Uncovering the True Price: The Cost of Avoiding Employee Mediation for Your Business

July 6, 2023

Introduction to employment disputes and their impact on businesses

The resolution of employment disputes is a critical aspect for any business to consider, as the consequences of not addressing these issues adequately can be substantial. Traditional approaches, such as litigation, often come with significant financial burdens and time-consuming legal processes. However, an alternative approach gaining prominence is mediation. This article delves into the costs associated with not opting for mediation in employment disputes and explores the various benefits that can be realised through this efficient and cost-effective method. It also highlights the hidden costs of unresolved disputes, emphasising the impact on company morale, culture, and reputation. By offering practical steps to incorporate mediation into business strategies, this article aims to shed light on an effective approach that can save businesses from unnecessary financial strain and foster a harmonious working environment.

1.Introduction to employment disputes and their impact on businesses

Defining employment disputes

Employment disputes can arise when there is a disagreement or conflict between an employer and an employee regarding various aspects of their working relationship. These disputes can encompass issues such as wrongful termination, harassment, discrimination, or contract disputes.

The prevalence and significance of employment disputes

Employment disputes are not uncommon and can have a significant impact on businesses, both in terms of financial costs and reputation. According to recent studies by ACAS, a staggering number of employees have experienced some form of workplace conflict or dispute during their careers. These disputes can lead to decreased employee morale, productivity, and ultimately, a negative work environment.

2.Exploring the traditional approach: Costs associated with litigation

Court fees and legal expenses

Litigation,the traditional method of resolving employment disputes, often involves hefty court fees and expenses. Businesses may need to hire solicitors and barristers,paying substantial fees for their services. These costs can quickly add up, straining a company's financial resources.

Lengthy legal proceedings and associated costs

Legal proceedings can be painfully slow, dragging on for months or even years. This not only increases the stress on all parties involved but also leads to escalating legal costs. Businesses may need to dedicate extensive time and resources towards litigation, diverting focus from core operations.

Potential financial damages and settlements

In the event of a court ruling against a business, the financial consequences can be significant. Damages and settlements awarded to employees can range from substantial amounts to potentially catastrophic figures, depending on the nature of the dispute. These expenses can seriously impact a company's financial stability and long-term profitability.

3.Understanding the benefits of mediation in resolving employment disputes

Mediation as an alternative dispute resolution method

Mediation offers a viable alternative to litigation for resolving employment disputes. In this process, a neutral third party, known as a mediator, facilitates communication and negotiation between the parties involved. It provides an opportunity for open dialogue and finding mutually agreeable solutions.

Key advantages of mediation over litigation

Mediation offers several advantages over traditional litigation. It can be amore cost-effective option, as it typically involves lower fees and avoids lengthy court proceedings. Mediation also promotes confidentiality, allowing parties to address sensitive issues without public exposure. Additionally, it can help preserve relationships and foster a more positive work environment.

Role of a mediator in facilitating resolution

The mediator's role is to act as a neutral intermediary, assisting the parties in reaching a resolution. They facilitate communication,encourage compromise, and help generate creative solutions. Mediators are skilled in managing conflicts and guide the process towards a mutually acceptable outcome, offering a balanced perspective throughout.

4.The financial implications of not pursuing mediation

Escalation of legal costs in prolonged disputes

By choosing not to pursue mediation and opting for litigation instead,businesses risk incurring substantial legal costs over an extended period. The longer a dispute drags on, the more expensive it becomes,as lawyers' fees, court expenses, and other related costs continue to accumulate.

ACAS estimates “the median settlement was £5,000, the median legal costs were £5,000, and £1,028 per an employee (in2018 figures)”– Source: ACAS

Risk of substantial financial damages

Litigation outcomes are unpredictable, and businesses face the possibility of substantial financial damages if the court rules against them. This financial risk can have a severe impact on a company's capital and long-term financial stability.

ACAS has published some information on costs:

The headline statistics are startling – in total, the cost of conflict to UK organisations was £28.5 billion – the equivalent of more than £1,000 for each employee. Close to 10 million people experienced conflict at work. Of these, over half suffer stress,anxiety or depression as a result; just under 900,000 took time off work; nearly half a million resigned, and more than 300,000 employees were dismissed.” Source: ACAS

Negative impact on company finances and profitability

Apart from direct costs, employment disputes that are not resolved through mediation can have indirect financial consequences. This can include decreased employee productivity, higher turnover rates, damage to the company's reputation, and potential loss of customers or clients. All of these factors can negatively impact the company's finances and overall profitability.

In conclusion, employment disputes can be costly for businesses. By considering mediation as an alternative dispute resolution method,companies can potentially save significant amounts of money, preserve relationships, and maintain a positive work environment. Pursuing mediation can offer a win-win situation for all parties involved,ensuring a fair resolution while keeping financial costs in check.

5.Hidden costs of unresolved employment disputes: Impact on company morale and culture

Erosion of employee trust and engagement

When employment disputes go unresolved, it creates an atmosphere of mistrust within the company. Employees may feel that their concerns are not being heard or addressed, leading to a decrease in trust towards management. This lack of trust can significantly impact employee engagement, as individuals may become disengaged and less motivated to perform their best. Without a positive and supportive work environment, productivity and overall morale can suffer.

Increase in employee turnover and recruitment costs

Unresolved employment disputes can also contribute to higher employee turnover rates. When employees feel undervalued, unheard, or mistreated, they may seek opportunities elsewhere. This leads to increased recruitment and training costs as businesses constantly need to replace departing employees. Additionally, high turnover rates can disrupt team dynamics and result in decreased productivity.

ACAS says the “average costs of recruitment (and some 'replacement costs' such as induction training) are estimated at £5,433 per employee; whilst lost productivity, as new recruits ‘get up to speed’, is estimated at£25,181 per employee. Consequently, we [ACAS] estimate the cost of recruiting replacement employees amounts to £2.64billion each year, whilst the cost to employers of lost productivity as new employees get up to speed amounts to £12.23 billion, an overall total of £14.9 billion each year.” Source: ACAS

ACAS estimates that an average of 485,800 employees resign each year as a result of conflict. The cost of recruiting replacement employees amounts to£2.6 billion each year whilst the cost to employers of lost output as new employees get up to speed amounts to £12.2 billion, an overall estimate of £14.9 billion each year. A further 874,000employees are estimated to take sickness absence each year as a result of conflict, at an estimated cost to their organisations of£2.2 billion. Source: ACAS 

Decline in productivity and work environment

An unresolved employment dispute can create tension and animosity among employees, affecting overall productivity. When disputes linger,employees may become distracted, lose focus, and spend time and energy on workplace conflicts rather than on their tasks. The negative impact on the work environment can lead to decreased efficiency and collaboration, hindering the company's ability to achieve its goals.

Respondents reported taking time off as sickness absence (9%), 40% reported being less motivated and more than half (56%) reported stress, anxiety and/or depression.” Source: ACAS

The vast majority of those who suffer from stress, anxiety and/or depression due to conflict continue to work. This ‘presenteeism’ [working while ill] has a negative impact on productivity with an annual cost estimated between £590 million and £2.3 billion. Source: ACAS

6.The importance of preserving business reputation through mediation

Protecting company image and brand perception

Employment disputes that escalate into public legal battles can damage a company's reputation and brand perception. Customers, clients, and potential business partners may be hesitant to associate with a company embroiled in controversy or perceived to have a toxic work environment. By opting for mediation, businesses can resolve disputes confidentially and protect their image from negative associations.

Minimising negative publicity and public scrutiny

Publicity surrounding employment disputes can be detrimental to a company's public image. Negative headlines and public scrutiny can harm a company's credibility and trustworthiness in the eyes of the public.Choosing mediation over a lengthy court battle minimises the chances of negative publicity, allowing businesses to maintain a positive public image.

Building positive relationships with employees and stakeholders

By prioritising mediation as a dispute resolution method, businesses demonstrate their commitment to fair and respectful treatment of employees.Resolving conflicts amicably and finding mutually beneficial solutions fosters positive relationships with employees and can improve employee loyalty and satisfaction. Additionally, stakeholders such as investors and partners appreciate a company that values effective conflict resolution, which can enhance business relationships.

ACAS says “55% of those who had discussed the matter with the other party reported that the conflict was largely or fully resolved compared to 40% who had not entered into discussions…” Source: ACAS

7.Steps to incorporate mediation into your business strategy:Cost-effective dispute resolution

Engaging professional mediators and establishing partnerships

Bringing in professional mediators with expertise in employment disputes can greatly enhance the effectiveness of the mediation process. Mediators can facilitate productive discussions, manage emotions, and guide the parties towards mutually acceptable solutions. Building partnerships with reputable mediation service providers can ensure access to qualified mediators and support the integration of mediation into your business strategy.

ACAS - “In terms of the impact of mediation, it is notable that nearly three-quarters of those who underwent mediation (74%) also reported that their conflict had been fully or largely resolved….this points to potential efficacy of the process in terms of resolution…”Source: ACAS

In conclusion, the decision to not pursue mediation in employment disputes can have far-reaching financial implications for businesses.The costs associated with litigation, both in terms of legal fees and potential damages, can be exorbitant. Moreover, the hidden costs of unresolved disputes, such as decreased morale, increased turnover,and damage to the company's reputation, further underscore the importance of proactive resolution. By embracing mediation as a cost-effective and efficient alternative, businesses can not only save money but also foster a positive workplace culture, protect their reputation, and maintain productive relationships with employees. Incorporating mediation into business strategies is a smart investment that can yield significant long-term benefits for both the bottom line and overall organisational success.


1.What is the cost difference between litigation and mediation in employment disputes?

Mediation is generally more cost-effective compared to litigation. While litigation involves substantial legal fees, court expenses, and potentially high financial damages, mediation typically requires payment for the mediator's services, which is often shared between both parties. The overall cost savings of mediation can be significant, making it a preferred option for resolving employment disputes.

2.Can mediation truly resolve complex employment disputes?

Yes,mediation has proven to be an effective method for resolving complex employment disputes. With the help of a skilled mediator, who facilitates open communication and negotiation between the involved parties, even intricate and emotionally charged conflicts can be successfully addressed. Mediation allows for creative problem-solving and the development of mutually agreeable solutions, making it a viable option for various types of employment disputes.

3.How does mediation impact company culture and morale?

Mediation has a positive impact on company culture and morale. By promoting open dialogue and collaborative problem-solving, it helps preserve harmonious relationships between employees and management. Resolving disputes through mediation fosters a sense of fairness and respect,boosts trust and engagement among employees, and contributes to a healthy and productive work environment.

4.Is mediation confidential, and how does this benefit businesses?

Yes,mediation is generally confidential. This confidentiality ensures that the discussions and information shared during the mediation process remain private and cannot be used against either party in future proceedings. The confidentiality of mediation allows businesses to address disputes without the fear of damaging their reputation or public image. It encourages open and honest communication, facilitating the exploration of innovative solutions and the preservation of business relationships.

Acas: Estimating the costs of workplace conflict - 11 May 2021.

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