Whether it's with an employee, client, vendor, or a business partner, going to court to resolve a dispute is something you want to avoid at all costs, since even if you wind up winning your case, getting caught in the court process is time consuming, expensive, and almost never good for your company's reputation. To this end, the next time you find yourself in a dispute, you might consider attempting to resolve the matter through alternative dispute resolution (ADR).
ADR refers to a variety of processes, such as mediation and arbitration, that help disagreeing parties resolve a dispute without resorting to litigation, and it is becoming increasingly popular with both business owners and the judicial system. Some courts even require you to use ADR before you can bring a case to trial, and it's standard practice for big businesses to include a clause requiring ADR before litigation in their agreements.
Indeed, whether you know it or not, if you use Facebook, Amazon, or Netflix, you've agreed to participate in ADR when you agreed to the company's Terms Of Service. You might want to consider adding an ADR clause to your agreements, and if so, we can help with that.
While there are several different types of ADR, arbitration is among the most used methods, and it has become the go-to way to resolve disputes outside of the courtroom. Here we'll discuss how arbitration works and why you might want to consider using it rather than (or at least prior to) taking your dispute to court.
How Arbitration Works
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 a majority vote.
Arbitrators serve a role like that of a judge in which they hear arguments and are presented with evidence from both sides, and they then use that information to decide the outcome. Although arbitration proceedings are like 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, which can lead to negative publicity for your brand.
Binding VS. 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 they 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.
The 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.
Moreover, because arbitration is kept private, it's far less likely to have a negative impact on your company's reputation, and it allows you to keep your confidential information from your competitors' prying eyes.
While the process of arbitration does not require you to have an attorney present, many business owners do have lawyers on hand to serve as counselors and advocates during the proceedings. If that's something you'd want, we can fill that role for you.
A More Productive Method for Managing Disputes
While disputes are an inevitable part of doing business, litigation doesn't have to be. Arbitration can significantly reduce the direct and indirect costs of litigation by offering a quicker, more beneficial resolution for all parties involved. And by adding mandatory arbitration clauses to your agreements, you can have better control of potential disputes before they occur and help ensure contractual conflicts are handled in the most productive way possible.
We can help you decide whether arbitration is an appropriate solution to your company's disputes and support you in adding effective arbitration clauses to your agreements. Schedule an appointment with us today to learn more.
This article is a service of R&R Legal Advisors LLC and Family Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death or incapacity. We also offer services specifically for startups and ongoing businesses, which review all of the legal, financial, and tax systems you need to LIFT your business. Call us today to schedule your consultation.