Key Terms
Alternative dispute resolution (ADR)
Any method of resolving disputes outside the judicial (court) process.
Why it matters
Litigation is expensive, slow, and public. ADR avoids all three.
Three most common methods
Negotiation, mediation, arbitration.
ADR is used in
Business-to-business disputes, employer-employee disputes, business-to-consumer disputes.
FAA
Federal statute requiring parties to participate in arbitration when they have contractually agreed to do so -- even in
Scope
The FAA applies to transactions within the broadest permissible exercise of congressional power under the Commerce Claus
Constitutional basis
Supremacy Clause (federal law preempts conflicting state law).
Negotiation
A method of ADR in which the parties retain full power to resolve their own dispute. No outside party has decision-makin
Unequal bargaining power
When one party has a significantly stronger negotiating position than the other.
Example
A small buyer who depends on a single large supplier for a critical product, while the supplier earns only a small fract
Indicators of equal bargaining power
Both parties are roughly the same size; both depend on each other for similar portions of their business.
Indicators of unequal bargaining power
One party has no alternative sources (exclusive supplier); one party is far more dependent on the relationship than the
Mediation
A method of ADR in which parties work toward a mutually acceptable agreement with the help of a neutral third party (the
Like negotiation
Parties retain decision-making power; win-win outcome is the goal; parties can walk away. Unlike negotiation: a trained
Mediator
Neutral third party who facilitates agreement between the parties.