Binding Mediation: An Affordable ADR Option

binding mediation

Binding mediation combines elements of mediation and arbitration to help parties resolve disputes effectively and efficiently. It is often called mediation arbitration or med-arb. In this process, the parties agree to submit the dispute to mediation. Still, if an agreement cannot be reached, the mediator becomes an arbitrator, issues a decision on damages, and binds the parties to that decision. 

This alternative dispute resolution process assures the parties that their dispute will be settled without having to grow through the entire arbitration if mediation does not work. Many people are turning to binding mediation to ensure their disputes are resolved in one alternative dispute resolution session. However, understanding the process is important for a full and confident agreement to binding mediation.

This article will outline the process of binding mediation or med-arb and discuss the different components of mediation and arbitration and how they interact in binding mediation.  It will also discuss the benefits and disadvantages of using binding mediation and some important considerations for people to ponder before choosing binding mediation. 

Finally, this article will provide some tips for parties preparing for binding mediation and what to prepare before coming to the table.  But first, this article will look at one of the most important aspects of binding mediation—the agreement to submit the dispute to med-arb.

An Agreement for Binding Arbitration

One of the most critical aspects of binding mediation is the agreement between the parties that they will be bound by the decision of the neutral mediator/arbitrator if they cannot agree in mediation. Because the decision will be binding, it is important and necessary to ensure that the parties have willingly and knowingly agreed to submit the dispute to arbitration. 

Considering that a dispute that involves a power imbalance could interfere with the parties’ free choice, the parties must get legal advice to see if binding mediation is the best option.  However, signing a binding mediation agreement can be an excellent option if the parties allow the neutral to decide on the dispute resolution.

The Process

The alternative dispute resolution process of binding mediation involves mediation and arbitration but offers both on a condensed timeline.  Both mediation and arbitration can stand alone as alternative dispute resolution mechanisms. Binding mediation pulls some of the best pieces of each option—allowing the parties the freedom to settle while providing a solution if the parties cannot settle. 

The process begins with mediation and follows the typical path of mediation, but the process will transition to arbitration if the parties cannot settle.  The process can occur within a few days, or the parties can spread out the days.  However the parties choose to spend the time, a typical binding mediation may include the following steps:

Dispute Arises:

The first step in any binding mediation process is to identify the dispute between the parties. This dispute may arise under a contract or be the inception of another dispute. The parties’ first step is to realize what needs to be solved in dispute resolution.

Agreement:

If the dispute comes from a contract that already has an agreement to submit the dispute to binding mediation, this step will be accomplished when the step arises.  However, if a dispute has arisen without an agreement, but the parties would like to use med-arb, they will need to sign an agreement to use the process.

Choosing a Neutral:

Depending on the parties and their experience with binding mediation, they may choose the neutral for the dispute or contact an organization to have a mediator assigned. A neutral may be chosen based on their knowledge of the subject matter, experience, recommendations, or any combination of these reasons.    

Scheduling:

At this point, the parties and the neutral will discuss the scheduling with the neutral.  They may choose to hold mediation on one day and arbitration on the next, or they may add some time between to prepare for the new process.

Mediation Opening Statement:

The neutral will give an opening statement to outline the process and any ground rules that the parties need to be aware of.  The neutral will also reiterate the purpose of mediation and what the parties aim for through the process.

Statement of the Case:

Each party will be able to present their case to the other party and the neutral.  They can present facts and laws that they believe help their view.  The parties may also suggest ideas for a possible settlement and what they would need from the other party to settle.

Negotiation:

At this stage, the neutral will work with the parties together or separately, depending on the neutral’s style, and the parties will begin to see if they can move toward a settlement.  The neutral will also look to identify the underlying interest in the case and help the parties see what they need or want to settle.

Settlement Agreement or Transition:

The parties will continue to negotiate until they either reach an agreement and settle or decide that they will not be able to settle and choose to transition to arbitration.  If the parties reach an agreement, they will sign the binding mediation agreement, and the dispute will be resolved.  If they do not, they will prepare for the arbitration to follow.  This transition can happen at any point during the mediation process, so it may cut the mediation portion short if the parties agree early that they cannot settle and can transition to arbitration quickly.

Arbitration Hearing:

The neutral will switch from an arbitrator to a mediator, and the parties will once again present their case; however, this time, the parties will try to convince the arbitrator that their position is correct. The arbitrator will hear the presentations and may ask clarifying questions.

Award:

Parties have presented their case previously, and the neutral will consider the evidence presented and the case to issue an award that will bind the parties to the neutral’s binding decision. This award may be made on the same day, but arbitrators may consider the case and issue an award later.

Enforcement:

Once the arbitration award is decided, the party that benefits from it must enforce it to collect the money. This can be done through local systems.

Med-arb may look complicated, but the process becomes simplified when the parties consider it mediation that will transition to arbitration if a settlement is not reached.  While the process moves through a long list of steps, binding mediation may be one of the fastest alternative dispute resolution options for parties.  This is one of the biggest benefits of the process, which will be discussed in the next section.

Benefits of Binding Mediation

Binding mediation can be incredibly helpful to parties that need a deadline to come to an agreement or need more structure to their negotiations.  Using binding mediation presents many benefits to the parties, including:

  • Increased Likelihood of Negotiated Settlement: Because of the looming threat of having an outside person decide the dispute between the parties, the agreement to arbitrate will often push the parties to become more serious about controlling the outcome and reaching a settlement.  This can be very good for parties reluctant to settle but seeing the benefits of maintaining their settlement.
  • Time-Saving: Because the parties agree that their dispute will be submitted to arbitration if they cannot settle in the mediation, they remove the negotiation after mediation to submit the dispute to arbitration or litigation.  The agreement also removes the time for discovery before arbitration, so the parties will often finish dealing with the dispute a few days after the binding mediation begins, even if they cannot settle in mediation.  This is helpful if the parties are on a deadline.
  • Cheaper: Because the process moves quickly and the parties only need to hire one neutral, binding mediation can save money for parties struggling to pay trial court costs but want or need a neutral structure.
  • Flexible: Because the neutral and the parties can shape the process to fit the dispute, it can be crafted into the best process for the dispute.  This can help the parties find a way to resolve the dispute and preserve the relationship between parties.

Disadvantages of Binding Mediation:

While there are benefits to med-arb, there are also some aspects that make it difficult to work in certain situations.  These disadvantages include:

  • Power Imbalances: When there is a power imbalance between the parties, coercion can cause legal issues. If one party can force another to agree to binding mediation, it loses many benefits that med-arb provides.
  • Same Neutral: There is also a question of mediation confidentiality and the information that the neutral may gain during mediation that they could let sway their decision in arbitration.  While the neutral is supposed to decide based on the evidence, they may be swayed by an interest revealed in the mediation process.
  • Pressure: While the pressure of losing control over the outcome of the dispute may be a motivating factor for some, other parties may feel pressured to settle for an agreement they do not support to avoid the possibility of having the decision made by the neutral.

Tips to Prepare for Binding Mediation

If, after considering this alternative dispute resolution process and the benefits and disadvantages of binding mediation, parties choose to resolve their dispute through med-arb, there are a few things the parties should prepare to ensure that they are in the best position to resolve the dispute when they get to mediation.  Preparation should include:

  • Accurate Assessment of the Merits: One of the most important things a party can do to prepare is to evaluate their chances of success in arbitration.  Understanding how the arbitration will likely go will determine how risky a party can be in mediation with their offers.  If a party has a good chance of winning in arbitration, they can be riskier and possibly demand more.  If a party has a lower chance of success, they will likely need to be more agreeable.  If the parties are fairly even, they must work together to create a settlement that works for them.
  • Best Settlement Agreement: A party also needs to know their best possible settlement agreement so that they have something to build on in mediation. This helps outline the negotiations and settlement.
  • Lowest Acceptable Agreement: Parties must also identify the lowest acceptable agreement for their position.  This helps the party understand what they are willing to accept and when to consider that arbitration may be necessary.
  • Full Presentation of the Case: Because the parties must also be prepared to go to arbitration, they must prepare to present their case to the neutral for a determination.

There are other considerations that a party will need to consider before a binding mediation process. This list will give the parties a great start on preparing for the alternative dispute resolution process.

Conclusion:

A binding mediation process can be a way for parties to resolve a dispute effectively and quickly.  The alternative dispute resolution process allows the parties the freedom to create a settlement agreement but provides the final and binding decision through arbitration.  Because the process is completely voluntary, it creates a space where the parties are committed to resolving the dispute through mediation or arbitration. 

Understanding and preparing for the process will help any party involved in a binding mediation process succeed and leave the process with a final decision and less uncertainty about the issue.  When parties must address a dispute and have a place to resolve it fully, binding mediation is often the best answer.

To learn more about binding mediation, arbitration, and other alternative dispute resolution, contact ADR Times!

Mark Fotohabadi
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