What is Alternative Dispute Resolution?

It's normal to face workplace disputes once in a while. Sometimes, you can fix them with a quick chat; other times, you might need to rope in the help of a third-party.

A great way to deal with such complaints is by using alternative dispute resolution (ADR). It's beneficial in all kinds of disputes - and can save you precious time, effort, and money.

However, you must follow specific legal guidelines when using ADR methods. If not, you could end up facing court action, compensation penalties, and reputational damage.

In this guide, we'll look at what alternative dispute resolution is, different examples of them, and how to provide the best resolution process for business disputes.

What is an alternative dispute resolution?

Alternative dispute resolution (ADR) are ways to resolve a dispute without having to attend court or use litigation.

ADR is often free and conducted on a voluntary basis. Most workplace disputes will use ADR schemes in order to avoid facing a court case or legal action.

ADR schemes can help both parties reach a mutual agreement for a dispute. (This is found with negotiation, conciliation, and mediation methods). Or allow a neutral third-party to decide on the outcome. (This is found in adjudication and arbitration methods).

What are the benefits of resolving disputes using ADR?

Whether you're dealing with employee or consumer disputes, there are significant benefits for using ADR. The main advantages include:

Saves time and money

ADR procedures are quicker than most court proceedings. This allows employers to continue tending to their business without losing precious time.

ADR schemes are mostly inexpensive - sometimes, even free. Legal fees are generally low because parties don't usually require legal representation, like lawyers or trade union reps.

Gives parties decision-making authority

Through certain ADR schemes, parties reach a decision based on their own choice. This is often a favoured method compared to following a legal verdict or enforcement decision.

ADR procedures are mostly flexible on what terms or steps need to be actioned. If parties comply with the rules, they're able to reach a decision that pleases them both.

Provides comfortable and private settings

ADR is seen as less formal and strict compared to general court hearings. They're comfortable and stress-free in comparison. That's because there's an emphasis on protecting the relationship between both parties; like between an employer and consumer.

Most ADR processes are kept private and confidential. This minimises any risk of defamation or reputational damage (something you often see during court proceedings).

Are there different forms of ADR?

Yes, there are several different forms of ADR procedures. Let's look at the most common ones used in an employee or consumer dispute.

Mediation

Mediation is one of the most popular forms of ADR. It's often used to protect the relationship between disputing parties; like, between employers and consumers.

During mediation, both parties aim to reach a mutual agreement with the help of an impartial person. The 'mediator' allows both parties to present their case independently, rather than resolve matters alone.

The advantages of mediation are:

• It's cheaper than going to court.
• It offers privacy and confidentiality during dispute hearings.
• It helps preserve business relations between both parties.

The disadvantages of mediation are:

• It's not a legal requirement for either party to attend hearings.
• There are certain disputes that may require legal action.
• Any party with higher authority over the other may be unwilling to compromise.

Arbitration

Arbitration is quite similar to the mediation process. It requires a neutral person, or 'arbitrator', to listen to both sides of a dispute.

An arbitration process involves two methods. ‘Binding arbitration’ is when an arbitrator passes an arbitration agreement that's finalised. ‘Non-binding arbitration’ is when both parties don't agree to the final arbitration agreement and raise their dispute to court.

The advantages of arbitration are:

• An arbitrator will follow a detailed plan to reach a mutual resolution.
• It's often faster and more flexible compared to a court process.
• There are limited means to appeal against an arbitration agreement.

The disadvantages of arbitration are:

• A party might be unaware of a binding arbitration clause they've agreed to.
• Either parties may need to pay legal fees, as well as costs for arbitrators.
• A binding arbitration clause may waver a party's right to access court.

Conciliation

Conciliation is also quite similar to the mediation process. It uses a 'conciliator' who helps parties agree to mutual resolution.

Conciliators will listen to each party, offer resolution methods, and propose a dispute settlement. However, they cannot impose a final decision - they can only provide suggestions.

The advantages of conciliation are:

• It uses 'preventable' measures to settle disputes.
• It helps maintain relations between both parties.
• A conciliator will offer input and direction rather than remain passive.

The disadvantages of conciliation are:

• It relies on both parties to accept the conciliator's decision.
• It could be considered as too informal and not taken seriously.
• The conciliation process isn't legally binding.

Adjudication

Adjudication is probably the quickest of all ADR methods. It's commonly used to resolve consumer disputes related to the construction industry. This is due to strict time-constraints and the nature of their work.

An 'adjudicator' will manage the dispute - looking at the entire case and evidence provided. They may pass a final decision, but it isn't legally binding.

The advantages of adjudication are:

• Both parties can choose the adjudicator.
• It's cheaper, quicker, and more flexible compared to a court process.
• Both parties can decide on a final decision rather than use the adjudicator's suggestions.

The disadvantages of adjudication are:

• It's cheap but it's not always cost-free (especially if legal representation is required).
• It's not always the most suitable process for a consumer dispute.
• The adjudicator has no jurisdiction beyond contract terms.

Negotiation

Negotiation is seen as probably the most straightforward ADR process. The disputing parties will identify an issue, discuss options, and reach a mutual conflict resolution.

During direct negotiation, the opinion of the neutral third-party isn't needed. Instead, both parties will find common ground and reach a dispute settlement together.

The advantages of negotiation are:

• It's completely private and confidential.
• It's helpful with resolving disputes quickly without ruining relationships.
• It's considered as a relatively informal and comfortable method.

The disadvantages of negotiation are:

• One party might not receive as much as they would do during a court process.
• A resolution is often reached but not always carried out to its fullest.
• Some disputes may require formal methods that aren't found during direct negotiation.

Other forms of ADR

There are other forms of ADR used to resolve a workplace complaint. For example, the Financial Ombudsman; early neutral evaluation; and expert determination.

What does the law say about alternative dispute resolution (ADR)?

In the UK, ADR comes under European Union (EU) law. The main ones include:

• The Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015.
• The Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015.

Each law state certain regulated sectors must meet specific minimum standards. For example, businesses:

• Need a place of agreement when selling to consumers and clients.
• Must establish a competent authority to certify their ADR-scheme.
• Should have a set certification or standard that ADR-scheme applicants must meet.

Regulated sectors are also required to act in accordance with a competent authority. ADR providers can include Ofgem or the Financial Conduct Authority (FCA). UK businesses can appoint the Chartered Trading Standards Institute (CTSI) to act on their behalf.

Can you use ADR for consumer disputes?

Yes, ADR can be used for a consumer dispute. It usually means settling a complaint by using an impartial dispute resolution body.

However, it's not a legal requirement to use ADR for a consumer dispute (unless the law seeks it or it's compulsory through trade associations). For example, consumers can resolve a monetary complaint with the help of the Financial Ombudsman Service.

UK law requires certain business sectors to have a compulsory ADR scheme in place. But, whether it's a contractual term or set by law, it's best to use ADR for consumer complaints. Cooperation will help minimise fines, legal fees, and reputational damage.

Is ADR compulsory?

Under UK law, non-regulated sectors can use ADR on a voluntary basis. However, the law requires traders (or those part of trade association) to be part of ADR entities. This is in respect of genuine consumer complaints.

Trade associations will usually provide or arrange the ADR scheme for its members. Unless they're contractually obliged to use certain ADR methods.

How to use alternative dispute resolution in the workplace

Mediation, conciliation, arbitration - there's a range of ADR methods to use when it comes to settling disputes.

Employers should take appropriate steps and aim for common ground with employees and consumers. In the end, ADR is all about reaching a mutual agreement that benefits all parties.

Let's take a look a how to use alternative dispute resolution in the workplace:

Create a complaints procedure

The first step to take involves creating a complaints procedure.

This method should highlight how an employee or consumer complaint is raised and processed. Employers can add this to their contracts, handbooks, or grievances procedures. For consumers, you can add procedures to your website.

Once a dispute has been raised, you must take it seriously. Set up an initial meeting to talk about the complaint. Or dive straight to your ADR scheme to resolve it in the best manner.

Have suitable options for ADR schemes

It's always best to have suitable options for ADR schemes that work for both parties.

This decision will depend on what the complaint is and what resolution is required. If both parties require a third-party person, they should choose mediation. If the issue requires a legally-binding settlement, you should choose arbitration.

Whatever ADR scheme you decide to use, make sure you follow a fair, impartial process. If a third-party person is required, they must have no direct link to the complaint and be competent for the role.

Holding the ADR hearing

The next step involves holding an ADR hearing. This can be an informal or formal meeting - it depends on what ADR scheme you choose.

Both parties should be able to represent their case, share evidence, and express a potential agreement. If a third-party is used, they should lead a fair and neutral hearing. Parties should be able to bring a representative with them. For example, a legal advisor or partner.

The more hearings you hold, the more expensive it can be - for you and the other party. So, try to reach a mutual agreement during the initial one.

Reaching a mutual agreement

After the hearing, both parties should be able to reach a mutual agreement regarding the complaint.

They may choose it themselves or implement the third-party's potential solutions. The agreement should be documented in writing and include the details of the hearing.

If a party doesn't agree to the final decision, they can only appeal it through court. This can quickly become an expensive route; so, try to reach an outcome that suits everyone.

Get expert advice on alternative dispute resolution (ADR) with Peninsula

Having an appropriate ADR matters when it comes to reaching settlements for any kind of dispute. It's all about dealing with an employee or consumer complaint - without it affecting your business relationship.

Without ADR, you could end up facing court action, compensation penalties, and reputational damage.

Peninsula offers expert advice on alternative dispute resolution (ADR). Our teams offer 24/7 HR advice which is available 365 days a year. We take care of everything when you work with our HR experts.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.