The Role of Mediation in Business Disputes: A Smart Alternative to Litigation

Running a business comes with plenty of highs and lows (at least for most people). Whether you and your business partners disagree, a contract has been breached, your main supplier is trying to change your deal, the conflicts can cost you time and money. Beyond just the financial implications, these disputes can also damage relationships and create a lot of unanticipated stress.

If there's a silver lining, at least when lawyers are involved, it's that not all of these disagreements need to end up in a courthouse. Mediation offers a cost-effective alternative to litigation that may help you salvage your relationships for the future. Even if a lawsuit has been started, mediation can often be used while the lawsuit is going on to try and resolve issues without the need to bring all of the issues to a judge or have a full-blown trial (which takes significant time and legal fees).

While it may sound like the perfect mechanism to resolve disputes, be aware that it's not always going to be successful. There are just some situations and people where mediation can't get the dispute resolved, but often it's worth going through mediation to try to resolve your situation.

What Is Mediation?

Mediation is a process where the parties agree (or are directed by a judge) to work with a neutral 3rd party (the mediator) to try to negotiate a resolution to the dispute that all sides accept. Unlike a judge or arbitrator, the mediator does not make decisions or impose outcomes. Instead, they facilitate communication, help clarify misunderstandings, and guide parties toward common ground.

Mediation is particularly effective in business disputes because it focuses on collaboration rather than confrontation. In many cases, it helps preserve valuable relationships and allows both sides to walk away feeling heard and respected.

Some Common Business Disputes Resolved Through Mediation

Most business disputes can utilize mediation to try to resolve their issues. Some common types of disputes that will go to mediation:

• Breach of contract disputes

• Partnership or shareholder disagreements

• Disputes between vendors and suppliers

• Employer/employee disputes

• Franchise conflicts

• Commercial lease disagreements

• Construction and real estate disputes

• Intellectual property usage or licensing conflicts

Because business disputes often involve long-term relationships and ongoing obligations, mediation provides a framework for resolution that courts simply can’t offer.

Benefits of Mediation in Business Disputes

Mediation offers a variety of benefits. It's not guaranteed to work for your dispute, but you should consider these six benefits:

1. Cost-Effectiveness: Lawsuits are expensive. Legal fees, court costs, discovery expenses, and the opportunity cost of time spent preparing for court can add up quickly. Mediation, on the other hand, is significantly less expensive and often completed in a fraction of the time.
2. Faster Resolutions: Courts are backlogged, and it can take months or even years to get a resolution through litigation. Mediation sessions can be scheduled quickly, often within weeks, allowing businesses to move forward without unnecessary delay.
3. Protecting Business Relationships: In lawsuits, relationships are often permanently damaged. Mediation encourages collaborative dialogue and can help preserve partnerships or working relationships, which may be more valuable in the long run than “winning” in court.
4. Confidentiality: Unlike court cases, which are often part of the public record, mediation is private and confidential. This can be crucial when sensitive business information, trade secrets, or reputational concerns are involved.
5. Flexible and Customized Solutions: Courts are limited in the types of remedies they can offer, often sticking to monetary damages or injunctions. Mediation, on the other hand, allows the parties to craft creative solutions tailored to their specific needs, whether that involves renegotiated terms, non-monetary compensation, or future business arrangements.
6. Control Over the Outcome: In litigation, a judge or jury decides your fate. In mediation, you stay in control. Both parties must agree on any resolution, which often leads to more durable, satisfying outcomes.

How Mediation Works

If you've got a judge involved, they will normally have a process set up for referring your case to mediation. If you don't have a lawsuit component, then you and the other party will need to go through an agreed-upon process for mediation. Either way, some common steps:

• Agreement to Mediate: Both parties agree to try mediation, either voluntarily or as part of a contractual obligation (such as a dispute resolution clause).

• Selection of a Mediator: The parties choose a neutral mediator, ideally with experience in the relevant area of business or law.

• Preparation: Each party prepares a short written statement outlining their position. Supporting documents may also be shared.

• Mediation Session: The mediator facilitates a structured conversation, often starting with joint discussions and then moving to private caucuses with each side.

• Negotiation and Settlement: With the mediator’s help, the parties negotiate toward a solution. If they reach an agreement, the terms are documented in a binding settlement agreement.

• Post-Mediation: If the matter isn’t resolved in mediation, the parties still have the option of litigation or arbitration—but often, mediation resolves the matter.

Should I Choose to Mediate?

While mediation is often ideal, it isn’t always the right fit. Here are some signs that mediation may work well:

• Both parties are willing to negotiate in good faith.

• There’s a desire to preserve the business relationship.

• The issues are complex but not necessarily legal in nature.

• You want a quicker, more cost-effective resolution.

• Privacy is important.

On the other hand, if one party is acting in bad faith or a legal precedent is needed, litigation may be more appropriate.

Mediation vs. Arbitration vs. Litigation

There's another option that we haven't discussed yet, arbitration. It's a different process, one that often must be done before you can file a lawsuit, and it's called arbitration. So it's important to understand how it can also factor into your decision-making process.

Mediation is unique in its flexibility and non-binding nature, but it often results in voluntary, durable agreements because both parties actively participate in creating the solution.

Mediation Clauses in Business Contracts

Many modern business contracts include mediation or “alternative dispute resolution” (ADR) clauses, requiring parties to attempt mediation before filing a lawsuit. Including these provisions in your contracts can:

• Reduce the risk of costly litigation

• Promote early resolution of issues

• Show good faith in resolving disputes

Talk to your attorney about whether including a mediation clause makes sense for your agreements.

Work with an Experienced Mediator

Not all mediators are created equal. When dealing with a complex business issue, it’s important to choose a mediator with deep knowledge of both legal and business principles. They should also understand the unique dynamics of your industry and have a strong track record of guiding disputing parties to resolution.

Do I Need a Business Attorney?

If you are considering mediation, before or after your lawsuit has been filed, now is a good time to speak to an attorney. Let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.