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Mediation, Arbitration, What's the Difference?

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Mediation, Arbitration, What's the Difference?

Source: Business & Legal Reports, Inc.
Date: September 2002

In an August newsletter feature updating the status of arbitration agreements, we noted that many observers recommend that such agreements include a good mediation system to ensure their effectiveness. Both mediation and arbitration fall into the general category of alternative dispute resolution, but what's the difference between the two, really?

At a recent seminar offered by the National Employment Law Institute, speaker Jerry P. Roscoe discussed that topic, along with other aspects of mediation. Experienced in both mediation and arbitration, Roscoe is part of ADR Associates, LLC, based in Washington, D.C. He is an attorney, trains mediators and arbitrators in the private sector, and serves as an adjunct professor of law.

Roscoe listed these characteristics of mediation that serve to distinguish the process from arbitration.

  • Mediation is voluntary and nonbinding. Even though some courts require parties to a lawsuit to try mediation before proceeding with litigation, all they need to show is a good faith effort, and either can withdraw from the mediation at any point. Neither one is bound to abide by the agreement they reach in the process.
  • It is facilitated negotiation between the parties, as opposed to a third-party decision process. Traditionally, mediators neither suggest what the settlement should be nor draft the agreement; they simply try to bring the parties closer together on what each other wants.
  • It is very flexible, allowing the parties involved to make whatever rules will govern the mediation.
  • Rather than being limited to determining the legal rights of the parties, mediation can consider their personal interests as well.

Arbitration, by contract, is like a streamlined trial, with arbitrators adjudicating the parties' legal rights and handing down a binding decision.

If we have an arbitration agreement, why mediate?

One controversial point about arbitration is it's increasingly high cost. Once seen as a much better alternative than allowing employment disputes to be litigated in court, arbitration has become a more formal process than it once was, Roscoe reports. As a result costs have escalated – to the point where some recent studies have found it even more expensive than litigation. Without question, mediation is a cheaper alternative; Roscoe estimates that it costs about the same as taking a deposition. OK, so it's cheaper, but will it accomplish the same thing?

Not necessarily, nor was it meant to. One good reason to incorporate a mediation system as part of an arbitration agreement is to attempt to resolve as many disputes as possible before they reach the arbitration stage. Obviously, negotiating a settlement to which both parties agree is much to be preferred. Another advantage to mediation is that sometimes what one or both parties want can't be obtained through either arbitration or litigation, because it has nothing to do with legal rights. Let's say, for example, that a high-performing employee is laid off during an economic downturn. She wants to sue for damages, claiming she was laid off because of her gender. By the time her lawsuit might have reached the courts, some 18 months later, her former employer's fortunes have turned and it is seeking qualified employees. In mediation, rather than monetary damages, she might look for a letter of recommendation from the employer as evidence that her termination was not related to her performance. Or her former employer might want to rehire her, now that it is in a position to do so. Neither option could or would be considered in court or in arbitration, but either could be the foundation of a negotiated settlement coming out of mediation.

We don't have an arbitration agreement, so why mediate?

We reported that experts do not recommend arbitration agreements for companies that have experienced few or no employment disputes. But should employers who may not need arbitration provide for mediation?

Roscoe feels very strongly that they should, for several reasons. First, he tends to doubt that there are workplaces with no employment disputes. As he puts it, "Where there are human beings, there are human issues." So either the employer is perfect (did we hear you scoff?), or the employees are too frightened to surface their disputes – a situation that will hamper productivity at the least and may explode later at the worst. So play it safe and assume that there are at least a few disputes that might benefit from mediation.

Second, he stresses, mediation can help HR pros and top management discover workplace problems before they escalate or become endemic. "Do you want to know what's really going on among your employees?" Roscoe might ask. If you do, and you want the opportunity to address and rectify potentially series issues, then implement mediation.

In the third place, mediation can help resolve issues before either side gets hardened in its position. And finally, Roscoe points out, the employer nearly always loses in arbitration, no matter what the arbitrator's decision. If the employee wins, he or she returns triumphantly to the workplace to tell co-workers how the arbitrator agreed that the employer was unfair. If the employee loses, he or she is likely to trash the arbitration process as unfair. In mediation, by contrast, both parties are likely to support the settlement they reached. Viola – a lose/lose proposition becomes a win/win.

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