Dispute Resolution that Works
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Disputes are often the result of a failure to communicate, or opposing views on what was communicated. This is true in most human relationships, personal and business. In personal relationships, most disputes are resolved without legal intervention, but business disputes very often result in some type of litigation and that can be a very costly endeavor. Business involves risk, but the degree to which you manage those risks can have a profound impact on the bottom line. However, if risk is not identified it cannot be avoided, eliminated, mitigated or managed. Ideally, we all want to avoid disputes. While you can employ best practices to avoid many disputes, you cannot eliminate the risk. It is wise to have an inexpensive, expeditious and defensible mechanism in place to resolve disputes. All disputes do not have to result in litigation.
Business disputes can often resemble family disputes. There is a differing understanding of terms, failure or perceived failure to meet expectations or an inability to negotiate as the dispute gets heated and becomes emotional. Common business disputes are between employer and employees (individual or union), business partners, customers or suppliers. To avoid or reduce the risk of dispute in all of these areas, companies must identify what could lead to a dispute, and develop an action plan that avoids or reduces the risk. In many cases, having written policies and procedures and ensuring that they are communicated will reduce the risk of a dispute. In example, an employment agreement can clearly delineate the employee and employer’s responsibility and as well as a mechanism for resolution in the event of a dispute.
Business partnerships are a common source of potential conflict. By identifying the potential for dispute you can take steps to control the damage in advance. Many small to mid sized businesses are controlled by five or fewer people. This provides for an efficient management system but also has the potential for dispute. What happens in the event that an owner has an extended illness, divorces or passes away? What if two or more of the owners cannot see eye to eye on how the business is run? What if one of the owners wants to retire, cut back on hours or sell his/her shares to a third party? What if the partnership dissolves and one or more of the owners opens a similar business? All of these events pose a risk and can potentially disrupt the operation of your business. All too often businesses fail over these types of disputes.
The best way to avoid these disputes is by hiring legal expertise in advance of the partnership. An attorney can address all of the potential risks in a partnership agreement or buy-sell agreement. This agreement will address potential disputes, ownership sales and other risk events. By hiring an attorney to help you structure the partnership you can avoid the potential of messy litigation in the future.
Many commercial contracts have begun to insert an alternative dispute resolution clause. Alternative Dispute Resolution or ADR has become a more common practice as a way of avoiding litigation in the event of a dispute. ADR includes arbitration and mediation. Mediation is often the first step in the dispute resolution process. The mediator’s role is to be a neutral party that assists in reconciling difference before proceeding to arbitration or litigation. An arbitrator also acts as a neutral third party but hears evidence and decides the case. The value of arbitration is that parties avoid hiring attorneys and proceeding to court. Arbitrators do not represent either side but are neutral. Arbitration can be binding or non-binding.
Keeping in mind that most conflict is a result of communication failures, ADR can give the parties a broader perspective. In some respects, ADR is akin to marriage counseling for business. In example, there was a case of two businessmen who had a conflict and instigated lawsuits against one another. They were referred for mediation. At the conclusion of mediation not only had they resolved their original conflict but had also signed future contracts worth tens of millions of dollars. This obviously is a highly successful outcome but of course one we cannot expect for every case.
By the time most cases reach mediation or arbitration there is so much rancor between the parties that no outcome will be fully satisfactory. Often both parties sustain losses that cannot be recovered. Labor disputes present a good example. When athletic teams go on strike as management enters into mediation, each side is losing money that will likely not be recovered. Owners lose money from ticket sales, players lose endorsement dollars and businesses that are tied to the sport (such as food vendors, hotels near stadiums) lose money. While the disputes do get resolved, all around there is a loss. ADR does not eliminate the loss but is preferable to a potentially long and costly court battle that could take years to settle.
“Collaborative lawyering” is an innovative and relatively new method of dispute
resolution where the parties and their lawyers agree to resolve the issues without litigation. Lawyers agree to represent the parties for settlement purposes only. This method differs from mediation in that there is not a neutral third party. However, it draws on the concepts of mediation in that the parties are managing the dispute themselves rather than a judge or arbitrator. The role of the collaborative lawyer has been described as “advocacy without litigation.”
In all disputes, there is the option to avoid, eliminate, or reduce the potential for conflict. Good business practices and communication can go a long way in accomplishing these objectives. However, it is wise to have a plan of action to swiftly resolve disputes when they occur and to do so with minimal cost.
About the Author
Richard A. Hall is founder and President/CEO of LexTech, Inc., a legal information consulting company. Mr. Hall has a unique breadth of experience which has enabled him to meld technology and sophisticated statistical analysis to produce a technology driven analytical model of the practice of law. As a busy civil trial attorney, he was responsible for the design and implementation of a LAN based litigation database and fully automated document production system for a mid-sized civil defense firm. He developed a task based billing model built on extensive statistical analysis of hundreds of litigated civil matters. In 1994, Mr. Hall invented linguistic modeling software which automatically reads, applies budget codes, budget codes and analyzes legal bill content. He also served as California Director and lecturer for a nationwide bar review. Mr. Hall continues to practice law and perform pro bono services for several Northern California judicial districts.
LexTech provides corporate and public sector legal managers a cohesive suite of tools, professional services, and educational offerings to Manage the Business of Law. http://www.lextech.us.
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Article Published/Sorted/Amended on Scopulus 2006-08-28 21:45:11 in Legal Articles