Thought Leadership: Why Texas Businesses Are Embracing Mediation

Publisher’s note: This thought leadership article from JAMS is publicly available (no subscription required).

Texas businesses are increasingly turning to mediation for dispute resolution. While cost-effectiveness is a significant factor, it’s not the only benefit driving this trend. Mediation offers important advantages beyond financial ones, making it a valuable tool for businesses.

Relationship preservation: A neutral third-party mediator facilitates open and constructive dialogue between disputing parties, clarifies intentions, promotes understanding and potentially improves future interactions. Texas businesses are prioritizing relationship preservation in workplace disputes as well as disagreements with suppliers, partners and customers. Prolonged litigation—with its win-lose proposition—tends to destroy relationships. More contracts mandate presuit mediation to try to preserve relationships.

Confidentiality: In many cases, Texas businesses require confidentiality when resolving disputes. In general, the public’s interest in transparency overrides the privacy of litigants. Open courts are thought to protect the integrity of the justice system and maintain public trust. To that end, Section 13 of Article 1 of the Texas Constitution contains an open courts provision. Once a dispute has been placed into the court system, the default mode is that the information is publicly available. While there are procedures in place to add confidentiality to specific information (for example, Texas Rule of Civil Procedure 76a), the process can be onerous.

Mediation avoids all these complications because the process is entirely confidential. Recognizing that litigants needed the protection of confidentiality when attempting to resolve disputes, Section 154.073 of the Texas Civil Practices and Remedies Code provides broad confidentiality to the entire mediation process. This protects sensitive business information and reputations from public scrutiny, and it helps maintain a positive market image.

Control over outcome: Mediation empowers parties to actively participate in shaping the resolution. This focus on self-determination allows businesses to craft tailored solutions for specific needs and interests. No third party is imposing any result. Instead, because the solution was reached via agreement of all parties, it is more likely to be honored voluntarily. This reduces future disputes over the settlement agreement. Parties also report increased satisfaction in the process.

Certainty: A mediated agreement removes the risk that parties face when relying on a third party to decide a solution for them.

Efficient resolution: Mediation typically offers a faster path to resolution compared to traditional litigation, which can take years to finalize. To work through the court system, businesses must engage in discovery, wait for a trial date, finish the trial and appeal, and then enforce the court’s judgment. Mediation can shorten this process, saving time and allowing businesses to redirect resources to productive activities.

The advent of EDR, or early dispute resolution, can further reduce the time to resolution. The EDR Institute promulgates a four-step process to efficiently resolve disputes in 30 to 60 days. This protocol draws on collaborative law principles that prioritize voluntary information sharing, formal risk analysis, principled negotiation and mediation.

Flexibility and creativity: Businesses often seek outcomes that a court or arbitral panel is not allowed to provide. Generally speaking, a court can only distribute money from one party to another. In extraordinary situations, a court may also provide an injunction that prevents one party from taking future action.

Mediation encourages out-of-the-box thinking and allows for flexible solutions. Businesses can enter new agreements that consider the current needs and wants of the parties involved. These new terms might relate to how money should be distributed, including:

• Payments over time with or without interest
• Securing payments with an agreed judgment or collateral
• Payments to a third party such as a chosen charity or an outside service provider
• Earmarking money for a specific purpose like research and development

Nonmonetary terms are also possible, and they serve to generate value without costing additional money. Common mediated nonmonetary terms include:

• Apology, which can be powerful
• Confidentiality for all or some of the agreement
• Nondisparagement of each other
• Agreed joint public statements about the dispute or the resolution of the dispute
• Swapping assets
• Providing services
• Policy changes that seek to remedy the underlying cause of the dispute
• New agreements for future business dealings
• Neutral references for exiting employees

Lower legal fees and costs (still a significant factor): Mediation generally involves less time, legal steps and associated expenses compared to litigation. A final agreement also reduces the expense of employee time and energy.

High success rate: Mediation boasts a high success rate. The American Bar Association reports that 70-80% of cases that are mediated resolve. Even when it doesn’t result in immediate settlement, mediation can significantly narrow issues and pave the way for resolution in the future. 

In conclusion, Texas businesses are embracing mediation not just as a cost-cutting measure, but as a strategic approach to conflict resolution that prioritizes relationship preservation, confidentiality, control over outcomes, certainty and efficient problem-solving. The combination of these benefits, along with the high success rates associated with the process, makes mediation a valuable tool for navigating the complexities of business disputes in Texas.