What is Alternative Dispute Resolution?

If you run your own business then there’s a good chance that at some point in your career you may encounter a business dispute. It could be anything from a design copyright infringement to invoice payment and billing conflicts. However, not all business disputes have to end up in front of a judge, and there are alternatives to expensive court proceedings. The most common option is an Alternative Dispute Resolution or ADR, but what is it, and how does it work? Here is our quick guide to ADR for business owners. 

What is ADR? 

Alternative Dispute Resolution isn’t a single thing, but a collection of various methods of dealing with business disputes. The most common option is mediation, where a neutral third party gets both sides around a table to start talking. This third party isn’t there to impose any kind of a solution, but to facilitate and open the lines of communication. The actual resolution comes from the two sides coming to a mutually beneficial understanding and agreement. The third party mediating the negotiations is there to help both parties see the commercial interests in an agreement. 

If everyone is happy with the outcome then a legally binding contract can be drawn up to ensure that the two sides adhere to what’s been agreed around the table. 

Alternatively, arbitration is an option that can be explored if things are more serious, the mediation process fails, or if one party is unwilling to sit down informally to sort out the problem. Linked in with this are two other names for fundamentally the same thing, adjudication and expert determination.  

These differ from mediation in that the third party is there to impose a solution, rather than just get the two sides to agree on a course of action on their own. In this way, arbitration is a more ‘heavyweight’ way of doing things and is closer to taking the issue into a courtroom than mediation. 

Why use ADR rather than going to court? 

Firstly, it’s much quicker. Taking legal action can take a long time, and the longer it goes on, the more those fees mount up. So not only is ADR faster, but it’s probably much cheaper too.  

For small disputes, ADR is a more proportional response, too. Often, a disagreement can be quickly resolved and can also rebuild a damaged business relationship between the two sides. Shouting, “I’ll see you in court!” could effectively close the door on negotiations or future business dealings. Instead, saying, “Let’s talk about this…” is a far more proactive and reasonable response, especially for small disputes. 

Another big plus in favour of ADR is that it’s confidential. Take a problem through the courts and it’s considered to be ‘in the public domain’, which means that unless the court seals the records, anyone can find out about it, including business rivals and even the press. 

ADR, on the other hand, is between the two sides and their mediator. That means they can keep the dispute ‘in house’ without rivals or the local journalist getting hold of the information. For a small dispute that can be a life-saver, especially in the digital age when information can go viral within minutes, potentially ruining a business overnight. 

When ADR doesn’t work 

Settlement in an ADR scenario is voluntary, which means that although a legally binding agreement may be drawn up, there is always the potential for one party to pull out later on. If an agreement fails to materialise then the dispute could still end up in court in front of a judge, prolonging the process and upping those potential legal costs for everyone.  

If there is the option of making a legal claim against the other side then remember that the clock may be ticking. Going all the way through ADR and then running out of time before submitting legal papers and still not coming to a resolution could leave you without any recompense at all.  

Do I need legal representation? 

You don’t necessarily need legal representation for an ADR, but it may be helpful to have a business law expert check your case before you sit down for negotiations. Remember that flexibility is key to ADR, so make sure your legal team is on board with that concept before you bring them into the process. 

If you have a business dispute and are not sure how to proceed, it’s always worth talking to a business law professional. They will be able to look at your situation and advise the best way forward, whether that’s an informal mediation session with a neutral third party, or litigation.