What is the simplest, most direct, and least expensive way to settle a dispute?

What Is Alternative Dispute Resolution (ADR)?

Alternative dispute resolution (ADR) is a means of settling a dispute, conflict, or claim without courtroom litigation. Instead, the parties involved agree to use an ADR process such as mediation or arbitration. 

Alternative dispute resolution has gained broad acceptance by the public and the legal profession. In the United States, anyone who doesn’t want to go to court over a civil (non-criminal) matter is free to choose ADR. When a lawsuit is pending, in some cases courts encourage or require the litigants to use ADR to help settle disputes more amicably and reduce the court system’s heavy caseload.

Which Disputes Can Be Settled by Alternative Dispute Resolution?

ADR processes are commonly used in a wide variety of civil disputes between individuals and/or organizations. These disputes may involve such topics as: 

• Family and divorce

• Housing

• Neighborhood

• Environment

• Employment

• Business

• Consumer issues

• Personal injury

Some countries also use alternative dispute resolution in certain criminal matters, such as juvenile crime. 

What Are the Benefits of Alternative Dispute Resolution?

Depending on the particulars of the dispute and the type of alternative dispute resolution used, ADR may offer a number of potential benefits compared to lawsuits: 

• Less costly 

• Less time-consuming and fewer delays

• Less formal and more flexible than court proceedings

• Less need for an attorney in some simple disputes

• Less adversarial, helping to preserve relationships between opposing parties

• Greater privacy than court records allow

• Greater control over the outcome and the ability to create “win-win” solutions that satisfy both parties

Which Types of Alternative Dispute Resolution Are Most Common?

There are several types of alternative dispute resolution, and different U.S. states have different laws about which types they permit. The rules also vary in different countries around the world. Here are five of the most common ADR types:

Negotiation

Negotiation is perhaps the simplest and most straightforward type of alternative dispute resolution. The disputing parties meet with one another to identify concerns, explore options, and seek a solution they can agree on. No one else acts as a neutral third party to help them negotiate.

Mediation

In mediation, the parties still work to settle the dispute themselves, but an impartial person called a mediator hears both parties out, helps them discuss the dispute, and then helps them decide what to do. The mediator does not control the outcome. Mediation is often recommended when there is a relationship that both parties want to preserve, such as between family members or business partners.

Arbitration

Arbitration is used when disputing parties agree to have someone else decide the outcome. A neutral person called an arbitrator listens to arguments from both sides, considers evidence, and then issues their decision. There are two kinds of arbitration. In binding arbitration, the arbitrator’s decision is final. In nonbinding arbitration, the parties can pursue a court trial if they do not agree with the arbitrator’s decision.

Neutral Evaluation

Think of neutral evaluation as seeking an expert’s opinion. In this form of ADR, each party makes their case to a neutral evaluator who is usually an authority on the topic of the dispute. The evaluator then provides an opinion about the merits of the arguments and evidence and different ways the dispute might be resolved. The evaluator’s opinion isn’t binding. The opinion is used by the parties to help them negotiate a satisfactory agreement.

Settlement Conferences

In settlement conferences, the disagreeing parties and their lawyers meet with an impartial person who is either a judge or a settlement officer to discuss settlement options. The judge or settlement officer doesn’t decide the outcome but helps both parties evaluate the case and negotiate a settlement. A settlement conference may either be voluntarily chosen by disagreeing parties who are not in litigation, or it may sometimes be mandated by a court before a trial begins.

Definition

Alternative dispute resolution (“ADR”) refers to any method of resolving disputes without litigation. ADR regroups all processes and techniques of conflict resolution that occur outside of any governmental authority. The most famous ADR methods are the following: mediation, arbitration, conciliation, negotiation, and transaction. 

All ADR methods have common characteristics – i.e., enabling the parties to find admissible solutions to their conflicts outside of traditional legal / court proceedings, but are governed by different rules. For instance, in negotiation there is no third party who intervenes to help the parties reach an agreement, unlike in mediation and conciliation, where the purpose of the third party is to promote an amicable agreement between the parties. In arbitration, the third party (an arbitrator or several arbitrators) will play an important role as it will render an arbitration award that will be binding on the parties. In comparison, in conciliation and mediation, the third party does not impose any binding decision.

If all the ADR methods are different, they should not be compared and confronted because in practice, the parties combine the use of these different ADRs. For instance, the parties may stipulate in their contracts that in the event of a dispute they will first submit to an attempt at amicable settlement (conciliation/mediation) and only in the event of failure will they resort to a judicial method of settlement, which may be arbitration or recourse to the State justice system. ADRs therefore come into play at different levels and have a complementary character.

The main advantages of ADR are rapidity, confidentiality and flexibility.

Public courts may be asked to review the validity of ADR methods, but they will rarely overturn ADR decisions and awards if the disputing parties formed a valid contract to abide by them.

Overview

Alternative Dispute Resolution ("ADR") refers to any means of settling disputes outside of the courtroom. ADR typically includes early neutral evaluation, negotiation, conciliation, mediation, and arbitration. As burgeoning court queues, rising costs of litigation, and time delays continue to plague litigants, more states have begun experimenting with ADR programs. Some of these programs are voluntary; others are mandatory.

• Negotiation

Negotiation is the preeminent mode of dispute resolution. While the two most known forms of ADR are arbitration and mediation, negotiation is almost always attempted first to resolve a dispute. Negotiation allows the parties to meet in order to settle a dispute. The main advantage of this form of dispute settlement is that it allows the parties themselves to control the process and the solution. Negotiation is much less formal than other types of ADRs and allows for a lot of flexibility.

• Mediation

Mediation is also an informal alternative to litigation. Mediators are individuals trained in negotiations, who bring opposing parties together and attempt to work out a settlement or agreement that both parties accept or reject. Mediation is not binding. Mediation is used for a wide gamut of case-types ranging from juvenile felonies to federal government negotiations with Native American Indian tribes. Mediation has also become a significant method for resolving disputes between investors and their stock brokers. See Securities Dispute Resolution.

• Arbitration

Arbitration is one of the most emblematic and growing forms of ADR. Arbitration is more formal than mediation and has a lot of similarities with traditional court proceedings, involving limited discovery and simplified rules of evidence (ex. hearsay is usually admissible in arbitration).

Different types of arbitration exist: 

• national arbitration: for example American arbitration, French arbitration or German arbitration which are all governed by different rules enacted by the institutions of each country; 
• international commercial arbitration: usually used to settle disputes that arise from commercial contractual relations between buyers and sellers who are in two different states;
• investor-State arbitration: unilateral referral by private individual investors to an arbitral tribunal against a host State of their investment.​

Other types of arbitration and areas of specialization for this ADR exist, such as construction arbitration, post M&A arbitration, etc.

Arbitration relies on the consent of the parties, therefore the arbitration agreement is emblematic because it is the gateway to the particular system that is arbitration. Prior to the dispute occurring, parties usually enter into a binding arbitration agreement or any other form of agreement with an arbitration clause, that allows them to lay out major terms for the arbitration process (number of arbitrators, arbitration forum; arbitration rules; fees etc.). 

If parties still have disputes about certain terms before entering into an arbitration they can petition to a court to resolve a dispute. Arbitration can be held ad hoc or with the administrative support from one of the institutional providers like American Arbitration Association (AAA) or JAMS when the arbitration is national. 

The arbitration is headed and decided by an arbitral panel or a single arbitrator, depending on the agreement of the parties. Arbitrators do not have to be lawyers, parties can select arbitrators from other fields that they consider more suitable for the resolution of the dispute, which usually occurs when the arbitration deals with a very specialized topic such as construction or pharmaceutical issues. Indeed, parties can for example choose an arbitrator with an engineering background to arbitrate a construction dispute. 

To comprise a panel, either both sides agree on one arbitrator, or each side selects one arbitrator and the two arbitrators elect the third. Arbitration hearings usually last between a few days to a week, and the panel only meets for a few hours per day. The panel or a single arbitrator then deliberates and issues a written binding decision or arbitral award. Opinions are not public record. Arbitration has long been used in labor, construction, and securities regulation, but is now gaining popularity in other business disputes. For national arbitration, Title 9 of the U.S. Code establishes federal law supporting arbitration. It is based on Congress's plenary power over interstate commerce. Where Title 9 applies, its terms prevail over state law. There are, however, numerous state laws on ADR. Forty-nine states have adopted the 1956 version of the Uniform Arbitration Act as state law. The act was revised in 2000 and subsequently adopted by twelve states. The arbitration agreement and award is now enforceable under both state and federal law.

In 1958, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the "New York Convention", was drafted to aid in the enforcement in domestic courts of awards granted in foreign countries. In 1970, the United States joined and, as of November 2021, there are 156 countries participating in the convention.

[Last updated in November of 2021 by the Wex Definitions Team]

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