Tuesday, February 12, 2008

Mediation vs Arbitration Clauses- Which to Choose?

Got a Visa card, Mastercard or almost any other credit card? Then you, my friend, are now subject to an arbitration clause. That means you agreed to waive your right to a jury trial should a dispute arise. Same thing with your telephone agreement, health insurance and bank loans, according to Cardratings.com, a portal site for credit card information. Mandatory arbitration clauses appear in both consumer and employment contracts, often without the knowledge of the signer.

More companies test arbitration clauses

Large companies draft contracts with arbitration clauses to reduce their exposure and risk. Now smaller companies are using the same tactics to address customer concerns. Generally, I'm in favor of resolving issues outside of the court house. However, there are reasons why I favor a mediation clause over arbitration.

Why Mediation Clauses are Better than arbitration

A member of ADRPracticebuilder.com recently consulted with a client about trying a mediation clause instead of arbitration. She brought the question to our Discussion Forum where we brainstormed some positive arguments for using mediation.

Here's what we came up with:

    So, the question is: how to persuade the client to do a mediation clause instead of an arbitration clause, right?

    Have you inquired as to why the client prefers arbitration? Is it because that's the process they are familiar with, or is there a substantive reason that they prefer that method?

    One reason might be that arbitrations make precedence- a defineable, predictable outcome that the company (and others) can rely upon. Another reason is that the durability of an arbitrated agreement is greater than that of a mediated one.

    Knowing their reasoning will help you understand their underlying interests and easily meet their objections, or give you a reason to say yes to the plans.

    Here are the reasons I think mediation clauses work well:

    1. Mediation clauses signal to employees, vendors and clients that the company is collaboration-focused and sees issues as oppportunities to build understanding as well as fix concerns. Consumers are savvy enough to look for them.

    2. Mediation clauses allow companies to engage in discussion privately, as to the meeting and the outcome. Therefore, there may be a greater willingness to settle and to settle more generously. Company saves reputation and clients get a nicer/better outcome.

    3. Mediation is less costly than both arbitration and litigation. I think I heard somewhere the average per diem for an arbitrator was around $5k/day- but don't quote me.

    4. Mediation allows for a timely resolution, whereas there's little flexibility or urgency with arbitration or litigation.

    5. Mediation repairs more than the legal issues. It allows parties to address the emotions and tangential issues that are part of the dispute that cannot or will not be addressed in the other forums.

    6. Mediation is empowering because it puts the parties in control of their own destiny. Parties learn valuable lessons about cooperation and negotiation at the mediation table that are often carried into other areas their lives. In a company this can mean a shift in culture or climate.

More Reasons, please

Of course, this list isn't exhaustive. The more facts, data, argument we can share the better we can serve our clients. What are your reasons for suggesting that mediation clauses should replace civil dispute arbitration clauses?

Try. Fail. Learn. Grow!




At 2:45 PM, Blogger amipatels said...

I am a 2nd yr law student and am writing a paper on whether aribration or mediation is better in credit card contracts. I have found your post helpful. Do you have any suggestions for which direction i should continue my research?

At 3:37 PM, Blogger Dina Lynch, ADRPracticeBuilder.com said...

Glad to help. I bet this topic has been covered thoroughly on the web. Do a quick google and technorati search for more content.

Best, Dina


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