When there is a disagreement regarding a contract breach, employment, shareholder issues or insurance claims, some may think that going to court is the only option. However, alternative dispute resolutions have gained in popularity over the years, although many parties still choose court litigation.
Mediation and arbitration are the main types of ADR, and while they have some similarities, they differ in a number of ways.
According to Pepperdine University, both mediation and arbitration use a neutral third-party. In mediation, a mediator works with both sides to come up with an acceptable resolution. The discussions and information presented are confidential, and the decision is nonbinding, which means that if one party does not accept the outcome, they may choose to go to trial.
Mediation is a good choice for those who want to preserve a working relationship because the process involves more amicable conversations and room for negotiation.
Arbitration involves an arbitrator who listens to both sides, examines evidence presented and makes a decision based on the facts. The decision may be nonbinding or binding. If it is binding, the decision is final and there are few opportunities for appeal.
Arbitration is a good choice when the case is complex, but the parties do not want to go through the time and expense of a trial.
The importance of including dispute resolution in a contract
According to the Harvard Law School Program on Negotiation, one of the reasons not as many parties use ADR methods is because when they enter into a contract they do not think a dispute will ever occur. Also, many people do not know enough about mediation or arbitration, so they choose litigation because they understand it better.
It helps if there is a stated method of resolution in the contract. Instead of lawsuits, it may be better to make mediation or arbitration the default option.