Business disputes are inevitable when running a business. Common types of disputes relating to breaches of contract, partnership or shareholders’ issues, disagreements with other businesses, customer complaints, employment claims, etc.
To mitigate the risk of disputes, preventative steps a small business owner can take include: maintaining good records, ensuring important matters are in writing, following legal formalities, choosing the most appropriate business structure, ensuring the business complies with regulatory requirements, and seeking legal advice as soon as there may be a potential dispute.
Regardless of these safeguards, disputes can still arise, and litigation is often sought in such situations. However, courts can be time-consuming, unpredictable, costly, and emotionally impactful on those involved. The following are alternative dispute resolution methods to consider prior to or instead of the courts:
Many disputes arise from personal issues or misunderstandings. Communicating directly with those involved and considering the basis of the dispute together can often lead to a resolution.
A settlement reached through negotiation will almost always be faster and cheaper than other dispute resolution alternatives. This is an option that is available throughout the dispute process, even if litigation has started. However, note that sometimes parties use this as a tactic to buy time with time-sensitive matters.
If there is a contractual agreement, it may contain provisions for resolving disputes. In such cases, parties should refer to those provisions.
This involves having a settlement negotiation facilitated by an impartial third party. Generally, the mediator will meet with or obtain statements from each party and seek to find a common ground, compromise, and reach a settlement. Mediation can be relatively quick, inexpensive, confidential, and result in a solution that both parties accept, rather than an imposed decision. However, one party cannot force another to mediate, negotiate in good faith, or reach a mediated settlement. Thus, success is dependent on the genuine willingness of both parties to compromise.
Here, parties agree on allowing a third party to impose a binding decision. It is essentially litigation outside the court system and is adversarial in nature. This process is generally confidential and if well implemented, can be more efficient and less costly than litigation. However, arbitration can become a compressed version of litigation if not handled well and incur the same expenses in a shorter time period. Arbitral awards are usually harder to appeal than court judgments. Also, arbitrators have no power to award equitable relief unless parties specifically agree to give them that power.
As each situation is unique, it would be best to seek the advice of a licensed lawyer on steps to prevent disputes and the actions to take in resolving them, should they arise.