5 Reasons Why Mediators Should Not Charge Contingency Fees

Mitchell Rose Should mediators work on contingency

 

In October 2020, the Law Society of Ontario (“LSO”) approved reforms to how the province’s lawyers and paralegals may charge contingency fees to their clients. These reforms are effective July 1, 2021.

But what about mediators: Should they be able to charge contingency fees?  If not, why not?

What are contingency fees?

A contingency fee arrangement is one in which a fee is paid to a professional only if they obtain a certain result (i.e., “if we don’t win, you don’t pay”). In the case of a mediator who, instead of being hired by one side to “win” a case, facilitates negotiations between two or more parties in conflict, the result that may justify a contingency fee would presumably be helping the parties reach a settlement (or, particular settlement terms) at the mediation. While, commonly, a contingency fee is expressed as a percentage of a recovery of money—it doesn’t have to be.

Contingency fees are a type of “alternative fee arrangement”—as in an alternative to fees based solely or primarily on time expended by a professional in a particular case. Many proponents of contingency fees believe that they provide the public with access to justice by transferring the risk of losing to the legal professional and eliminating (for the most part) cash flow concerns for the client who may not be able to regularly pay their lawyer as the case progresses.  However, contingency fees are not the only type of alternative fee arrangement that can help improve access to justice (more on that in a future post).

Generally, in Ontario, mediators of civil disputes charge flat fees for a certain amount of mediation time (i.e., half-day or full-day) and preparation. Many mediators will then charge a fee based on an hourly rate for time spent more than the allotted time for the flat fee. Other mediators charge only by the hour and may or may not have daily minimum charges. Flat and hourly rates vary by mediator. Fees are generally set by the marketplace, but, in some instances, a government-mandated tariff can apply (and a tariff can influence the market for non-tariff fees, as it has in Ontario).

ADRIC Prohibition on Mediator contingency fees

However, mediator members of the ADR Institute of Canada (“ADRIC”) and its local Regional Affiliate, ADR Institute of Ontario (“ADRIO”), are forbidden under ADRIC’s Code of Conduct for Mediators (“the Code”). Section 9.2 of the Code states that a “mediator’s fees shall not be based on the outcome of Mediation, or on whether there was a settlement or (if there was a settlement) on the terms of settlement.” Note that this does not mean that a member who is a lawyer cannot charge a contingency fee for providing legal services at a mediation (the LSO rules apply in that case). That lawyer just cannot charge them when performing the role of mediator.

While ADRIC and ADRIO are not regulators like the LSO, and mediation is currently an unregulated profession in Canada, the rates of membership in ADRIC and its Regional Affiliates is relatively high among working mediators in Canada.  One of the reasons for their popularity is the accreditation ADRIC offers in conjunction with Regional Affiliates through professional designations such as the intermediate level Qualified Mediator (Q. Med), and the senior level Chartered Mediator (C. Med), a designation I have held since 2015. Accreditation creates public and professional confidence as to mediator competency, and ADRIC’s accreditations are only available to members.

While ADRIC members should obviously not charge contingency fees, or they will risk discipline and possible loss of their designation, what about mediators who are not members? As well, what is the reason behind ADRIC’s prohibition on contingency fees?

Although I am not aware of the precise reasons why ADRIC chose to ban contingency fees, I suspect the drafters of the Code were mindful of the five arguments I make below against mediator contingency fees:

Reason 1—Neutrality. Mediators are supposed to be neutral and impartial. However, if you make the mediator’s fee—or part of that fee—dependent on achieving a settlement, or particular settlement terms, then neutrality can be compromised since the mediation outcome affects the mediators’ ability to get paid.  Like the song Money Changes Everything*, money can compromise neutrality—or the appearance of neutrality—and if neutrality is compromised, the parties lose faith in the mediator and, with it, the mediation process.

Reason 2—Autonomy. Related to neutrality is the concept of party autonomy, or self-determination. If the mediator gets paid regardless of the outcome of the mediation, the parties need not worry about being consciously or unconsciously influenced by the mediator, or the mediator’s fee arrangement,  to settle so that the mediator is paid. A ban on contingency fees facilitates people making smart choices for themselves about their disputes with the mediator’s assistance. While an argument can be made that self-determination justifies sophisticated parties, of equal bargaining strength, electing to be charged contingency fees for mediation purposes, in my view, the risk to neutrality and the integrity of the mediation process is too high a price to pay.

Reason 3—Value. Working as a mediator for two or more opposing parties during a relatively short intervention in a case (i.e., up to one day) requires a different skill set than a lawyer or paralegal who has carriage of one client’s case over the course of months or years. As well, despite a mediator’s best efforts, a case can settle or not settle at mediation for a variety of reasons (for example, one party is simply uninterested or has unrealistic expectations). Often, the mediation creates an atmosphere for settlement can take place in the weeks or months that follow, and without the mediator’s active intervention. Furthermore, there can be value in a mediation that does not result in an immediate resolution, such as a preview of a key witness prior to discovery, better understanding of the other side’s interests, and obtaining an early, neutral evaluation by a mediator as to the merits of a case. Contingency fees fail to recognize the true value of a mediator’s services.

Reason 4—Market. Mediator’s fees in Ontario are not at a level necessitating contingency fees as one way of increasing access to civil justice. While there are busy mediators who may charge $5,000.00 or more per half-day, in my experience, this is not the norm. For example, I charge $1,800 per half-day for a two-side mediation (plus tax), with each side agreeing in advance to pay 50%. I believe this is competitive when compared to other mediators with similar levels of experience and accreditation (and many lawyers have told me that I don’t charge enough!). At the same time, it is currently possible in Ontario to hire a mediator for as low as the tariff rate of $600.00 per half-day plus tax (divided between the parties) for a Mandatory Mediation, where applicable, and subject to the Rules of Civil Procedure,  if the mediator is on the government’s Roster of Mediators. This is due to the tariff not having increased in over 25 years.

Reason 5—Justice. Finally, the widespread use of contingency fees by mediators permitted to charge them could decrease access to justice since meaningful access to justice should include access to mediation. If mediator contingency fees became the norm, I predict the following would happen: 1) Mediators who work on contingency would increase their fees to reflect the increased risk that they won’t be paid for each case they mediate. This, in turn, can have an upward effect on all mediators’ fees; and 2) Regardless of whether fees rise, or fall, or stay flat (in other words, even if I am wrong about fees increases), the pressure to charge contingency fees due to market forces would force skilled and experienced mediators to leave the profession; especially if they have other professions, which is often the case, and especially if they are members of organizations that prohibit contingency fees, like ADRIC. Fewer skilled and experienced mediators are an obstacle to justice.

Final thoughts

Of course, the arguments against mediator contingency fees do not imply that mediators cannot be creative in how they charge, or to provide further value to clients.  For instance, while I charge a flat rate based on a half-day or full-day, plus an hourly rate for time spent beyond that covered by the flat fee rate, I usually provide the following at no additional charge:  1) In the weeks prior to the mediation date, I conduct a brief telephone or video conference with counsel in an effort to narrow issues and address process and expectations so as to save time and money at mediation;  and, 2) a half-hour of follow up with counsel to try to resolve the matter during the weeks following mediation where a settlement was not reached.

As well, I offer discounted fees for the private mediation of Small Claims Court and Human Rights Tribunal of Ontario disputes.

Mediators should be free to offer creative fee arrangements that reflect the best qualities of alternative dispute resolution, provided those arrangements don’t compromise the mediation process, or have unwanted consequences.

*Money Changes Everything is a song written by Tom Gray, frontman of the Brains, and was the band’s only underground hit. It was recorded by Cyndi Lauper for her debut album, She’s So Unusual, and was released as a single in 1984.

 

This blog is for educational purposes only and is not intended as legal or other advice.

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