Friday, July 3rd, 2009

Why mediation works

Introduction to mediation

Mediation is one of the most effective ways of resolving disputes.  It is becoming an integral part of our judicial process.

Civil litigation is costly, time-consuming, stressful and uncertain.  These disadvantages are becoming more apparent at a time when few businesses can really afford to be involved in protracted litigation.

Mediation can solve problems which do not involve legal issues.  It can be used to find a way forward in cases of conflict, impasse or uncertainty.

This article outlines the mediation process and explains why it is so successful.

What is mediation?

The AMINZ website describes mediation as

a confidential and consensual dispute resolution process in which an independent and impartial mediator facilitates negotiation between the parties to assist them to resolve their dispute. Mediation differs significantly from arbitration and litigation in that neither the parties nor the mediator are limited by rules of evidence. The mediator is not a decision-maker, and the process is based on achieving co-operation between the parties. The mediator assists the parties to make their own decisions and agreements. The mediator’s role is to guide the process so that the issues can be defined, the relevant information produced and options explored without undue delay or legalistic procedures. When a dispute is resolved in mediation, a written agreement which sets out the outcomes of the issues that have been resolved at the mediation is signed by the parties[1]

What can be mediated?

There are very few disputes that cannot be mediated.

  • Mediation can be used in most civil disputes including contractual issues, leases, partnership or other joint venture issues, employment and building disputes.
  • Mediation is often used in resource management cases but not usually until the case reaches the Environment Court. Many resource management disputes could be resolved by reference to mediation before the matter is heard by the territorial authority. If an application was referred to mediation before a hearing, I have no doubt that the complexity, time and cost of a hearing (if one became necessary) would be substantially reduced if the local authority referred the matter to mediation before hand.
  • Mediation can assist families sort out all manner of family issues including
  • Child custody and access arrangements,
  • Relationship property and similar disputes.
  • Trust administration
  • Disputes over Wills

A dispute does not necessarily have to be about legal rights.  Mediation can provide a solution when the courts cannot.

  • Mediation can assist in the formulation of business plans where the parties appear to be heading in different directions.
  • Mediation can help with the formulation of policy
  • Mediation can assist where there is a clash of cultural values
  • Mediation can assist in sorting out neighbourhood issues

Advantages of mediation.

Mediation is quicker than most other forms of dispute resolution.

Parties are able to avoid the protracted time delays associated with litigation.

Mediation is much less expensive than other forms of dispute resolution such as litigation.

Mediation succeeds because it helps the parties reach agreement. Mediation is, effectively, assisted negotiation between the parties.  There is no formal presentation of evidence or cross-examination.  The meeting is usually only attended by the parties themselves, their advisers and the mediator.  Third parties can be brought in to help with the consent of the parties.  For example, an expert might be brought in to help resolve a specific issue.

Where the parties litigate a dispute, a third party makes a determination which may not necessarily suit or satisfy the needs of either party. By mediating, the parties are able to come up with an outcome that best satisfies their needs.

The parties can engage in lateral thinking and come up with something outside the square. The result may well be one that a court cannot impose.

Parties often approach negotiation as a matter of carving up and distributing an existing resource. Mediation creates the opportunity to create value and expand the resource.

Mediation can produce an outcome not expected by either party at the outset.  The New Zealand Law Journal[2] gives the following example of a mediation fable

Two employees attended mediation at the behest of their employer. The mediator was advised prior to the mediation that the relationship between the two employees had broken down and the purpose of the mediation was to negotiate an exit package for one of the parties.

At mediation each employee was asked to provide an overview of the problem as they saw it at the time.

The first was relatively new to the place of employment and held a managerial role, senior to the other. His primary issue was a perception that he was not respected by the other employee who was his junior, although he was a long established employee and was part of a long standing and loyal team. He also had an issue of disrespect.

After some conversation about what each perceived as respectful behaviour and the reasons why each felt that the other was not respectful, it became clear that each was relying on hearsay or gossip from others in the workplace. The mediation worked towards clarification of the way each would like to be communicated with and ended with an agreement as to future relationship.

The advisers to each employee commented as they left that they had expected a negotiation about exiting for one of them and were surprised at the outcome. Neither employee had mentioned an intention to leave so exit packages did not form part of the conversation.

Mediators take the problem as presented to them by the parties and in some cases the parties can reach an outcome neither anticipated before entering into the process.

Mediation is voluntary

Mediation is a voluntary process.  Parties cannot be compelled to come to an agreement if they do not feel that an agreement is in their best interests.  Because a successful outcome is one to which the parties voluntarily commit themselves, it is more likely to be an enduring outcome. This makes mediation ideal when there is likely to be an ongoing relationship.

Mediation overcomes posturing and position taking

Negotiations between parties, particularly party is assisted by the solicitors, frequently revert to posturing and position taking.  Litigation solicitors work in a system that is primarily adversarial rather than problem-solving.

An adversarial approach is often the least effective way of sorting out a dispute.

If the parties lack negotiation skills, the entire negotiation process can fall apart.  A mediator can keep the parties focused on looking for common ground and exploring productive avenues of settlement.

Confidentiality

Mediation is a confidential process.  What is said in mediation stays in mediation.  Settlements are confidential.  If the mediation does not provide a complete solution, none of the parties can use any of the concessions made in mediation in subsequent litigation.

Collateral outcomes

Quite aside from the resolving the substantive dispute, mediation has a number of collateral outcomes.

  • It can assist overcoming or reducing communication problems.
  • Parties gain a much better understanding of their own needs as well as those of the other party. Because the parties have the opportunity to state their case and express their feelings, the other parties to the dispute can get a much better understanding of that party’s position.  This promotes realism.  Communication through solicitors can often lead to a filtered presentation.
  • Parties gain confidence from constructive and efficient negotiation.
  • The anxiety and other negative effects of the dispute can be avoided or reduced.
  • The parties have the opportunity of talking to the mediator in confidence.  This is called caucusing.  The parties can test the water with a proposal by discussing it with the mediator first.  The mediator can get a much better understanding of a party’s position in caucus.  The mediator does not disclose that information to the other party.
  • Caucusing is often useful in order to offer a reality test to a particularly obstinate participant.
  • Ongoing relationships are improved. Parties gain confidence from successful negotiation.  They are able to work together much more positively in the future.

How the process works

In so many cases, parties cannot even begin to sort out a dispute because they do not have a basic understanding of the problem.

Mediation provides the process and the environment to identify, analyse and resolve the dispute.  There is extensive literature on the mediation process and it is not possible to cover such a wide ranging field in this article.  I will summarise the essential features of the mediation process and why it works.

Approach to resolution.

The mediator helps the parties select the appropriate conflict resolution approach and puts them in the appropriate frame of mind .

This is done by helping the parties understand the process and how the process works.

The mediator may have a number of meetings with parties and/or their advisers and get a commitment from the parties to resolve their differences by agreement.  The commitment is embodied in a mediation agreement.

Defining the problem.

Although the parties will have a basic understanding of the problem before the mediation, there are many instances where they do not understand their own problem they have learned that of the other side.  The mediation process involves collecting the data and defining the problem.

The problem is defined in a way that is acceptable to both sides.

Listing the issues.

Few disputes are so simplistic as to involve a single issue.  The mediator helps the parties identify all of the issues that they would like resolved.  Many negotiated agreements fall over because the parties failed to appreciate the extent of the problem and all of the issues that need to be resolved in order to solve the problem.

The issues are frequently listed on a whiteboard and are prioritised.  By doing this, the parties can see an agenda to work to.  This process often reveals issues in respect of which the parties are in agreement.

By listing the issues, the parties can ensure that all matters necessary to resolve the problem dealt with systematically and in the order of their importance to the parties.

Identifying interests.

Most parties have a preconceived approach towards a desired outcome.  They adopt what we call a “position”.

Very often, this “position” is a misconceived understanding of an outcome that will satisfy a particular party. It is important to go beyond any preconceived positions and identify the interests of the disputants.

Parties have to identify their own interests as well as the interests of the other party.  Interests are the motivators of the disputants and reflect what the parties actually need rather than what they think they want.

Interests are wide ranging.  They may include:

  • financial security
  • preservation of an ongoing relationship
  • sense of appreciation
  • fairness or some other value
  • the feeling of involvement.

Sometimes a single interest, not previously identified, will create an obstacle to resolution.  For example, I have been involved in a dispute with two parties were suing each other for reasonably significant amounts but the costs of litigation were going to eat up any advantage that the victor, whichever one it might be, might gain.

They wanted to settle but, for some reason, there was an insurmountable stumbling block.

During the course of settlement negotiations, it became apparent that the approach by one of the parties was not motivated by financial considerations.

That party refused to settle because he was worried that any concession made would be an admission of wrongdoing.  It was simply a matter of principle for that particular party.

Once it became apparent that this was the motivating factor, the parties were able to put together a package which involved an ongoing business relationship and a resolution that did not involve any admission of wrongdoing.

This outcome could never have been achieved in litigation which is, essentially, a process that identifies rights and wrongs.

Generating options.

This is where mediation has a distinct advantage over other forms of dispute resolution.

The courts and other adjudicators (such as arbitrators) are limited in the relief that can be provided. Usually, that relief is an order for the payment of a sum of money.

In mediation, the parties can agree on other outcomes.

The process of generating options enables the parties to consider all sorts of alternatives.

Often they go through a brainstorming session where multiple different solutions are listed, considered and developed in the search for the option that best satisfies their interests.

This process is ideal in community, neighbourhood or family disputes.

Preparing the agreement.

The final stage of mediation is putting together the agreement. This is usually done by other parties or their solicitors (if present) although sometimes a mediator will help.

The agreement is owned by the parties. It is not an outcome forced upon them by the mediator. The parties are free to accept or reject the agreement.

The mediator can assist the parties by testing the reality of the agreement and identifying shortcomings which the parties themselves may not necessarily foresee.

The parties may not necessarily reach a settlement on everything.  Where there is multi-issue dispute the parties may well be able to identify and resolve some of those issues.  They may reach an agreement on the way forward on other issues.

Conclusion.

Mediation is about problem solving.  Problems are best solved when the people with the problem solve it themselves.  Mediation promotes that.  It is effective and satisfying.  The outcomes are usually more enduring because they have been tailored to satisfy the long-term interests of the parties

[1]http://www.aminz.org.nz/disputes/

[2] 2009 NZL J No1 Feb 24

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Sunday, June 14th, 2009

Employment obligations on transfer of a business

Outline

Part 6A of the Employment Relations Act 2000 was introduced in 2004.  Despite that fact, our experience shows that those involved in the sale and purchase of businesses, and, to some extent, their advisers, are either oblivious to the provisions or do not fully appreciate the implications.

In November last year, the full Employment Court (three judges sitting together) delivered a decision on the implications of the restructuring provisions.

Anyone who was involved in the sale or purchase of a business, either as a party, agent or adviser, should be aware of the decision.

Recap — what do the restructuring provisions saying?

The purpose of Part 6A is to provide protection to employees if, as a result of a proposed restructuring, their work is to be performed by another person.

The Act identifies two categories of employees.  Those involved in protected services have a statutory right of transfer.  Employees in this category are those involved in cleaning services, food catering services, caretaking and laundry services.  This article is not concerned with the protected category.  The Employment Case which I will discuss applies to the second category of employees (i.e. anyone else).

Statutory requirements.

In the case of “non-vulnerable” employees, the ERA firstly requires employment agreements to contain employee protection provision is relating to negotiations between the employer and the “new employer”.

The employment provisions which must be included in the employment agreement must:

  1. have , as their purpose, provision of protection for the employment of employees affected by restructuring and
  2. have specific provisions saying what will happen if there is a restructuring.

For the purposes of this article, for “restructuring” read “sale”.

The specific provisions that must be present are:

  1. a process that the employer will follow when negotiating with a new employer;
  2. matters relating to the affected employee’s employment that the employer will negotiate with the new employer, including whether the employee will transfer to the new employer on the same terms and conditions, and
  3. the process to be followed if the employee does not elect to transfer to the new employer.

Section 69OK stipulates that an affected employee can choose between transferring to the new employer or not.

The Olsen case

So far, I have identified the obligations on an employer to ensure it that the employer’s agreements comply with the act (i.e. by containing restructuring provisions) and the right of an employee to elect to transfer to the new employer in accordance with any arrangements that may have been made.

The Olsen case (Olsen v Carter Holt Harvey IT Ltd) is significant because Mrs Olsen made a claim against a new employer which decided not to take on her services.

Mrs Olsen was the company accountant for DMS.

DMS was formed as part of a joint venture by three companies, of which Carter Holt Harvey was one.

In 2005, a new company was formed. It was subsequently renamed Carter Holt Harvey IT limited. The business owned by DMS was transferred to that company.

Mrs Olson was offered employment in the new company. However CHH decided that her work could be done in-house and the offer was withdrawn.

She took action against the new employer. There were a number of causes of action some of which were resolved on the facts of the case. For example, it was found as a fact that she was offered and had accepted employment and therefore there was unjustified dismissal.

Of greater note, however, is the way in which the Employment Court dealt with the obligations of the new employer under Part 6A.

The sale agreement made the following provisions for employment of existing staff:

  1. DMS would consult its employees before giving notice of termination.
  2. Once consultation had taken place, the new company was required to make offers to the employees on no less favourable terms than those that already existed .
  3. The offer of employment had to be kept open until five days before completion.
  4. The offer must be to commence employment with the new employer with effect from close of business on completion.
  5. The employee’s service was to be treated as continuous.
  6. The joint venture parties and the new employer were to use reasonable endeavours to persuade all of the employees to whom an offer was made to accept employment with the new employer.
  7. The new employer was to notify DMS of all employees who had accepted that offer of employment five days before completion.
  8. There was also a clause specifying that none of the obligations listed in the contract were intended to create any rights on a third party. In other words, it was not an intended that any employee be able to take action the basis of the agreement between the joint venture parties. [ Ordinarily, only a party to a contract can take action on a contract. The Contracts (Privity) Act 1982 does however enable third parties to take action in certain circumstances. The exclusion clause was intended to ensure that the Contracts (Privity) Act did not apply. ]

The Employment Court made the following findings:

  1. Mrs Olsen had been unjustifiably dismissed by the new employer.  Although it had made an offer of employment and then offer referred to an attached employment agreement, the new employer had failed to provide an employment agreement and was in breach of its obligations.  Mrs Olsen could not accept the offer of employment in the manner mentioned in the letter of offer because the new employer had made that impossible.  It did not matter that Mrs Olsen had not commenced employment.  She became an employee once she had accepted the offer of employment.
  2. Regardless of the findings of fact (i.e. that there had been an offer and acceptance of employment) Mrs Olson had a right to take action against the new employer because it had failed to comply with the provisions of the sale agreement.  Mrs Olsen had rights under those provisions.  . She did not have to rely on the Contracts (Privity) Act . Part 6A of the ERA created those rights.
  3. The new employer had failed to use reasonable endeavours to persuade Mrs Olsen to accept the offer of employment. It failed to comply with the most important aspect of the arrangement which was to ensure that Mrs Olsen had a real choice to transfer to the employment of the new company on the same terms and conditions and with continuity. By its actions, it denied Mrs Olsen that choice.

Lessons to be learned when selling or buying a business.

An intending seller must check all employment agreement to ensure that they contain a restructuring provision which is practical and with which the seller can reasonably comply. All employers must do this regardless of any intention to sell.

The purchaser of any business should, as part of any due diligence, see all employment agreements and be aware of the terms and conditions applicable to each employee. If any vulnerable employees are affected, these employees have a statutory right to transfer. Check to see whether, for example, cleaning work is outsourced.

The vendor should also check to ensure that redundancy provisions are in place. The seller may not be able to persuade the buyer to take on all employees (other than vulnerable employees) in which case a redundancy situation will arise. Any employer should do this regardless of any intention to sell.  Addressing redundancy provisions in an agreement having regard to the likelihood of an imminent sale does not accord with the obligations of good faith.

Particular care must be taken when drafting the sales agreement. Both parties must be aware that if the provisions in the agreement involve any arrangement for the transfer of employees, then those provisions can be enforced by the employees affected. The agreement must be drafted with that in mind. Make provision for consultation in particular. There should be timeframes and a process for offering employment and identifying the means of acceptance.

Most importantly, both parties must comply with their obligations and do so having regard to the good-faith obligations on the act.

Before selling or buying, ensure that you take appropriate advice.

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