Although companies hope that clearly defined contracts and strong business relationships will prevent disputes, disagreements are bound to happen from time to time.

These disagreements can arise over employment contracts, differing views held by company owners, agreements made with suppliers or simple misunderstandings.

Costs of litigation

When disputes arise, it is usually in everyone’s interest to avoid litigation. This is because lawsuits tend to be long, drawn out and, most importantly, costly procedures. In fact, Fortune 500 has estimated the overall cost of litigation to be around a third of the total profits earned by large businesses. Furthermore, disputes that lead to business litigation take an average of three years to resolve.

Although many business disputes do often result in litigation, there are several other methods to resolve issues outside the courtroom. In many cases, these methods prove to be vastly superior to litigation in many ways, including the following:

• They take less time
• They are much less expensive
• They allow disputing parties more control over the ultimate decision
• They protect the confidentiality of the parties involved
• They generally result in a greater degree of compliance with the decision

Negotiation, mediation and commercial arbitration are among the most common methods for alternative dispute resolution.

Negotiation

When disputing parties open up a dialogue with the goal of coming to an agreement, they are engaging in negotiation. The effort to reach an understanding may or may not result in compromise, in which more than one side comes away with a resource loss.

Mediation

Mediation brings the disputing parties together with the assistance of a third party, known as the mediator. In general, the mediator works with each side to negotiate a concrete settlement that all parties can agree to. Mediators are often trained professionals who can facilitate dialogue and understanding between the parties while remaining neutral.

Commercial arbitration

Commercial arbitration involves a situation that mimics a court trial but does not actually involve litigation. One or more arbitrators act as both judge and jury to decide how to solve the dispute. The disputing parties are usually each represented by arbitration lawyers who give the rundown on each side of the case. To solve a business dispute in this manner, all parties involved must agree to commercial arbitration. Often, it is written into the general business contract as a means of resolving disagreements.

Alternative dispute resolution practices often result in outcomes that are easier for all parties to accept because they facilitate communication between said parties. Businesses that are facing a potential litigation action may benefit from speaking with an experienced attorney about these options.