Operators of small businesses or
nonprofits may experience legal disputes every now and then. Whether from a
resentful employee, an injured visitor on the premises, or a disgruntled
contractor, costs for these disputes can easily arise in the cost of running a
community enterprise. These disputes can be frustrating, and the exorbitant
legal fees required to defend the small business or organization may not be
warranted. For this reason, alternative dispute resolution (ADR) has become an
increasingly promising option for settling small business disputes.
ADR refers to methods and techniques used to resolve disputes outside of traditional and adversarial courtroom litigation. In addition to serving as a potential means of avoiding the expense, delay, and uncertainty associated with traditional litigation, ADR is intended to improve communication between parties. ADR allows for creative solutions to disputes that might better meet the needs of the parties.
Options for Alternative Dispute Resolution
Some of the most common types of ADR include negotiation, mediation, and arbitration. Although all ADR methods share the common characteristic of encouraging two parties to find solutions to their conflicts outside of court proceedings, each is governed by different rules and involves a different number of parties.
Negotiation
Negotiation is a direct communication process between the parties involved in a dispute, with the goal of reaching a mutually acceptable solution without the involvement of a third party.[1] This is often the first method that parties will use to reach an agreement. Negotiation can be conducted informally or through formal negotiations facilitated by lawyers or other representatives. Negotiation allows parties to retain full control over the outcome and can be tailored to suit the specific needs and preferences of the parties involved.
Mediation
Mediation is a process of assisted
mediation.[2] A
neutral third party known as the mediator facilitates communication and
negotiation between the parties to help them reach a mutually acceptable
resolution. The mediator does not impose a decision but instead assists the
parties in understanding each other’s frustrations, exploring different
options, and finding common ground. Although mediators are frequently lawyers
or professionals with a legal background, they may be any neutral party
agreed-upon by the two parties.
One option for such a mediation is through Michigan’s Office of Dispute Resolution (ODR). ODR administers Michigan’s legislatively created Community Dispute Resolution Program (CDRP), which makes grant funding available to nonprofit agencies to provide mediation to parties in disputes. Each year, nearly 30,000 Michigan citizens who might otherwise need to go to court resolve their disputes through mediation services provided by local dispute resolution centers that are financially supported by the Michigan Supreme Court.
[2022 Community Dispute Resolution Program Annual Report]
Arbitration
Arbitration is more formal than negotiation and mediation and most closely parallels traditional court proceedings. Parties are required to submit their dispute to a neutral third party, known as the arbitrator or arbitration panel, who reviews the evidence presented by the parties and decides a final binding decision. Although arbitration proceedings are less formal than court trials, they still involve a structured process of presenting arguments and evidence.
The JAMS Detroit Resolution Center offers mediation, arbitration, and other alternative dispute resolution services.
The Benefits of Alternative Dispute Resolution
ADR may be an especially attractive alternative to litigation for the following benefits listed below. We also recommend speaking with an attorney about adding alternative dispute resolution clauses in contracts to avoid litigation even before any dispute arises.
Accessibility, Affordability, and Efficiency
Legal fees and court costs can escalate quickly, putting immense financial strain on small businesses or nonprofits. ADR is generally significantly less expensive than litigation because of the simplified, speedy process. Additionally, unlike court decisions that can be appealed and contested at multiple levels, settlements are binding and final. For example, the Federal Arbitration Act makes it difficult to challenge the final outcome of an arbitration. This finality prevents lengthy and costly appeals, allowing small entities to put disputes behind them and move forward. Limited grounds for challenging an arbitral award exist, such as fraud, but the bar for vacating an arbitral award is high, and courts are hesitant to interfere with arbitral awards, even when they do not agree with the final judgment.[1]
Preserving Relationships and Reputation
Another main advantage of ADR for
small enterprises is that ADR helps preserve relationships; it often provides a
framework for parties to continue amicable ties. Traditional litigation is an
adversarial system that produces a final “winner” and “loser.” Often, the
inevitable escalation of tension during legal proceedings causes irrevocable
and irreparable damage between parties. ADR, however, typically results in a
“win-win” resolution as a result of parties working together towards
compromise.
Reputation is another factor to consider, especially for small local entities. A public dispute can cause significant harm to an organization’s image, deterring potential customers, employees, investments, or grants, even if it is ultimately decided that the entity was at no fault. Because ADR offers a confidential process, parties can resolve their issues privately. ADR proceedings, including arbitration proceedings, are not part of the public record. This discretion allows small businesses to protect their reputation and maintain strong relationships with their local community.
Flexibility and Tailored Solutions
Finally, a major merit of ADR is its
flexibility. Parties can choose whatever method of ADR that best suits their
needs and preferences. It may be one of the three methods described above or
some combination of them. Parties can also operate on their own timeline and
formalities, since there are no deadlines or rules imposed by the court.
Parties are empowered to take more control over the outcome of their dispute.
Since parties actively participate in negotiations and decision-making, they
are more often satisfied with the final resolution.[2]
By Lydia Kim