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The pros and cons of alternative dispute resolution methods

Whether due to a broken contract, disagreement among shareholders or more, the prospect of your business facing a dispute can be nerve-wracking. Preparing for a dispute may risk taking time, resources and energy from the everyday matters of your business.

Fortunately, not every dispute is destined for litigation in a Texas courtroom. Whether due to a clause in a contract or the wishes of both parties, alternative dispute resolution methods can offer the opportunity to reach a solution in a more collaborative, and often less expensive, way.

What is alternative dispute resolution?

Two of the most common alternative dispute resolution (ADR) methods utilized in business disputes include mediation and arbitration. Mediation involves a third-party, neutral mediator who attempts to facilitate a mutual agreement between both sides.

Arbitration also involves a neutral third party, known as the arbitrator. As a more formal process, decisions made through arbitration are often binding.

The benefits of mediation and arbitration

There are many advantages to utilizing mediation or arbitration, including:

  • Saving money. Mediation and arbitration can often save business owners money by bypassing the traditionally costly litigation process.
  • Saving time. Both methods can be more streamlined and quicker in their approach to reach a resolution.
  • Maintaining more privacy. Unlike litigation, the contents of disputes resolved through mediation and arbitration remain confidential.
  • Having more say. In litigation, a judge and potentially jury decide on the dispute. Here, both parties can have more input.
  • Mutually deciding on the third party. To move forward with either method, both parties must agree on a neutral party to explore potential solutions.

Additionally, one of the biggest potential advantages is the possibility of preserving the business relationship moving forward from the dispute. This can be particularly beneficial to those facing a dispute with a longtime partner, shareholder, client or more.

Disadvantages your business could encounter

Of course, mediation and arbitration both have their disadvantages. Both methods have the potential to conclude without a resolution. When this happens, both parties may proceed to trial, depending on the terms of the dispute. This can lead to higher costs overall and more time spent on reaching a decision.

Additionally, in some disputes, you may benefit from the binding decision issued by a judge or jury. As the appropriate method for a dispute depends entirely on your unique situation, an attorney can advise on the best path forward for you and your business.

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