What is Alternative Dispute Resolution?

Author:  Wex Definitions Team

Definition

Alternative dispute resolution (“ADR”) refers to any method of resolving disputes without litigation. ADR regroups all processes and techniques of conflict resolution that occur outside of any governmental authority. The most famous ADR methods are the following: mediation, arbitration, conciliation, negotiation, and transaction.

All ADR methods have common characteristics – i.e., enabling the parties to find admissible solutions to their conflicts outside of traditional legal/court proceedings, but are governed by different rules. For instance, in negotiation there is no third party who intervenes to help the parties reach an agreement, unlike in mediation and conciliation, where the purpose of the third party is to promote an amicable agreement between the parties. In arbitration, the third party (an arbitrator or several arbitrators) will play an important role as it will render an arbitration award that will be binding on the parties. In comparison, in conciliation and mediation, the third party does not impose any binding decision.

If all the ADR methods are different, they should not be compared and confronted because in practice, the parties combine the use of these different ADRs. For instance, the parties may stipulate in their contracts that in the event of a dispute they will first submit to an attempt at amicable settlement (conciliation/mediation) and only in the event of failure will they resort to a judicial method of settlement, which may be arbitration or recourse to the State justice system. ADRs therefore come into play at different levels and have a complementary character.

The main advantages of ADR are rapidity, confidentiality and flexibility.

Public courts may be asked to review the validity of ADR methods, but they will rarely overturn ADR decisions and awards if the disputing parties formed a valid contract to abide by them.

Overview

Alternative Dispute Resolution (“ADR”) refers to any means of settling disputes outside of the courtroom. ADR typically includes early neutral evaluation, negotiation, conciliation, mediation, and arbitration. As burgeoning court queues, rising costs of litigation, and time delays continue to plague litigants, more states have begun experimenting with ADR programs. Some of these programs are voluntary; others are mandatory.

•           Negotiation

Negotiation is the preeminent mode of dispute resolution. While the two most known forms of ADR are arbitration and mediation, negotiation is almost always attempted first to resolve a dispute. Negotiation allows the parties to meet in order to settle a dispute. The main advantage of this form of dispute settlement is that it allows the parties themselves to control the process and the solution. Negotiation is much less formal than other types of ADRs and allows for a lot of flexibility.

•           Mediation

Mediation is also an informal alternative to litigation. Mediators are individuals trained in negotiations, who bring opposing parties together and attempt to work out a settlement or agreement that both parties accept or reject. Mediation is not binding. Mediation is used for a wide gamut of case-types ranging from juvenile felonies to federal government negotiations with Native American Indian tribes. Mediation has also become a significant method for resolving disputes between investors and their stock brokers.

•           Arbitration

Arbitration is one of the most emblematic and growing forms of ADR. Arbitration is more formal than mediation and has a lot of similarities with traditional court proceedings, involving limited discovery and simplified rules of evidence.

Arbitration relies on the consent of the parties; therefore, the arbitration agreement is emblematic because it is the gateway to the particular system that is arbitration. Prior to the dispute occurring, parties usually enter into a binding arbitration agreement or any other form of agreement with an arbitration clause, that allows them to lay out major terms for the arbitration process (number of arbitrators, arbitration forum; arbitration rules; fees etc.).

If parties still have disputes about certain terms before entering into an arbitration they can petition to a court to resolve a dispute. Arbitration can be held ad hoc or with the administrative support from one of the institutional providers like American Arbitration Association (AAA) or JAMS when the arbitration is national.

The arbitration is headed and decided by an arbitral panel or a single arbitrator, depending on the agreement of the parties. Arbitrators do not have to be lawyers, parties can select arbitrators from other fields that they consider more suitable for the resolution of the dispute, which usually occurs when the arbitration deals with a very specialized topic such as construction or pharmaceutical issues. Indeed, parties can for example choose an arbitrator with an engineering background to arbitrate a construction dispute.

To comprise a panel, either both sides agree on one arbitrator, or each side selects one arbitrator and the two arbitrators elect the third. Arbitration hearings usually last between a few days to a week, and the panel only meets for a few hours per day. The panel or a single arbitrator then deliberates and issues a written binding decision or arbitral award. Opinions are not public record. Arbitration has long been used in labor, construction, and securities regulation, but is now gaining popularity in other business disputes. For national arbitration, Title 9 of the U.S. Code establishes federal law supporting arbitration. It is based on Congress’s plenary power over interstate commerce. Where Title 9 applies, its terms prevail over state law. There are, however, numerous state laws on ADR. Forty-nine states have adopted the 1956 version of the Uniform Arbitration Act as state law. The act was revised in 2000 and subsequently adopted by twelve states. The arbitration agreement and award is now enforceable under both state and federal law.

In 1958, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the “New York Convention”, was drafted to aid in the enforcement in domestic courts of awards granted in foreign countries. In 1970, the United States joined and, as of November 2021, there are 156 countries participating in the convention.

Benefits of Alternative Dispute Resolution (ADR)

ADR gives parties in dispute the opportunity to work through disputed issues with the help of a neutral third party. It is generally faster and less expensive than going to court.

When used appropriately, ADR can:

• save a lot of time by allowing resolution in weeks or months, compared to court, which can take years

• save a lot of money, including fees for lawyers and experts, and work time lost

• put the parties in control (instead of their lawyers or the court) by giving them an opportunity to tell their side of the story and have a say in the final decision

• focus on the issues that are important to the people in dispute instead of just their legal rights and obligations

• help the people involved come up with flexible and creative options by exploring what each of them wants to achieve and why

• preserve relationships by helping people co-operate instead of creating one winner and one loser

• produce good results, for example settlement rates of up to 85 per cent

• reduce stress from court appearances, time and cost

• keep private disputes private – only people who are invited can attend an ADR session, unlike court, where the proceedings are usually on the public record and others, including the media, can attend

• lead to more flexible remedies than court, for example by making agreements that a court could not enforce or order (for example a change in the policy or practice of a business)

• be satisfying to the participants, who often report a high degree of satisfaction with ADR processes

• give more people access to justice, because people who cannot afford court or legal fees can still access a dispute resolution mechanism.

Other points to consider about ADR

It is important that ADR is used in a way that is appropriate and likely to lead to the best results for all parties.

These are some things to consider when considering whether to use ADR and which type is most appropriate for you:

• ADR may not be suitable for every dispute, for example if the dispute involves a matter of public interest, it may be more appropriate to have a court judgment to set a precedent.

• Where a binding agreement is made (for example through negotiations or use of ADR), parties normally give up the right to go back to court about the same matter. Similarly, an award made at arbitration is generally binding and cannot appealed except in limited circumstances.

• Some agreements made at ADR may not be as easy to enforce as a court or tribunal order. In some cases, this can be addressed by having the terms of an agreement made into orders by consent by a court or tribunal. You can also get legal advice or further information about other ways of making ADR agreements and decisions binding.

• If ADR is not successful and you have to go to court in the end, trying ADR first might add to your legal costs. However, in general, ADR has very high rates of success.

• When deciding whether or what type of ADR is suitable for your dispute type, you may wish to seek legal advice from your lawyer.