Increasingly, businesses are putting language into their contracts requiring disputes to be handled by a third-party arbitration firm. And it makes good business sense.

Use Arbitration to Save Money

Courts have also gotten into the action. More judges are ordering parties to try to settle their conflicts through alternate dispute resolutions such as arbitration or mediation in an effort to ease the docket burden and save money. Trials can often take two to three years, while arbitration can resolve a dispute in a few months. The American Arbitration Association says the annual cost for U.S. civil litigation ranges is between $200 billion and $300 billion.

Arbitration arises in three main areas:

  • Consumer contracts, such as stock brokerage agreements, credit card contracts, insurance policies and telephone service agreements.
  • Employment conflicts.
  • Commercial transactions.

American Arbitration Association Study

In a recent study by the American Arbitration Association, 85 percent of responding Fortune 1000 companies said they choose arbitration to resolve commercial contract disputes, because it keeps legal costs down and is less damaging to relationships with customers or employees than full litigation.

One interesting aspect of the study: Legal departments in the most “dispute-wise” firms spent substantially less on internal legal costs, but spent the same on outside counsel as companies rated the least “dispute wise.”

Among the traits of “dispute-wise” companies that you can adopt:

  • Integrate legal counsel into corporate business planning and strategy, rather than simply review contracts or put out fires.
  • Embrace a portfolio approach to conflict management. In other words, measure them against each other with the goal of minimizing overall risk, cost, time spent, and resources expended.
  • Monitor key business relationships and approach dispute resolution with that strategic focus.
  • Relying on arbitration and mediation to resolve disputes.
  • Focus on the broader business issues facing the company and the industry, from a legal perspective.
  • Carefully evaluate involvement in international issues, which helps avoid going into the court systems of other countries.
  • Stress to senior management the importance of preserving relationships and settling disputes, rather than winning cases.

Advantages of Arbitration

  • Stronger relationships with customers, suppliers, employees and partners.
  • Saves time and money.
  • Better utilization of legal resources.
  • Gives participants considerable control over the process.
  • It is perceived as less threatening than court proceedings.