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What is Alternative Dispute Resolution

What is “settlement” of a legal dispute?

Settlement means that the parties to a legal dispute work out their differences and enter into an agreement to resolve the situation. The benefit of a settlement is that the parties maintain control over the outcome of the dispute. The parties are not subjected to a ruling, judgment, or award of a third-party decision maker. Businesses often settle legal disputes to avoid the high cost of litigation, maintain privacy, and to preserve the professional relationship with the other party. Also, juries tend to show favor to individual plaintiffs to the detriment of businesses. Individuals, on the other hand, settle disputes to avoid the long, tenuous litigation process and to make certain of some level of recovery. Achieving a settlement is a core objective of mediation, which is discussed in a separate section.

Discussion: Can you think of any other benefits of privately settling a matter, as opposed to pursuing litigation? Can you think of any situations where the above benefits of settlement are undesirable? Hint: Think about situations where you want to get your message or reason for dispute out to the public.

What is “Alternative Dispute Resolution” (ADR)?

ADR, as the name implies, is an alternative to resorting to litigation to resolve a legal dispute between parties. The most common forms of ADR are:



Since ADR is an alternative to litigation, disputing parties do not have to begin a lawsuit prior to using any form of ADR. Also, filling a lawsuit does not preclude the use of ADR in conjunction with the litigation. Some courts, such a family court, often encourage or require parties to undertake some form of ADR prior to moving forward with litigation.

What are the advantages of using ADR to resolve disputes?

The effective use of ADR offers several distinct advantages:

Costs – ADR may reduce the costs associated with litigation for the disputing parties. This is probably the most common reason for including an ADR clause in a contract or agreeing separately to submit a dispute to ADR.

No Jury – Businesses generally prefer ADR to litigation because it avoids allowing a jury to decide a dispute. ADR, unlike a jury trial, generally involves the use of one or more knowledgeable professionals to either decide or assist in resolving the dispute. This is far more practical than letting a random group of jurors resolve the issue.

Privacy – Another reason to use ADR is that it is a private process; whereas, litigation and court records are open to the public. Individuals concerned with public knowledge of the dispute harming the company’s brand or reputation strongly prefer the use of ADR to resolve disputes.

Business Relationship – ADR can preserve the on-going business relationship between the parties, where litigation often destroys the relationship.

Discussion: Can you think of any other benefits to ADR over litigation? Should businesses include ADR clauses in all contracts? Should individuals dealing with businesses agree to an ADR clause or should they attempt to eliminate ADR clauses? Why?

Practice Question: Ryan runs a consulting business. All of his clients enter into an agreement to mediate any disputes arising under the agreement. If the mediation does not work, the client agrees to submit the dispute to arbitration. What are the advantages to the business of pursuing all available ADR methods rather than pursuing litigation?

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