Leadership lessons on: Mediation and arbitration
A toxic High Court hearing is not the only solution when key executives are poached by rivals. Insider Engage looks at how to take the heat out of recruitment disputes
High Court lawsuits have become a common by-product of executive headhunting in the insurance industry lately. These hard fought cases make good copy for the business press, but are they worth it in the end?
“They are acrimonious, they’re very expensive and at one level they are nearly always completely pointless,” says David Whincup, head of employment in the London office of US law firm Squire Patton Boggs (UK) LLP.
Whincup, who is a mediator and a specialist in team move work, says that if a team wants to go, there is very little anyone can do about it that does not leave people feeling “bent out of shape” afterwards.
But it’s often not seen that way, he says: “High level insurance people are not always of a generation that has grown up with mediation so often their first thought would be the High Court. Also, there can be big egos who don’t like the idea of compromise or settlement because they think it weakens their image.”
Nick Elwell-Sutton at global law firm Clyde & Co agrees: “By their nature, ‘non-compete’ and team move cases tend to be highly personal, hostile and hard fought. They often involve allegations of serious wrongdoing against departing employees, such as conspiracy, and equally, counter allegations by employees trying to demonstrate an employer’s misconduct towards them as a method of invalidating ‘non-compete’ restrictions, on the basis [that] the employer had already breached the contract.”
Yet although court is still often the default route, other dispute resolution options are available - namely mediation and arbitration, Elwell-Sutton points out.
Mediation is consensual, in that the parties must agree to the process, plus it is not a binding outcome unless a formal settlement is concluded. Arbitration is rare and will usually require all parties to submit to it, but the outcome is then binding.
Melbourne-based Chad Catterwell, a partner with international law firm Herbert Smith Freehills, specialises in cross-border disputes and international arbitration across the Asia-Pacific region. He stresses that mediation is a different process to court litigation and arbitration.
“You can think of arbitration as like a ‘private court process’ – the parties will put their respective positions to a neutral third party (the arbitral tribunal) which will ‘determine’ the dispute,” he explains.
“In mediation, the neutral third party (the mediator) will attempt to assist the parties to reach a compromise. A good mediator will assist the parties to put the acrimony and emotion to one side and explore options for a ‘win-win’ solution.
“But ultimately, in mediation, you only resolve the dispute if the parties can agree a compromise (the mediator will not ‘decide’ the outcome) and, if the parties have intractable positions, agreement may not be possible.”
This is why mediation is often deployed in tandem with either court litigation or arbitration, Catterwell says. “The parties, with the help of the mediator, try to reach a commercial resolution through mediation but if that fails they have the fall back of a ‘determination’ from a court or arbitral tribunal.”
Caroline Sheridan, CEO of mediation and coaching specialist Sheridan Resolutions, says that mediation takes the heat out of disputes.
“I’ve been mediating a case related to restrictive covenants where litigation has been filed but the case has not yet started in the court. Mediation was recommended. As a result, both sides are coming to an agreement in full and final settlement of all claims. They jointly agree not to recruit from the other nor to commence any further litigation proceedings for an agreed period of time as well as bear their own costs.”
Sheridan says that the vast majority of cases can be resolved by some angry correspondence between both sides, mediation, and then some undertakings on terms.
“Almost always, employers realise that some things are just water under the bridge and there’s no way of reversing them. The undertakings will generally be about not making it any worse – by taking anyone else or to do with retaining clients, for example. Amid a lot of emotion, mediation can help you get to those solutions.”
Stephen Ratcliffe, a partner in multinational law firm Baker McKenzie's Employment and Benefits practice, says there’s a need for speed with mediation: “Especially if a team move is involved, because you have to move fast. If you’re seeking an injunction to stop a person joining a competitor you have to go to court in a matter of days. That timescale does not always lend itself to mediation.
“In principle, if both parties are willing to be reasonable, you could have the leaving party (or new employer) agree an undertaking that this person won’t take up new employment while you seek to mediate.”
Ratcliffe says that can be difficult when two competitors are determined to preserve their own interests, but it is quicker and a lot cheaper to mediate disputes than rushing to Court.
When the shouting stops
An upswing in legal actions is only the case in a tiny proportion of actual disputes because the great majority are resolved by a spot of reciprocal shouting and a pragmatic solution, says Whincup.
“These are very expensive cases to run - and to lose. Stakes are high: if the High Court finds that your restrictions are void, it’s not just the people who are leaving that they are void for. It’s potentially everyone else as well. So, a lot of firms don’t really want to go to Court in case they lose and are then badly exposed,” he says. “There’s a reputational issue as well because both sides tend to resort to a lot of hyperbole in a public forum.”
Clyde & Co’s Elwell-Sutton says it makes sense for one party or other to propose mediation: “Much depends on the complexity and importance of the issues in dispute, the relative strength of the parties’ cases, not to mention any egos. At one end of the spectrum an employer may want to hold a departing employee's toes to the fire with an injunction and the threat of contempt of court proceedings, which can ultimately lead to committal to prison. At the other end, it may have been a book of business the employer was about to exit anyway and it would be quite happy to gain a windfall settlement via a quickly arranged mediation.”
The Covid-19 lockdown could be another good reason for more executive “poaching” disputes to take the mediation route, according to Herbert Smith Freehills’ Catterwell.
“There is anecdotal evidence that Covid has created a backlog in the Courts (despite best efforts) and that does present an opportunity for parties to consider arbitration or mediation as a ‘more immediate’ option for resolving their dispute,” he says.
“Mediation can take place ‘anytime, anywhere’ and a number of leading mediators have reported great success mediating disputes using Zoom. The arbitration community has also responded to Covid with typical flexibility and ingenuity.”