Chapter 4

• Jurisdiction: United States

Chapter 4

Private ADR Systems

§ 4.01 Introduction to Private ADR Systems

Although alternate dispute resolution systems come packaged in a wide variety of forms, it is possible to identify several basic types. For convenience, this chapter breaks down the many possible variants into a few simple categories. Other systems may, and do, exist, that are either variants on the themes presented or that may be entirely unique.

Employers, or employers jointly with unions, are free to create and mold their own alternate dispute resolution systems, other than systems that require binding arbitration of statutory and legal rights, to meet their own particular needs and organizational culture.¹ This does not mean that ADR systems other than legal rights arbitration are free of significant legal issues, but they are generally less contentious. Pre-dispute legal rights arbitration agreements, imposed as a condition of employment or continued employment, create additional issues regarding Due Process rights which must be addressed if these agreements are to be enforced by the courts.

What the wide diversity of ADR systems means is that it is not feasible to perfectly describe all possible categories of alternate dispute resolution, to give definitions of systems that are exact, or to include all conceivable variants. The categories and definitions in this chapter should be considered illustrative. The examples provided in the appendices to this treatise represent programs and standards adopted by employers and associations. Readers adopting any of the examples for their own use should keep in mind that some of the materials appended are covered by copyright. While employers are free to adopt or modify their substance, they are advised to consult with counsel before importing a model for their own use.

This chapter primarily considers alternate dispute resolution systems in the private sector. Public, or court annexed ADR—including early neutral evaluation, summary jury trials, and mediation and arbitration within the court system—may be touched upon but they are generally considered later on in this work.² ADR systems utilized outside of the private employment context for community disputes, domestic disputes, and government employees are not within this discussion. The appendices to this treatise provide some examples of ADR systems in actual use for employment and labor contract administration disputes.

This chapter provides only summary treatment of the covered alternatives. Legal issues concerning various aspects of these systems are discussed in greater depth at appropriate places throughout the text. The purpose of the chapter is to provide a definition of each alternative, to comment on its use in the private sector, and to highlight a few key legal problems. The general information should be of particular interest to counsel and human resources personnel new to the field who are considering adopting some form of alternate dispute resolution for the first time. Alternate dispute resolution systems are both tools for legal risk management and tools through which human resources managers may reduce conflicts within an organization, so the adoption of any alternate dispute resolution system should involve careful cooperation from both legal and human resources departments. An organization’s tolerance for, or desire to reduce, legal risk may have a large impact on which ADR system the organization chooses to adopt.

Each employer that utilizes ADR will tend to select a variant or variants that are in accord with the organization’s culture and risk tolerance. Aetna and Motorola, for example, use multiple ADR rather than single strategies.³ Corporate strategies for ADR include announcing pro-ADR corporate policies; ADR training; naming an ADR point person or committee; testing ADR in pilot programs; developing case screening criteria; using ADR contract provisions; and, encouraging the legal staff to use ADR consistently.⁴

Motorola initially focused its ADR program on employment related cases and, reversing the presumption in favor of litigation, set dollar thresholds under which larger claims were pointed towards ADR. On these larger claims, Motorola’s attorneys were required to formally justify their avoidance of ADR. Through a general counsel’s office committee, Motorola encouraged the use of ADR by creating an ADR screening mechanism, establishing a review process for attorneys’ ADR decisions, issuing a corporate ADR manual, providing ADR training, and engaging in general promotion of ADR and its successes. It also used a pre-mediation program to educate mediation opponents, to increase their willingness to mediate, and allowed opponents to modify the mediation program in some respects. Cigna trained inside and outside counsel in ADR, monitored ADR use, promoted ADR within the corporation, and placed ADR in its attorneys’ job descriptions and then evaluated their performance in relation to ADR. ATT, Boise Cascade, and McDonnell-Douglas used numerical models to assess potential litigation and damages outcomes when considering ADR. General Mills required the use of ADR clauses as a general matter, preferring mediation followed by arbitration.⁵

One commentator has suggested that, in its current phase, corporate use of ADR is moving from strategies that mandate ADR to the integration of ADR as a form of conflict management as part of overall business strategy. The commentator views this phase as emphasizing a synthesis between attorneys and business managers, greater involvement in prevention of disputes, better ADR incentives with outside counsel and claimants, early use of ADR, and industry-wide collaboration in encouraging ADR.⁶

Of the 528 companies responding to a survey of the top 1,000 U.S. corporations, over 60 reported that they always try to use ADR. These corporations tend to be among the largest in the world, and many of them have been under significant cost pressures in recent years. When these corporations adopted ADR friendly strategies, they encouraged their outside counsel to develop ADR expertise. The major reasons corporations offered for increased use of ADR included that ADR provided “a more satisfactory process” than litigation, more “satisfactory settlements,” and that ADR “preserved good relationships.” The survey showed that the corporate moves toward ADR were clearly not related to confidence in third-party neutrals. Almost half the respondents lacked confidence in arbitrators and about 30 percent identified a shortage of qualified neutrals.⁷

Counsel will need to become increasingly well educated in ADR matters. A 1994 survey of 124 major corporate law firms found more than 80 percent stating that their clients’ interest in ADR had increased over the previous three-year period.⁸ The larger corporations using an increasing level of ADR will expect their counsel to be able to provide advice and guidance on ADR issues.

Some of the outstanding legal issues regarding private ADR include the qualification of neutrals, confidentiality, whether non–attorney neutrals may be practicing law, and conflict of interest. These issues will be discussed at appropriate points in the text.

§ 4.02 Mediation

In this section, we will look at mediation from two aspects. First, the mediation process in general, together with a number of its variations. Second, the problem of mediation by non-lawyers and the relationship between mediation and the unauthorized practice of law.

[1]—The Mediation Process

Mediation has ancient roots. In Sumer, a plaintiff had to submit a claim to a “mashkim” who had the duty to settle the case before it could be presented to a court.⁹ Mediation is the most widely used form of alternate dispute resolution among the 1,000 largest U.S. corporations. In a survey of these corporations, mediation was reported as in use by 88 percent of respondents. Over 84 percent stated they were likely to use mediation in the future, while only 17 percent said it was “unlikely,” or “very unlikely,” they will use mediation in the future. The results indicated that corporate lawyers prefer mediation over other non-binding third-party techniques and arbitration.¹⁰ The outcome of the survey should not be particularly surprising as mediation is a voluntary process with no means of binding the parties to observe the result. Accordingly, it is far less coercive than arbitration.

Mediation is, in essence, a process in which an individual serving as a “neutral third party who has no authoritative decision making power” is brought into a matter “to assist disputing parties in voluntarily reaching their own mutually acceptable” resolution.¹¹ In mediation, the parties are assisted to move away from their individual positions and to seek resolution that will allow the needs of both sides to be met. That parties exercise self-determination and control over the settlement of their dispute is a major element in mediation. This, rather than having a settlement imposed by a third party with decision making authority, an arbitrator for example, is believed to enhance commitment to the agreement to resolve the claims.¹² A mediator’s functions may include defining the issues, clarifying the parties’ interests, providing a channel of communication, focusing the negotiations on productive areas of discussion, proposing options for the resolution of the dispute, assisting the parties in documenting an agreement, clarifying alternatives to agreement, and coordinating and educating the parties.¹³

Mediation may be divided into two basic categories, facilitative and evaluative, although a given mediation may move between them. In facilitative mediation, sometimes called “pure” mediation, the mediator seeks to bring the parties together but avoids advice to the parties and prediction of outcomes. In the facilitative model, the mediator assists the parties in resolving their own dispute. The mediator guides the parties through a series of...