alternative dispute resolution (ADR)

In 1992, Herb Kelleher, president of Southwest Airlines, offered to arm-wrestle a rival airline company’s president for the right to use the slogan, “Plane Smart.” Kelleher lost but he demonstrated the outer boundaries of alternative dispute resolution (ADR): ways to settle an argument short of full-blown litigation. Few executives have followed Kelleher’s lead; most prefer more common ADR procedures, such as:

• Mediation. A neutral third person helps the parties talk through their dispute and come up with a mutually acceptable solution. Some mediators suggest possible outcomes, but a mediator generally can’t impose a resolution on the parties.
• Arbitration. Much like a judge, an arbitrator hears from both parties, sometimes in a trial-like proceeding. The arbitrator then decides how the dispute should be resolved.
• Negotiation. The parties resolve the dispute themselves, with or without the aid of a third party.
• Collaborative law. Lawyers, trained in special, less adversarial procedures, represent each party and work together to reach a mutually acceptable resolution. Collaborative law is used most commonly in divorce proceedings.

Although ADR is considered an "anything but court" approach, ADR-type programs have been incorporated by many courts. For example, the federal courts use Early Neutral Evaluation (ENE), a variation on mediation—in order to alleviate their increasing caseloads. With the exception of court-ordered ADR procedures, all ADR is voluntary.

Contracting parties who want to resolve potential disputes by ADR rather than litigation should include a clause in their contract to that affect. Although the parties could decide to use ADR after a dispute arises, it’s better to put an ADR clause in the contract ahead of time. Once the parties are engaged in a contract dispute, it will be much harder for them to reach an agreement on dispute resolution procedures.

See: arbitration; mediation; negotiation