City of London employers should follow Wall Street's lead and use mediation and other forms of alternative dispute resolution (ADR) rather than fighting employment disputes through litigation.
That's the message from Karl Davies, head of City Disputes Panel (CDP) in London, a membership organisation that provides ADR services in commercial disputes.
'We view the U.S. as a much more litigious society than ours,' says Davies. 'But we could learn from them when it comes to using ADR.' On Wall Street, the recent big class action lawsuits for sex discrimination at Salomon Smith Barney and Merrill Lynch prompted many large employers to develop ADR programmes.
Margaret Shaw, a New York-based 'neutral', or mediator, was involved with both the Merrill and Salomon cases. She says companies including Merrill Lynch, JP Morgan Chase, CSFB, Prudential and Paine Webber all have ADR programmes in place. They have used them to settle remuneration disputes as well grievances related to discrimination and dismissal.
But even these firms, with mature ADR programmes in New York, are not using them in London. Unlike in the UK, the U.S. legal system is more used to ADR and lawyers no longer see it as a threat.
'At first, lawyers were concerned that they would lose business and that there was no recognised certification for mediators, so unskilled people could practice,' Shaw says. 'But as courts began to mandate mediation, people saw the benefits and the ADR field became more professional.'
UK employers would do well to follow suit. Last year saw a 17% increase in the number of cases registered with employment tribunals nationwide. Employment legislation due to come into force this week could see that figure rise further; from October 1st, 2004, tribunals will automatically declare a dismissal to be unfair if a company has not gone through a proper disciplinary and dismissals procedure.
The new law is designed to make sure employers and employees talk to each other before heading for court, but it's not ADR. The framework is still adversarial and there is no requirement to include mediation by a neutral outside party.
U.S. research shows that using ADR is faster and cheaper than going to court, and up to 80% of mediations are successful. So why aren't more UK employers taking it up?
In 2003, CDP set up an employment section to help its members deal with staff grievances that might otherwise end up in employment tribunals. The service was created in response to requests from CDP members, including investment banks, who said employment disputes were causing them increasing headaches, says CDP's Davies. But since its inception, the service has hardly been used.
One problem is that employers feel they are giving up power if they agree to mediation. According to Stephen Sidebottom, chairman of the City Personnel Group and HR director at Nomura International in London, City of London employers accept intellectually that ADR is a good idea, although they have been slow to take it up.
Sidebottom says, 'The advantages are clear. As an employer you can say sorry if you need to and settle a matter in a more private and non-confrontational manner. You are not forced into a fixed position the way you are with litigation.'
Clive Howard, Employment Partner with law firm Russell Jones & Walker, which specialises in representing employees, says that apart from a lack of familiarity with mediation, cost also puts employers off. Typical costs may run 2,000 (€2,900) a day.
Although the success rate is high and cases are frequently settled within a couple of days-- making mediation substantially cheaper than litigation-- both sides tend to view the process as an extra expense.
Howard has used mediation successfully on several occasions. 'We recently used it to settle a discrimination case from a senior person in a City firm,' he says. 'There were 18 different respondents in the case and it had become very acrimonious; mediation resolved it in two days and we received maximum compensation. You can also recover other things, such as references and future prospects, which you can't get through a tribunal.'
What does an ADR programme look like?
An ADR programme can include access to an external helpline, an internal grievance procedure, mediation and arbitration.
Tom Stipanowich, CEO of the New York-based CPR Institute for Dispute Resolution, says most mature programmes have a multi-step process. The only hard and fast rules are that the programme must be transparent and confidential, so that people know how it works and have faith that what they say will go no further without their say-so.
In most cases, there is provision for outside intervention from a corporate ombudsman or trained mediator if in-house mechanisms haven't worked. In some cases the final step is binding arbitration.
Some US employers have compulsory binding arbitration as standard clauses in their employment contracts. Stipanovich says, 'Binding arbitration is the most controversial aspect of ADR, although the odds of getting to court or to binding arbitration if you have a multi-step process are very low.'
In some cases arbitration is binding only on the employer, although Shaw says she knows of no cases where arbitration has gone against an employee and they have still chosen to sue.
In the Merrill Lynch settlement of the class action for sexual discrimination, there was a three-step process which each of the women could undertake in addition to the introduction of diversity measures and training by the company. Plaintiffs could accept a dollar amount for a quick settlement without a hearing; opt for mediation and the opportunity to 'have their say' or go to arbitration. There are still around 20 cases in active arbitration, says Shaw.
At Morgan Stanley, which settled a class action for sexual discrimination in July this year almost on the court steps, a so-called Special Master has been appointed to determine how much money each of the former employees will receive. There will be no individual hearings, but the process is therefore expected to be much faster than previous cases.