Mandatory ADR clauses
Business contracts set the terms of a working relationship. Employers hiring new workers outline compensation arrangements, benefits and job performance standards. Vendors clarify delivery dates, describe the “deliverables” and set a price for the services to be rendered or the products to be delivered.
Contracts should describe the process for terminating the relationship. With increasing frequency over the years, both employment contracts and business contracts include mandatory alternative dispute resolution (ADR) clauses for when things go awry. These clauses identify an ADR provider. Sometimes, in the employment context, the employer requires the employee to engage in a multi-step process before going to arbitration, including informal mediation, formal mediation, and if the conflict cannot be resolved, formal arbitration. Even in the consumer context, a consumer may be required to agree to arbitration as a means of resolving any dispute (think Uber, Amazon, other apps.).
Despite their popularity in all manner of contracts, mandatory ADR clauses often have a bad reputation. The wronged parties– consumer, employee, or business partner may think they have a better chance of winning at trial or recovering more money. Because arbitrators are essentially private judges, they are paid to hear the case, by the hour. When the contract requires a panel of three arbitrators, arbitrating can become costly.
The good news for employees and consumers is that most ADR providers require the employer or the business to pay the arbitrators’ fees. The individual bears only the same kind of legal expenses he would incur if he went to court. Business cases require that both parties split the arbitrators’ fees; some clauses have a “fee shifting” provision, meaning that the loser pays the winning side’s legal fees.
Although accurate statistics may be hard to come by, it is not necessarily true that individuals such as employees or consumers are disadvantaged in arbitration. For one thing, arbitration has a much shorter time frame from filing to judgment. Arbitration is confidential. Thus, private information about an individual’s work history, medical conditions, or performance will not be available for viewing in a court docket or on the Internet. Many arbitrators on the rosters have represented individual employees or consumers – the deck is not stacked against individuals as the perception may be. Arbitrators have expertise in specialized fields of law and knowledge. Most importantly, the parties to an arbitration have an opportunity to select their arbitrator and find someone in whom they feel confident to come up with a just result. Because of the shorter time frame for resolution (rarely more than a year), it is more likely that arbitration cases will settle sooner, in advance of a trial-like hearing.
While we as consumers do not have much of a choice to opt out of arbitration when buying pre-packaged products or services, any employee or party to a business contract with an arbitration clause should consult with a lawyer before signing to understand their rights and the process. Sometimes there is an “opt out” possibility. Often, especially in a business case, the parties can agree in advance to an intermediate, less adversarial form of dispute resolution before proceeding to arbitration.
