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Alternative dispute resolution (ADR) is an approach or means for resolving disputes outside the judicial system of state or federal courts, commonly in the form of arbitration or mediation. Mediation is considered among the less formal alternatives to litigation that involves a panel or impartial third party (typically consisting of a group of qualified attorneys or retired judges experienced in negotiations) that intervenes to reach a settlement of the dispute.

Arbitration is the procedure by which parties agree to submit their disputes to an independent neutral third party, known as an arbitrator, who considers arguments and evidence from both sides, then hands down a final and binding decision. This alternative, which can be used to adjudicate business-to-business, business-to-employee, or business-to-customer disputes, can utilize a permanent arbitrator, an independent arbitrator selected by the two parties to resolve a particular grievance, or an arbitrator selected through the procedures of the AAA or FMCS. A board of arbitrators can also be used in a hearing.

Other forms of arbitration include the following:

• Expedited arbitration is a process intended to speed up the arbitration process with an informal hearing. Under this process, decisions are generally rendered within five days. It was first used in 1971 in settling disputes in the steel industry.
• Interest arbitration is the use of an arbitrator or board of arbitrators to render a binding decision in resolving a dispute over new contract terms.
• Final offer selection arbitration is an interest arbitration process in which the arbitrator or board of arbitrators selects either the union or management proposal to the solution. There can be no compromised decisions. This process is also termed either-or arbitration.
• Tripartite arbitration is a process wherein a three-member panel of arbitrators is used to reach a decision. Both labor and management select an arbitrator and the third is selected by the other two arbitrators or the parties to the dispute as a neutral participant.

In contrast to arbitration, mediation is a process whereby the parties involved utilize an outside party to help them reach a mutually agreeable settlement. Rather than dictate a solution to the dispute between labor and management, the mediator—who maintains scrupulous neutrality throughout—suggests various proposals to help the two parties reach a mutually agreeable solution. In mediation, the various needs of the conflicting sides of an issue are identified, and ideas and concepts are exchanged until a viable solution is proposed by either of the parties or the mediator. Rarely does the mediator exert pressure on either party to accept a solution. Instead, the mediator’s role is to encourage clear communication and compromise in order to resolve the dispute. The terms “arbitration” and “mediation” are sometimes used interchangeably, but this mixing of terminology is careless and inaccurate. While the mediator suggests possible solutions to the disputing parties, the arbitrator makes a final decision on the labor dispute which is binding on the parties.

Mediation can be a tremendously effective tool in resolving disputes without destroying business relationships. It allows parties to work toward a resolution out of the public eye (the courts) without spending large sums on legal expenses. Its precepts also ensure that a company will not become trapped in a settlement that it finds unacceptable (unlike an arbitration decision that goes against the company). But Hayford commented that “mediation only works when the parties employing it are willing to go all out in the attempt to achieve settlement,” and he warned that “the mediator must be selected carefully, with an eye toward the critical attributes of neutrality, subject matter and process expertise, and previous track record.” Finally, he noted that with mediation, there is a “lack of finality inherent in a voluntary, conciliation-based procedure.”

Other forms of mediation often employed in labor disputes include “grievance mediation” and “preventive mediation.” Grievance mediation is an attempt to ward off arbitration through a course of fact-finding that is ultimately aimed at promoting dialogue between the two parties. Preventive mediation dates to the Taft-Hartley Act (1947) and is an FMCS program intended to avoid deeper divisions between labor and management over labor issues. Also termed technical assistance, the program encompasses training, education, consultation, and analysis of union-management disputes.