Arbitration and Mediation for Small Businesses

In business you will inevitably have disputes with customers, vendors, landlords, employees, and/or other individuals or companies with which you do business. Litigation to resolve such disputes is both costly and time consuming. Your top executives, sales people, and other employees have better things to do than spend time waiting in court for the typically slow litigation process to unfold. More significantly, you cannot afford the time either.

Therefore, many businesses are seeking alternatives to litigation. The term alternative dispute resolution has been used to define the new means of settling disputes through arbitration and mediation. Either option can prove to be less expensive, less time consuming, and can result in fair terms that both parties can accept. Many contracts now state that arbitration will be used to settle such disputes should they arise while carrying out the terms of the contract.

Arbitration: Arbitration is a process in which both sides present arguments in front of a neutral third party, the arbitrator. This person, or organization (such as the American Arbitration Association) needs to be agreed upon in advance by both parties, who typically agree to abide by his or her decisions. Much like a judge in a courtroom, the arbitrator reviews the arguments of both sides and renders a decision. There is generally no appeal process and the decision is then considered binding. Non-binding arbitration is where an arbitrator suggests a course of action but the parties are not bound by his or her decision. The decision whether arbitration will be binding or not must be agreed upon in advance, though binding arbitration is part of most contractual agreements.

Mediation: Mediation is a process where a neutral third party tries to find common ground on which to bring two sides of a dispute to the table to talk. Often used in labor disputes, mediation helps open the lines of communication between the parties. The mediator establishes guidelines by which the two parties will meet and oversees settlement discussions. He or she may take an active role in facilitating discussions and encouraging the parties to stay focused on settling the dispute. However, unlike arbitration, he or she does not make a ruling; and unlike binding arbitration, no legal decision results from mediation.

Sometimes, however, parties will come to an agreement having communicated through the mediation process and a contract may then be drawn up and ratified. Often in these situations, the mediator serves as the middle person, bringing various proposals to each side and seeking compromises.

The final decision to enter into arbitration or mediation is largely dependent on the nature of the dispute and on the parties involved. In either case, both are often advised by lawyers for small business owners as a means of avoiding litigation.