During the course of running a business, it is extremely likely that business owners and managers will find themselves involved in a dispute of some sort. Suppliers or purchasers may allege a breach of contract, an employee may feel that he or she was wrongly treated or unfairly terminated, or shareholders and officers may find themselves in a dispute over how a business should be run. In these circumstances, parties to the dispute have several options for how to try to resolve their differences, including litigation, mediation, and arbitration. Each has its own advantages and disadvantages.
Litigation is one of the most frequently utilized forms of dispute resolution. It involves going before a judge or jury to resolve claims that one party has against another. For small businesses, this may take place in a small claims court proceeding involving only the parties and a judge. For larger corporations, litigation can involve retaining lawyers to navigate the dispute and can often result in years of court proceedings and significant time and cost. If your business is involved in a highly contentious dispute worth a great deal of money, litigation may be your only avenue for relief if it is unlikely that a middle ground can be reached. However, before resorting to litigation, it is important to make an honest evaluation of your likelihood of success and the damages that you would obtain from your claim, as compared to the money and time you will expend in the courtroom.
Because of the significant downsides to litigation, mediation has become an increasingly appealing alternative to spending months or years embroiled in legal proceedings. Mediation is a process that uses a neutral third party to help negotiate a dispute between two parties and reach a resolution that both can be comfortable with. Mediation can occur in conjunction with litigation, and some courts require parties to attempt mediation, or it can be an alternative to try before proceeding with a legal complaint in court.
Mediation is generally voluntary and involves the use of one individual, often a former judge, who familiarizes himself or herself with the nature of the dispute and each party’s arguments, and then attempts to move both parties toward an amicable resolution. Information provided in mediation cannot be used in later court proceedings, and thus mediation presents a safe and neutral ground for hashing out the details of a case. While the actual mediation may initially take place over a period of eight to ten hours in a day, if the dispute is not immediately resolved, many mediators will continue to work with both parties over the course of weeks and months, even after litigation begins, to attempt to reach a resolution.
Arbitration is similar to mediation in that it is a process that attempts to resolve disputes outside the courtroom. However, unlike mediation, arbitration is considered binding on both parties. This means that, although arbitration seeks to avoid the adversarial nature of litigation, it is legally binding in the same way that a court decision would be. While mediation may involve the informal presentation of facts and arguments to a mediator, arbitration involves the more formal presentation of an argument, along with rules as to evidence and procedure. Additionally, arbitrations are typically conducted by three arbitrators, rather than one. In most arbitrations, each party will select one arbitrator, and those two arbitrators will together select the third member. Decisions are then made by a majority vote of the panel. While arbitration is less common among smaller parties, it is increasingly popular for large companies because the decisions of arbitration panels can often be designated as confidential.