Monday, January 24, 2011

Mediation Clauses - An Attractive Option

Over the last several years, the issue of “tort reform” has received significant media attention.  This is particularly true in election years, when advocates on both sides of the debate try to shape a platform that too often gets pigeonholed as either “pro business” or “pro consumer.”   The debate often surrounds the enforceability of arbitration provisions included as a matter of course in all kinds of contracts.  These provisions typically require the parties to agree not to pursue litigation to resolve any disputes that arise regarding the enforcement of the contract.  Instead, the parties agree to a binding arbitration process, usually with arbitrators who are familiar with the industry involved in the contract.

The divergence of opinions on binding arbitration clauses is easy to see.  Typically, businesses on one side are, rightfully or not, afraid of facing a jury to decide their responsibilities under a contract.  On the other side, consumer advocates argue that taking disputes away from a jury and instead handing them to an industry insider to come up with a resolution tilts the playing field unfairly.  Millions of dollars have been spent on both sides of this argument, and our courts routinely have to rule on the applicability of these provisions.  Not surprisingly, the body of case law that has developed is varied and confusing.  Every year, legislatures across the country debate tort reform bills, and most major legislation proposed at the national level attempts to bring some degree of tort reform into the process.

One easy and less controversial option businesses should consider including in their agreements - whether consumer contracts, leases, vendor agreements, employment agreements, etc. – is a mediation clause.  Unlike an arbitration provision, the mediation clause gives the parties an opportunity to resolve a dispute without waiving rights or agreeing to a binding process that may appear unfair to one side.  Mediation is an attractive option to both sides – providing a fast and cost effective alternative that encourages the participation of all parties to resolving disputes.  If the parties agree at the outset that mediation is the proper vehicle for resolving any claims that arise under the contract, they are likely to participate fully and success is highly likely.

Further, a mediation provision can be backed up by a clause stating that if mediation is not successful, then the parties agree to binding arbitration; or that if a lawsuit ensues after mediation, the prevailing party may be entitled to legal fees or costs being paid by the opposing party.  However, if everyone agrees to mediation at the outset, follow-up arbitration or cost shifting will very rarely come in to play.

In addition to being easier, faster and less expensive than litigation, mediation is non-adversarial. Decisions rendered by an arbitrator or judge usually determine a “winner” and a “loser.”  In mediation the parties seek a “win-win” outcome and retain control of the process. The parties shape the terms of the settlement.  We strongly encourage businesses of all types to consider including mediation provisions into their contracts – a better resolution is almost guaranteed.

No comments:

Post a Comment