Legal disputes are costly, time consuming, emotionally draining, and not good for business. A business dispute is a business illness. If mild, you can work through it, but it still drags you down and impacts profits. If severe, a business dispute can destroy an entire business. Unfortunately, just as illnesses are an inevitable part of being human, disputes are an inevitable part of doing business. Learning how to effectively manage the disputes that arise is critical for business success.

Negotiation, mediation, and litigation are each potent processes for breaking down an impasse so that disputants can move from conflict to resolution. As with any tool, there are right and wrong times and ways to use it.

Negotiate, Mediate, or Litigate?

Litigation is often the most costly, time-consuming, and ineffective method for getting to resolution. It takes control of the dispute out of the hands of the business owner and gives it to a third party, such as a judge, arbitrator, or jury. This is not to say that litigation is bad and should be avoided in all cases. Litigation is appropriate when it is simply impossible to work through issues consensually.

Negotiation, on the opposite spectrum, is a procedure whereby the parties control the process, time, expense, and outcome. For that reason, negotiation is often the first and preferred option for dispute resolution. However, it requires mutual consent, and when parties cannot get past an impasse, the negotiation fails.

Mediation is a potent process that bridges the gap between negotiation and litigation. In mediation, a third party facilitates negotiation between the parties and breaks impasse by reducing emotion, increasing rationality, building desire for resolution, helping come up with creative solutions, and providing a confidential channel for communicating real goals and deal points in a way that does not compromise leverage. A web search on mediation statistics indicates success rates that seem to hover around 85 percent, and reveals that mandatory mediation is only 10 percent less effective than that. It is astounding that even where parties do not want to mediate, the process brings them to their own voluntary resolution 75 percent of the time.

Simply put, mediation is “negotiation on steroids.” Mediation offers the benefit of negotiation in that the parties control the final outcome and nothing is imposed on them against their will, and yet it has the impasse-breaking power of litigation at a fraction of the cost. In mediation, the mediator does not render a decision. The parties come to resolution voluntarily. Mediation is low cost when compared to litigation, efficient, low risk, and the outcome is the control of the parties involved.

Is Mediation Right For My Dispute?

Despite these benefits, many business owners avoid meditation because of four beliefs:

1. A belief that mediation is ineffective and a waste of time and money.

If this is based on a prior negative experience with mediation it may be because the case was not appropriate for mediation and it was set up for failure from the outset. Below, I will set forth the four conditions that will help you determine if mediation is appropriate for your dispute. If the mediation failed because the mediator was not effective, then it is important to understand that, as in any area of life, there are those who are excellent at what they do, and those who are not as accomplished. It is very important to select a mediator with a solid track record and who is appropriate for your type of dispute. The success rates for mediation show that mediation is indeed quite effective most of the time.

2. A belief that mediation is a sign of weakness.

An offer to mediate does send a message that you are willing to compromise. However, that does not mean it is a sign of weakness. If couched in the proper way, an offer of mediation can be presented powerfully. If business owners were more cognizant of how their rush to litigation often sends a message of extreme stupidity, perhaps they would not be so afraid of showing willingness to compromise.

3. A belief that the other side won’t agree to mediate.

If mediation makes sense for your business, then disregard this concern. If you couch your offer to mediate in an appropriate way, you won’t lose anything by asking.
Many parties do not consider mediation because they perceive the other side as irrational, uncompromising, and incapable of resolution. A skilled mediator knows how to take down emotions and increase rational thinking, which sets the stage for resolution.

4. My lawyer recommends against it.

If your lawyer is unable to get you to resolution via negotiation, and your situation meets the four criteria below regarding when it is appropriate to mediate, then perhaps you should seek a second opinion from a lawyer who has experience mediating cases. It is important to know that big-name litigators are known for their ability to fight, not necessarily their ability to negotiate and compromise. If you need to litigate, hire a top litigator. If you need to resolve the dispute efficiently and cost effectively, find someone who has a track record of doing so.

Business owners should also be aware of the reality of perverse incentives. Most lawyers mean well but do have tremendous economic pressures of their own. Litigators who negotiate successful resolutions at the outset of disputes end up earning much less than they would if the case is litigated. When I serve as counsel, I will not serve as litigation counsel if I am unsuccessful at resolving the dispute. Why should my failure at resolving the dispute pre-litigation be rewarded with the pot of gold that litigation would bring to me?

If you believe mediation can work for your dispute, take a deeper look at the specifics in your particular case. Are the following four elements in place?

1. The dispute is worthy of resolution and the time and energy to resolve it.

A mediated solution is often more cost effective than litigation; however, it still costs money and requires time and energy and it’s not certain that you’ll get to a resolution.  I have seen many business owners caught up in emotion and spend too much time, energy, and money on disputes that are relatively petty and not worth the return on dispute resolution investment.

2. Direct negotiation failed and/or won’t work.

Direct negotiation is generally your first best option at resolving a dispute quickly and cost-effectively. However, it is important that you use negotiation best practices so that you maximize your leverage, cut through the emotion as much as possible and focus in on what you need to achieve to resolve the matter. For this, you should consult a business lawyer who is skilled at negotiation to help prepare you for the negotiation or take the lead for you.

3. Compromise and resolution are in the best interest of each side.

Certain cases are not suited for compromise and require a definitive decision by a judge, arbitrator, or jury as to who wins and who loses. For example, the winner in the Bush v. Gore case decided who would be President of the United States. There was no room for compromise. Similarly, a federal court just ruled that Pfizer’s patent for Viagra is valid until 2019. This was a significant loss for Teva Pharmaceuticals in their efforts to sell their generic version of Viagra next year and they would have been unlikely to concede or compromise on their desired 2012 release.

4. Mediation is a better first option.

As discussed above, sometimes litigation is your best option and mediation offers no real benefits. If that is the case, then don’t waste your time and money mediating. To size up the advantages and disadvantages of your dispute resolution options on a case-by-case basis, I often create a chart listing the pros and cons of litigation, arbitration, negotiation, and mediation. Again, you should consult a business lawyer skilled at dispute resolution in helping you analyze your options.

Should I Use Standard Mediation Clauses in All My Agreements?

If you are forced to mediate in a case that is not mediation ready you’ll be wasting your time and money and perhaps give up valuable leverage. However, certain types of disputes are very well suited for mediation, such as employment-related claims. It is important to consult with a good business lawyer to evaluate your particular situation and determine to what extent mandatory mediation clauses may be appropriate in your business.

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Republished by permission, FreeEnterprise.com, in agreement with NY Enterprise Report. Copyright© is owned by the author of this article.FreeEnterprise.com is your home for free market news and ideas.

Arnie Herz is a highly regarded mediator, business lawyer and public speaker with offices on Wall Street and in Port Washington, N.Y. He is the author of the popular blog Legal Sanity and can be reached at arnie@arnieherz.com.