The Business Owner’s Dilemma: Arbitration Or Mediation

This article was published in the February 2009 issue of
Enterprise, an on-line publication of the Greater Kalamazoo Chamber of Commerce.

Last week the owner of a small business called me with a question. He was having a dispute with one of his suppliers and was concerned the problem would end up in a lengthy court battle.

One of his managers suggested he try arbitration.

His HR person said "Don't do that. You might not like the outcome and you'd be stuck with it. You don’t get to decide – the arbitrator does. Why don’t you try mediation instead?”

The owner’s question: What’s the difference between Arbitration and Mediation?

There's a big difference between the two and it is well worth any business owner’s time to know exactly what that difference is.

Arbitration has been around for a long time. The American Arbitration Association was formed nearly eighty years ago to help business people avoid the “crap shoot” of going through litigation and a court trial.

In arbitration, the parties select a neutral arbitrator from a list kept by the AAA. They present their cases to the arbitrator like in a mini-trial and the arbitrator makes a decision in favor of one of the parties. The parties are bound by that decision, unless there has been some breach of the rules by the arbitrator. The parties have to rely on the arbitrator being neutral and unbiased. And usually this is the case. But sometimes a party may feel that a finding by the arbitrator was so outside the expected outcome that they are never satisfied in believing the decision was unbiased.

Arbitration has been coming under heavy fire lately. The Congress has been trying to limit its use in mandatory and binding agreements between corporations and consumers. These agreements have arbitration clauses that are non-negotiable. All the manufacturers of similar products use them so the consumer has to accept the agreement or he or she isn't able to buy any competing product. There's a good chance Congress will outlaw their use this year.

Mediation is very different from arbitration.

Mediation lets the parties decide their own outcome and settlement. One of the best mediation methods is called Early Stage Facilitative Mediation. This method works well if the parties decide to mediate right away, before filing a court action and before each side has dug in their heels and established their “demands.” If they can't agree on a settlement after a good-faith negotiation with the help of a neutral mediator, they can still go to court.

In Facilitative Mediation, the mediator helps the parties clearly define the real issues in the dispute and works to help them develop alternatives to their original hard and fast demands. This helps each side reach settlements satisfactory to them both. And chances are, they will be much more likely to live up to their settlement agreement. After all, they designed it themselves.

But most importantly, the parties can preserve their business relationships for the future. Sometimes doing mediation even makes the business relationship better because problems have been discussed face to face and resolved to each side’s benefit.

Facilitative Mediation can be done faster and at less cost than going to court or arbitration. Less time is spent away from running the business. Stress levels are lower because the parties are in charge of the outcome, not some stranger like an arbitrator or a judge.

To answer the business owner’s question, I suggested he and his supplier mediate their business dispute – it's the smart alternative to litigation.




Jeff Murphy

Jeff Murphy is a trained mediator and an attorney with over 35 years of business, civil and commercial legal experience. He was born and raised in New York CIty where he attended Columbia and Fordham. He ventured westward to join The Upjohn Company years ago and served as Senior Counsel… MORE >

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