While parties often make formal demands and offers going into mediation, the underlying interests motivating those positions are not always as clear. Is the plaintiff’s demand motivated by hard costs due to injury, by a sense of injustice? Is a business reluctant to make a settlement offer due to fear of bad publicity? Understanding the parties’ real interests is the key to a successful mediation. As Fisher and Ury explain in their negotiation classic Getting to Yes: “Interests motivate people; they are the silent movers behind the hubbub of positions. Your position is something you have decided upon. Your interests are what caused you to so decide.”
By getting these different interests out on the table early in a mediation, mediators and parties have more “chess pieces” to work with in crafting a potential resolution. To help with the process of identifying interests, this article provides a short checklist of commonly held interests that parties may have going into a mediation.
While money drives many disputes, parties are often concerned with more than just the amount. Other key factors include payment timing, security, and tax and accounting issues. By helping parties to carefully think through all these different financial interests, mediators can generate more options for resolution. To take one common example, with additional payment security (e.g., guarantees, bonds), a party may be more willing to accept term payments spread over time. By carefully analyzing the factors below, a number of other options may open up that the parties did not think of at the outset of negotiations.
The most basic financial interest for parties is the payment amount. While the amount has obvious practical benefits, parties may also attach symbolic significance to the settlement amount as a de facto scorecard for the parties as to who “won” and “lost” the negotiation. As described by psychologist Daniel Kahneman in his psychology and behavioral economics book Thinking Fast and Slow, people typically start negotiations from a given reference point. Depending on the dispute, the reference point could be an outstanding invoice, repair costs for damaged property, an existing salary, or some other amount that has symbolic significance. People will then experience any losses from the reference point as more painful than the benefits of equal gains elsewhere. Psychologists describe this as “loss aversion.” For example, a business may be reluctant to consider a discount on an outstanding invoice, even if other valuable benefits are offered in a negotiation.
Mediators must understand how psychological factors may complicate negotiations and do their best to prevent the parties from getting too attached to symbolic positions early in negotiations. Also, being able to describe the same benefits and concessions in different ways may help the parties get over any psychological hurdles.
As a general principle, a dollar today is more valuable than a dollar tomorrow. Using this principle, parties have flexibility to agree on an overall amount while adjusting timing to account for cash flow and other needs. Additionally, some parties may be willing to accept a lower amount to be paid more quickly, giving concessions on the overall amount in exchange for quicker payments. Talking through options for payment timing is often a key to any negotiation.
In addition to when and how much they will be paid, parties worry more fundamentally about whether they will be paid at all. Non-payment can be a significant risk, particularly when payments are spread over time. One of the ways to deal with this risk is to consider third-party guarantees, bonds, and other mechanisms to ensure that money will be available to make payments as they come due. The more security that can be offered for payments, the more flexibility the parties have to consider spreading payments over time.
Finally, payments often have tax and accounting implications that need to be factored into a negotiation. The way a payment is characterized in a settlement or agreement can trigger certain tax treatment and financial reporting requirements for parties. It is thus important to consider these potential tax and accounting factors in negotiating payment terms. Parties may be flexible on other terms in order to secure favorable tax and accounting treatment.
Separate from any payment terms, parties may also want prohibitions on future conduct or specific performance of some kind. For example, a business may want to ensure enforcement of a non-compete agreement with a former employee. A building owner may want a manufacturer to repair or replace a mechanical system. Property disputes as well can involve some type of agreement on performance (e.g., stopping certain nuisance activities, ongoing maintenance of a right-of-way). Future performance issues can be an important and difficult part of any negotiation, especially in the context of an already adversarial relationship. Thus, confidence-building measures will be key in negotiations over future performance. For example, parties may tie future payments to achievement of certain performance milestones or perhaps agree on a neutral third-party to verify performance. Mediators and parties will need to think creatively to get over obstacles to future performance terms.
Sometimes, even as the parties are currently in a dispute, they may still want or need to preserve a potential future relationship. While child custody disputes are an obvious example where the parties need to continue working together at some level, in business disputes, many parties may also need to preserve a future relationship as well. Depending on the industry, business partners may be too important to cut off completely. For example, purchasers of specialty products may need ongoing maintenance service contracts with the manufacturer. Manufacturers in turn may need continued access to key distribution channels. Thus, even as parties fight over one issue, it is important not to lose sight of opportunities for a mutually beneficial relationship in the future.
In many disputes, parties have concerns about how the dispute may impact their reputation. Employees worry about references for future jobs. Businesses worry about negative publicity stemming from a public contract dispute. Because of these concerns, parties should address reputational issues in any negotiation. In addition to confidentiality (discussed below), common strategies include non-disparagement clauses and designating specific representatives to handle any future inquiries about the parties or the dispute.
Confidentiality is typically an important term in any settlement agreement. Settlement agreements often involve sensitive business and financial information. Additionally, in some cases, publicly disclosed settlements may prompt third parties to pursue separate claims against the settling parties, creating prolonged follow-on disputes. An important consideration in any negotiation over confidentiality is whether the parties have legal or regulatory disclosure requirements. Understanding disclosure requirements is necessary to help parties craft enforceable confidentiality terms and prevent unnecessary disclosures.
If the parties cannot reach a settlement, they will ultimately have to litigate the case to a judgment. Litigation is expensive, time-consuming, and risky. For businesses, a lawsuit will inevitably require staff resources to gather documents and prepare testimony. As trial approaches, preparation can be all-consuming, distracting employees from their day-to-day responsibilities. If the case involves sensitive personal issues, like discrimination or personal injury, litigation can take a serious emotional toll if the process drags out and litigants are subjected to difficult questioning and aggressive litigation tactics. And all of this involves substantial costs for attorney fees and litigation support. In addition to these costs is the inherent risk of litigation. Putting the case in the hands of a judge and jury is unpredictable. Bad documents can emerge from discovery, witnesses can crumble on the stand, judges can interpret key legal issues against you, and juries may fixate on seemingly irrelevant facts.
For these reasons, parties must always factor in the realities of litigation in any settlement negotiation. Key litigation milestones often provide motivation to parties to consider settlement. For example, parties may want to avoid the cost of filing a suit or conducting expensive and time-consuming discovery. Or alternatively, the parties may want a court ruling on dispositive motions or other key issues before seriously considering a settlement. Understanding these litigation factors will help mediators and parties reach resolutions that reflect the costs and risk of litigation.
Some cases need to go to trial, but parties should be careful not to pass up opportunities to settle based on unrealistic expectations of their chances at trial.
Finally, personality conflicts and strong feelings about fairness are at the heart of most disputes; even the most sterile commercial cases. People come into negotiations feeling lied to, cheated, and taken advantage of by the other party. Airing these strong emotions and defusing them is often necessary to get the parties in the mindset to try and reach a resolution. If people do not feel like they are being heard and acknowledged, they are likely to remain defensive and closed off to possible opportunities for resolution. When dealing with company employees as negotiators, there can be an added layer of personal complexity because the employee-negotiators may have individual interests in “saving face” or improving their standing with company management. This may cause negotiators to be personally sensitive to issues that are not critical to the company as a whole. Also, since lawyers play a key role in negotiations, their interests are important as well. Lawyers want to maintain credibility with their clients. Thus, mediators should be careful to respect the lawyer-client relationship. For example, if a party has advanced a clearly meritless legal argument in a negotiation, it is likely that the lawyer in the negotiations also developed the argument in question. So while a mediator may want to encourage a party to consider yielding on a frivolous legal argument in order to make progress on other issues, it is important to approach the issue in a way that allows the lawyer the ability to walk back gracefully in front of a client.
No negotiation is perfectly rational. Understanding the personal dynamics at play in a negotiation in addition to the substantive issues allows the mediator to identify these sometimes-hidden obstacles to resolution.
Negotiations typically involve a lot of proverbial “moving parts,” both business and personal. Making matters more complicated, the parties themselves do not always have a clear understanding of their real interests going into a negotiation. Thus, it is up to the mediator to probe these underlying interests and bring them out into the open where they can be discussed and hopefully resolved. Each of the topics above could be (and in many cases has been) the subject of detailed study. This article does not attempt to give a comprehensive or detailed discussion of all the potential interests parties can bring to a negotiation, but it does provide a useful summary and checklist of the most common interests that arise in negotiations. Thus, a thorough consideration of these interests going into mediation will give both the mediator and parties a good head start on developing possible options for resolution.