Binding mediation combines elements of mediation and arbitration to help parties resolve disputes effectively and efficiently. Binding mediation, often called mediation-arbitration or med-arb, is a process where the parties to a dispute agree to submit the dispute to mediation, but if an agreement cannot be reached, the mediator will then become an arbitrator and issue a decision on damages and bind the parties to that decision. This 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 as a way to ensure their disputes are resolved in one session of alternative dispute resolution, but 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 will discuss the different components of both 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 the things 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 important aspects of binding mediation is the agreement between the parties that they will be bound by the decision of the mediator/arbitrator if they cannot agree in mediation. Because the decision will be binding between the parties, it is important and necessary to make sure 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, if the parties are willing to allow the neutral to decide the dispute, signing a binding mediation agreement can be a very good option.
The process of binding mediation involves both mediation and arbitration but offers both on a condensed timeline. Both mediation and arbitration can stand alone as alternative dispute resolution mechanisms, and binding mediation pulls some of the best pieces of each of the options—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 are not able to settle. The process can take place within a couple of days, or the parties can choose to spread out the days. However the parties choose to spend the time, a typical binding mediation will include the following steps:
- Dispute Arises: The first step in any binding mediation is that a dispute exists between the parties. This may arise under a contract or may find its inception in another dispute. The first step for the parties to identify the dispute and 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 they will reach out to an organization to have a mediator assigned. A neutral may be chosen based on their knowledge of the subject matter, their experience, their 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 are aiming for through the process.
- Statement of the Case: Each party will have the opportunity to present their case to the other party and the neutral. They can present facts and law that they believe helps their view. The parties may also suggest some 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 actually 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 decide to transition to arbitration. If the parties reach an agreement, they will sign the agreement and the dispute will be considered resolved. If they do not, they will prepare for the arbitration to follow. This transition can happen at any point during the mediation, so it may cut the mediation portion short if the parties agree early on that they will not be able to settle, and they 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 be trying to convince the arbitrator that their position is the correct one. The arbitrator will hear the presentations and may ask clarifying questions.
- Award: After the parties have presented their case, the neutral will consider the evidence presented and the case to issue an award that will bind the parties to the decision of the neutral. This award may be made on the same day, but arbitrators may choose to take the case under consideration and issue an award later on.
- Enforcement: Once the arbitration award is decided, the party who gains something from the award will need to enforce the award to collect it. This can be done through local systems.
Med-arb may look complicated, but the process becomes simplified when the parties think of it as mediation that will transition to arbitration if a settlement is not reached. While the process moves through a long list of steps, binding mediation can 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 be able to come to an agreement or need some 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 who are reluctant to settle but see the benefits of controlling their settlement.
- Time-Saving: Because the parties agree that their dispute will be submitted to arbitration if they cannot settle in mediation, they remove the negotiation from 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 are not able to settle in mediation. This is helpful if the parties on a deadline.
- Cheaper: Because the process moves quickly and the parties only need to hire one neutral, the parties can save money by using binding mediation to resolve their disputes. This can be great for parties who are struggling to pay court costs but want or need the structure of a neutral.
- 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 particular dispute. This can help keep the parties find a way to keep resolve the dispute and preserve the relationship between the 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: Coercion can become an issue when there is a power imbalance in the relationship between the parties. If one party can force another to agree to binding mediation, it loses a lot of the benefits that med-arb provides.
- Same Neutral: There is also a question of 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 mediation.
- 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 that 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 the 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 being successful 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 at 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 a little more agreeable. If the parties are fairly even, they will need to work together to create a settlement that works for both of them.
- Best Settlement Agreement: A party also needs to know what their best possible settlement agreement may be so that they have something to build to in mediation. This helps outline the negotiations and settlement.
- Lowest Acceptable Agreement: Parties also need to identify what the lowest acceptable agreement is 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 will also need to be prepared to go to arbitration, they will need to prepare to present their case to the neutral for a determination.
There are other considerations that a party will need to prepare to be ready for a binding mediation, this list will give the parties a great start on being prepared for the process.
Binding mediation can be a way for parties to a dispute to resolve their dispute effectively and quickly. The process allows the parties the freedom to create a settlement agreement but provides the finality of a 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 need to address a dispute and have a place to fully resolve it, the best answer can often be binding mediation.