Taking Alternative Dispute Resolution (ADR) Too Far

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More and more companies are inserting alternative dispute resolution (ADR) clauses in their contracts with customers and vendors, and even in agreements with their own employees. ADR processes such as mediation and arbitration can be beneficial for all concerned if they help avoid the cost, delay, and uncertainty of going to court. Mediation, in particular, may offer creative solutions, protection of confidentiality, and preservation of important relationships.

Some businesses, however, have tried to use ADR clauses to increase their bargaining power in the event of a future dispute. Such attempts can run afoul of the law.

A federal court in Ohio recently invalidated a mandatory mediation clause that a restaurant chain required its waitresses to sign. When one waitress later filed a gender discrimination suit (claiming that she had been discharged after telling a manager she was pregnant), the company countered that she had refused to participate in the contractually required mediation.

The court held that the provision was “unconscionable” procedurally and substantively. Specifically, the court was concerned that the employee had no ability to negotiate the ADR clause nor would she be allowed to bring legal counsel to any mediation. The one-sided terms also forced employees to assert claims within 10 days and stipulated that mediation would take place hours away from where they worked. Especially troubling was the fact that the mediator had to be selected from a shortlist of candidates approved by the company.

Faced with such obstacles, an employee might give up a claim or settle on the cheap.

Other courts have invalidated unfair arbitration clauses and although mediation is nonbinding, its procedures may come under judicial scrutiny if they appear to tilt the bargaining table in one party’s favor.


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