess authority to submit most types of cases to mediation or arbitration in lieu of litigation. Fla. Stat. § 44.1011 (1997). The commissioners on uniform laws have approved several uniform laws, which may be adopted by the various states, related to ADR proceedings. Versions of the Uniform Arbitration Act, first approved in 1956, have been adopted by 49 states. Likewise, the Uniform Mediation Act, drafted in conjunction with the American Bar Association's Section on Dispute Resolution in 2001, provides rules on the issues of confidentiality and privileges in mediation.
ADR has had an impact on administrative agencies as well. Congress amended the Administrative Procedure Act in 1990 to authorize and encourage administrative agencies to submit administrative disputes to ADR. 5 U.S.C.A. § 572 (1996). ADR often takes the form of mediation in disputes involving labor and employment relations and equal employment opportunity. Several federal agencies provide guides about ADR proceedings to prospective complainants and other constituents.
Courts frequently uphold decisions made during ADR proceedings. In Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 121 S. Ct. 1724, 149 L. Ed. 2d 740 (2001), the U.S. Supreme Court reviewed a decision in which the Ninth Circuit Court of Appeals had reversed a decision of an arbitration panel regarding a complaint by former baseball player Steve Garvey about a contract dispute. The Ninth Circuit then remanded the case to the arbitration panel with instructions to enter an award in favor of the player for the amount he claimed. Noting that judicial review of labor arbitration decisions is limited, the Supreme Court reversed the Ninth Circuit's decision, holding that it was not the place of a court of appeals to resolve the dispute on its merits.
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