Understanding Mediation: A Practical Guide for Business Owners

Running a small business comes with its fair share of challenges, and disputes come with the territory. Whether it's a disagreement with a vendor, a conflict with an employee, or a contractual issue with a client, knowing how to resolve these conflicts is crucial. 

The default method is court, but it’s time-consuming, expensive, and public. As a business owner, a court case can not only harm your bottom line but also your brand’s reputation. Luckily, there are other methods to settle disputes that don’t take the same amount of time and money and don’t expose your affairs to the masses. Last week, we discussed arbitration, and this week, we’ll look at another method used to settle disputes: mediation. 

Read on to learn what mediation is, how it differs from arbitration and litigation, and why it can benefit you as a small business owner.

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What Is Mediation?

Mediation is an alternative dispute resolution (“ADR”) process where a neutral third party, called a mediator, helps you and the other party in a dispute reach a mutually acceptable solution. Unlike a judge or an arbitrator, the mediator does not make decisions for you. Instead, they are trained to facilitate communication, help clarify issues, and explore possible solutions. Mediation is typically voluntary, meaning both parties agree to participate and work towards a resolution.

During mediation, you and the other party will have the opportunity to present your perspectives and concerns. The mediator will guide the discussion, ensuring that it remains productive and focused on finding a solution. Mediation sessions can be scheduled at times and places convenient for both parties, making it a flexible option for busy small business owners. Moreover, mediators are often lawyers or former judges who can give the parties insight into a possible outcome if the parties end up in court. This insight is incredibly valuable because if the parties cannot reach a resolution at mediation, they will end up in court, already having an idea of their chances of success (or failure). Often, this knowledge will influence one or both parties to settle a dispute out of court.

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How Mediation Differs from Arbitration and Litigation

In my practice, I’ve found that most people either aren’t aware of the ADR options - arbitration and mediation - or confuse the two. Let’s break down how they are different and how mediation is different from the default method, court.

Arbitration. In arbitration, a neutral third party, known as an arbitrator, listens to both sides and then decides who wins and who loses. This decision is usually binding, meaning you must comply with it. Arbitration is more formal than mediation but less so than litigation. While it can be quicker and cheaper than going to court, you give up some control over the outcome since the arbitrator makes the final call.

Litigation, a.k.a., Court. Litigation involves taking your dispute to court, where a judge or jury will decide based on the evidence and arguments presented. It is a formal process with many rules and deadlines. Litigation is often time-consuming, expensive, and adversarial. The public nature of court cases can also be a drawback, as it may expose sensitive business information. Litigation is the default method of resolving conflicts unless you’ve proactively agreed with another party to go to arbitration or mediation.

Mediation. In contrast to arbitration and litigation, mediation is less formal and aims to find a collaborative solution. The decision-makers are you and the other party. If, after sitting through a mediation session all day, you cannot reach an agreement, you can walk away. But the dispute will continue - usually in court. If you can reach a resolution, however, you must sign an agreement outlining the terms, and then you must abide by them. If either party breaches the agreement, then you have a new dispute (the breach itself) to resolve.

One final note. Sometimes, when the parties are already in court, a judge will order them to go to mediation, pausing the court process to see if they can reach a resolution on their own. Many judges will do this because their dockets are full and their offices are understaffed. If the parties are able to resolve the dispute on their own, that’s one less case the judge has to deal with.

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Benefits of Mediation for Small Business Owners

Now that you have an understanding of the ins and outs of mediation and how it differs from both arbitration and court, let’s take a look at its advantages for business owners.

Mediation is Cost-Effective. Mediation is generally less expensive than arbitration and litigation. Legal fees and court costs can add up quickly, draining your resources and impacting your bottom line. Mediation, on the other hand, involves fewer formal procedures and can often be completed in a shorter time frame (often just a day), saving you money.

Mediation Saves Time. Court cases can drag on for months or even years, consuming your time and energy. Arbitration takes less time, but mediation is the quickest method for resolving disputes. Mediation sessions can be scheduled quickly and at your convenience, allowing you to resolve disputes faster and get back to focusing on your business.

Mediation is Confidential. Mediation is a private process. This confidentiality can be crucial for protecting your business reputation and keeping sensitive information out of the public eye. You can address issues openly and honestly without fear of negative publicity. 

Mediation Gives You Control. In mediation, you have control over the outcome, whereas someone has the control in an arbitration or litigation proceeding. You and the other party work together to craft a solution that meets both your needs. This collaborative approach can lead to more innovative and customized agreements. 

Mediation Helps Preserve Business Relationships. Business disputes can strain relationships, but mediation's collaborative nature can help preserve them. By working together to resolve the issue, you and the other party are more likely to maintain a positive relationship moving forward. This is especially important in small business environments where long-term partnerships and networks are crucial. Additionally, the quicker resolution of disputes helps preserve business relationships that might otherwise be damaged by prolonged conflict.

Mediation is Less Stressful Than the Alternatives. Disputes and conflicts can be extremely stressful, especially when they escalate to arbitration or litigation. Mediation provides a less adversarial and more supportive environment, reducing the stress and emotional toll on you and your business. A mediator's role in facilitating communication and understanding can also help reduce tension and foster a more amicable resolution.

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A Final Word

Disputes are unavoidable. It’s impossible to own a business (or be a human) and not encounter conflict in some form. However, disputes do not have to be adversarial, despite what our culture tells us. In our society, we put too much emphasis on “winners” and “losers” and not enough emphasis on resolution. And this often harms people more than it helps them. Meditation aims to flip the switch - to help the parties come together to settle their conflict mutually. That way, everyone wins.

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The Advisor You Need, No Matter What Disputes Arise

As your trusted advisor, I understand the negative impact of conflict on you and your business. That’s why I offer a comprehensive LIFT Business Breakthrough Session where we’ll analyze your current business foundations - including protecting your business from the risk of conflict - and develop a plan to address gaps. Together, we’ll ensure that your business is well-equipped to handle anything that happens. With my support, you can confidently engage with third parties, safeguard your brand’s reputation, and focus on what you do best—growing your business.

Book a call here to learn more and get started today.

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This article is a service of Savone Law, PC. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices with your business throughout life and in the event of your death. We also offer a LIFT Your Business Planning Session, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The content is believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

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