Going to court to settle a dispute is something most people want to avoid, especially business owners. Even if you end up winning your case, litigation is time consuming, costly, and almost never good for your brand.
Yet, whether it’s with an employee, client, vendor, or some other entity, disputes are practically inevitable for all companies. But before you resign yourself to taking the case to court, you might consider settling the matter through alternative dispute resolution (ADR).
ADR refers to a variety of processes and techniques, such as mediation and arbitration, used to enable disagreeing parties to resolve a dispute without litigation. Because litigation is so unpalatable, ADR has become an increasingly popular way for businesses of all sizes to settle conflicts.
In fact, some courts require you to use ADR before you can bring the case to trial, and it’s common practice for companies to include a clause requiring ADR in their agreements. To this end, if you use Facebook, Amazon, or Netflix, you’ve agreed to participate in ADR whether you know it or not. You might even want to consider adding an ADR clause to your agreements.
While there are many different types of ADR, arbitration is one of the most commonly used methods. Here we discuss how arbitration works and why you may want to use it instead of (or at least prior to) taking your dispute to court.
The arbitration process
Like other forms of ADR, arbitration involves bringing your matter before a neutral third party, who oversees the process and helps the two sides resolve their dispute. The third party, or arbitrator, can be a single person or multiple individuals. Most arbitration proceedings today use a panel of multiple arbitrators, and the final decision is made by majority vote.
Arbitrators take on a role similar to that of a judge in which they hear arguments and are presented with evidence from both sides, and they use that information to decide the outcome. Although arbitration proceedings are similar to those in a trial, they’re far less formal, with fewer rules and procedures to adhere to and a much more flexible timetable.
Arbitration is also a private process and all of the proceedings are kept confidential. In contrast, the litigation process is open to the public and part of the public record.
Binding or nonbinding
The final decision made by the arbitrators may be either binding or nonbinding. If the arbitration is binding, the parties waive their right to take the dispute to trial and agree to follow the arbitrators’ decision, which can be enforced by the courts. There’s typically no right to appeal the arbitrators’ decision.
Nonbinding arbitration means that either party is free to take the matter to court if they disagree with the decision. Whether arbitration will be binding or not is agreed upon by both parties in advance, although binding arbitration is far more common when it comes to business disputes.
Advantages of arbitration
Arbitration is generally faster, cheaper, and more convenient than litigation. It can also be more flexible, allowing the arbitrators to come up with more creative solutions than a court would be legally allowed to impose. Plus, the process is often less hostile than court proceedings, which can be a big benefit if you want to maintain your business relationship with the other party.
Additionally, because arbitration is kept private and confidential, it’s far less likely to have a negative impact on your company’s reputation.
Like other forms of ADR, arbitration does not require you to have an attorney present during the process. However, many people do have lawyers on hand to serve as counselors and advocates during ADR proceedings. If needed, we’re here to fill that role for you.
A more productive solution
While disputes are inevitable, litigation doesn’t have to be. Arbitration can greatly reduce the direct and indirect costs of litigation by offering a quicker, more streamlined resolution. By adding arbitration clauses to your agreements, you can have better control of potential disputes before they arise and help ensure contractual disagreements are handled in the most productive way possible.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.