Nearly every contract written today contains one common provision notwithstanding the nature of the contract: the method (note the singular) to be used in resolving future disputes. That includes both employment contracts and unilaterally imposed employer handbook policies. Since litigating disputes is time-consuming and expensive, the chosen method is often binding arbitration pursuant to boilerplate language stored in a document management system and used repeatedly without great thought. It is often the only method specified, along with a requirement arbitrations be conducted pursuant to rules of a specified ADR provider.
Such traditional dispute resolution clauses are often inadequate, inappropriate or entirely overblown in the context of a specific dispute, and they often fail to offer parties the most practical method of resolving a particular dispute.
Mediation
It is rare to find a court that does not promote the use of non-binding mediation. The success rate for voluntary mediation is high, it is cost effective, and the parties are given the opportunity to examine and determine their own destinies. It is also efficient from the standpoint of time and in most cases, the resulting settlement agreement can provide for desired confidentiality. Yet disappointingly, it is rare to see a mediation provision in dispute resolution clauses.
Arbitration Flexibility
Binding arbitration is still preferable to court litigation in many cases. That does not mean, however, the parties should bind themselves inflexibly to a specific arbitration process. Disputes come in all shapes and sizes. If parties must arbitrate, they should allow themselves the opportunity to determine the manner in which the arbitration will proceed. For example, they should be able to determine if they will need a single arbitrator or a panel of three. How will the arbitrator(s) be selected? Will rules of evidence be followed and how will witnesses be managed? Will general court rules apply or should a modification be made to increase efficiency? Will there be time constraints imposed, discovery limitations or other rules that will ensure a fair and equitable outcome with the least amount of formality? Most, if not all, of these questions are dealt with currently in discussion with the chosen arbitrator(s), so building such flexibility into the contractual provision is not a radical suggestion.
Crafting Alternative Dispute Resolution (ADR) Provisions
Non-binding mediation should always be a first consideration before proceeding to arbitration or litigation. Most contract provisions will make it optional, subject to mutual agreement of the parties, but in any case mediation is non-binding. The parties will jointly select a qualified neutral mediator, either on their own or through reference to lists maintained by specialized ADR providers or the courts. Most mediators offer services on an hourly rate or per diem basis. The costs of mediation are either shared equally between the parties or, as in many employer arbitration provisions, employer-paid.
Arbitration provisions then follow. They should assign responsibility to the parties to develop rules and procedures that fit the nature and scope of the dispute. The contract should use care in specifying a particular ADR provider and, to the greatest extent possible, avoid payment of burdensome administrative fees. Whether the parties can agree on the arbitrator(s) or must select through an ADR provider, it becomes fairly straightforward to develop the rules that will guide the process. If the parties cannot develop the process themselves, they may rely on their chosen neutral(s) to assist them bridge their differences and put together the overall process. In any event, it is important the parties’ contract language not be limiting, other than as to the scope of disputes covered.
[1] Jim Logan is the President of James E. Logan & Assoc., Ltd., Settlement Consultants, and founding member of the American Settlement Centers, a dispute resolution services provider located in Farmington Hills, Michigan.