Generally, businesses wish to avoid litigation. Litigation can be very expense and time consuming, and business owners would rather spend their resources running and growing their businesses. Unfortunately, legal disputes are a risk of owning a business and sometimes it is necessary to protect your company or redress a wrong. However, there are methods to resolve legal disputes, without formal litigation.
Alternative Dispute Resolution (“ADR”) is, generally, any method of resolving disputes outside of a courtroom. The most common types of ADR are Mediation and Arbitration. Arbitration is similar to a traditional trial, but with limited discovery and simplified evidence rules, whereby both sides present their cases to a third-party neutral, an arbitrator, who makes a decision that is binding on the parties. Mediation is more informal than arbitration as an alternative to litigation. Mediation also involves a third-party neutral, a mediator usually trained in negotiations, that helps the parties try to reach an agreement, but the agreement is not binding on the parties. Another type of ADR, negotiation, is often also attempted first to settle legal disputes.
Litigation has become increasingly costly and busy court schedules result in time delays for litigants. For these reasons, ADR can be a very advantageous alternative to litigation. However, different methods of ADR all have pros and cons, and businesses should consider all the information to determine what makes the most sense for them.
What are the advantages of ADR?
- Lower Cost: Litigation is expensive. It can cost parties thousands (and even millions) of dollars and the longer it drags on, the more the cost racks up. ADR is often cheaper than traditional litigation, because it allows the parties to avoid court fees and other related costs. Additionally, since ADR often leads to a faster resolution than litigation, costs are lowered, because parties spend less time paying expenses.
- Faster Resolution: The timeline of traditional litigation is subject to busy court schedules, which often cause delays for litigants. When you factor in the appeals process, lawsuits can drag on for years. ADR typically offers an opportunity for a faster resolution than litigation provides. Additionally, ADR offers flexibility in scheduling, as opposed to being at the mercy of court appointments, with little scheduling flexibility.
- Privacy: Litigation documents are typically open to the public, which means that business information can become public and there stands the risk of reputational harm. However, ADR proceedings and settlement agreements are generally confidential, which offers the benefit of avoiding public scrutiny.
- Less Hostility: ADR is generally less hostile than litigation, since the parties are encouraged to come to an agreement rather than one party “winning” a lawsuit. This can be a particular advantage when the parties plan to continue their business relationship after the resolution.
There are also disadvantages to ADR. Particularly, unlike the court process, which allows for an appeals process, most arbitration decisions are binding. Therefore, if a party is not happy with the outcome, not much can be done to change the resolution. Since mediation is generally not binding on the parties, if an agreement isn’t reached, litigation may still be required. Additionally, while ADR is typically less expensive than litigation, there are still significant costs associated. Arbitrators’ fees continue to rise, adding to the increasing costs of ADR.
While any dispute may be submitted for resolution in arbitration by agreement of the parties, it is most commonly found in cases involving contracts which include “arbitration clauses” in their fine print. Absent agreement by all parties involved, either in the original contract or once the dispute arises, cases usually cannot be submitted to arbitration. Similarly, mediation usually requires voluntary consent from both parties, although some courts are now moving toward mandatory mediation in all cases before scheduling a trial date. Since consent by both parties is typically required, if you think ADR may be the right choice for your business, it’s important to speak to an attorney before a dispute arises, to ensure the opportunity for ADR is written into any contract upfront.
Whether ADR is right for you depends on the needs of your business. It’s best to discuss your circumstances with an experienced attorney who can explain the advantages and disadvantages of each choice in your unique situation. Having a thorough understanding of the processes involved and the differences among them helps our attorneys craft the most advantageous strategy and approach on behalf of our clients.
If you’re drafting a contract, it may be beneficial to discuss including an ADR clause for dispute resolution with our contract attorneys. If you’re considering ADR after a dispute has already arisen, GCPC arbitration attorneys can help you work through the process. Call General Counsel PC at 703-293-5439 today to see how we can help you.