Litigation can be costly to resolve conflicts involving your business, and owners often want to avoid these costs. In California, four different types of Alternative Dispute Resolution allow companies to accomplish this. These four alternatives to litigation include:
- Settlement conferences
- Neutral evaluations
All four alternatives to litigation share the benefits of being less formal, less expensive and less time-consuming than the traditional adversarial system but operate in different ways.
The purpose of mediation is to facilitate a conversation between the parties. The role of the mediator is to listen during the session, ask critical questions to gather facts and understand the parties’ interests to lead the conversation towards an agreement.
Arbitration is more formal than mediation but less formal than a trial. An arbitrator listens to both sides, evaluates the evidence and decides on an outcome. Arbitration can be binding, which means that the decision is final or non-binding, which means that if one or both parties do not agree with the arbitrator’s decision, they can request a trial in front of a judge.
This type of ADR can be voluntary or mandatory. It consists of the parties meeting with a judge or hearing officer, usually with their attorneys present, to resolve the matter in the form of a settlement between the parties.
In neutral evaluations, each party presents their case to a neutral evaluator who is usually an expert in the subject matter of the case. In the end, the evaluator gives their opinion on the strengths and weaknesses of each party’s arguments and often offers a recommendation, helping the parties understand how a court of law could potentially weigh their arguments.
Should your business contracts include an ADR clause?
The answer depends on your individual business needs, including how often you enter into agreements with other parties and how risky those agreements are. If you want to stay on the safe side, you may consider including an ADR clause in your contracts.