It is increasingly common for contractual agreements to contain alternative dispute resolution (“ADR”) clauses. This is true for contracts, leases, credit card agreements, seed tags and even the fine print on the back of your lift ticket at a ski resort.
The goal of ADR is to avoid the time and expense of formal legal proceedings by providing an alternative forum for disputes to be considered. Although ADR can be beneficial in certain instances, it is extremely important parties to any agreement understand the ADR clause and what his or her rights are based upon agreement to that contractual term.
The two most common forms of ADR are mediation and arbitration. Although both offer alternative forums for resolving disputes, they are quite different.
Mediation
Mediation is a confidential process by which a third-party mediator facilitates a conversation between the two parties so they may reach an agreement between themselves. The parties may be in the same room or may be kept in separate rooms.
Communications between the parties generally go through the mediator. Generally, discussions or offers that occur in mediations are confidential and may not be used later in litigation. The parties will settle their dispute only if they both agree to do so on the same terms.
The mediator will not, and cannot, order either party to agree with the other. If an agreement is reached, the mediator generally drafts a settlement agreement outlining the terms as agreed to by both parties. This agreement is signed by the parties (and their attorneys, if involved) and is enforceable as a contract.
In addition to contractual provisions requiring mediation, courts often require mandatory mediation during the litigation process before a case goes to trial. There are many different ways to select a mediator. Oftentimes, the parties (or their attorneys) agree upon a private mediator.
Usually, this person is a practicing attorney or retired judge. In some states, there are state-run mediation programs that provide volunteer mediators either free or at a very low rate to assist parties with their disputes.
The main advantage of mediation is that it is flexible and allows the parties themselves to reach a resolution they are able to agree to and live with.
If an agreement between the parties is not reached, the dispute may proceed forward in court. One disadvantage of mediation is that if there is an unreasonable party, it may be a waste of time and money if he or she does not take the process seriously and attempt to reach a fair settlement.
Arbitration
Unlike mediation, arbitration involves a third-party arbitrator hearing evidence and rendering a decision on the dispute. Thus, the arbitrator acts essentially like a judge. The parties themselves have no control over the outcome of an arbitration.
Arbitrations are less formal than trials. For example, the admissibility of evidence may be more lax in arbitration than it would be in a court of law.
Arbitrations are classified as either binding or non-binding. A binding arbitration results in a final decision called an arbitration award.
Thus, parties who participate in binding arbitration waive their right to a trial in court. The arbitrator’s decision is generally not appealable. An arbitration decision may be filed in court as the final disposition of a case.
A non-binding arbitration, however, is not a final judgment on claims, and no arbitration award is entered. Instead, it is used by parties to evaluate how a third party will view their claim and to determine their settlement position. At the conclusion of non-binding arbitration, parties are free to proceed with their cases as they wish.
Like mediation, the parties usually select an arbitrator (or an arbitration panel of three arbitrators) who are experienced in the legal area from which the dispute arises.
The main advantage of binding arbitration is that it allows the parties to have a dispute heard and decided without waiting to get on a court docket.
Normally, a civil case in the U.S. is not heard until at least one year after filing. Arbitration can reduce this time delay and allow resolution sooner. A disadvantage of arbitration is that parties give up their right to have their day in court before a judge and are generally unable to successfully appeal the decision they are given.
Conclusion
Alternative dispute resolution offers some important benefits and can be very useful to settle disputes between parties quickly and in a less expensive manner than traditional litigation. It is critical, however, that parties to any agreement ensure they understand the method of ADR to which they are agreeing and how that will impact their rights.
Additionally, parties should carefully review ADR clauses to ensure fairness in terms such as: who will select the arbitrator or mediator, where the mediation or arbitration will be held, what rules will be followed and the scope of discovery that will be allowed. 
Tiffany Dowell Lashmet is an assistant professor and specialist with Texas A&M University AgriLife Extension.
