Summer is officially over. Labor day has passed. I, of course, saved one last hurrah for after the crowds died down and will be headed to the beach next week for some quality time with my family. I am looking forward to the time to refresh, recharge, and reflect on the whirlwind of a year it has been until now. We like to save our trips until after all of the crowds die down, so we can enjoy time together without battling everyone else doing the same. How about you? How do you handle vacations?
Enough talk about vacation, let’s get down to business. We have talked a lot about understanding your vision, mission, and values and how that impacts different aspects of your business. We have talked about your processes and how they impact your legal decisions. One area that is important to your overall legal protection is how you want to resolve disputes. I, of course, am talking about options other than simply going to court over every dispute with anyone in your business. Court is the default rule, but alternative dispute resolution can be used in many areas that might make sense for your business. But, the only way to enforce it is if you put it in your contract.
Several years ago ADR, as it is more commonly called, was all the rage. Companies loved to add mediation and arbitration clauses to their agreements because it was believed to be less expensive and more economical at resolving disputes. Of course, when too many lawyers caught onto this, it became bogged down and had many of the same issues as litigation, just with different rules. Now, businesses are left to determine if it makes sense to include these ADR provisions in your contract.
To make this determination, I like to look at a couple of different elements of a business. Maybe these will help you think through what you want your agreements to say about dispute resolution.
Vision of the Business
If your business is focused on relationships (mostly service businesses) and you build your reputation on how you treat your clients, you want to have a dispute resolution mechanism that protects you, but also protects your reputation of caring for your relationship with your clients. Dispute resolution clauses do not necessarily need to limit your rights to go to court, but they may provide a mechanism for resolving a dispute in the hopes of keeping the conflict out of court.
Maybe you have a personal belief of how conflict should be resolved. The only way to control the default rules (resolution of conflicts in court) is to describe the policy of dispute resolution in the agreement before the conflict arises. If there is something that means a lot to you personally and you want to make sure your business resolves disputes a certain way, it is imperative that you include dispute resolution clauses describing this policy in your agreements.
Type of Service
If you provide a service that is complicated and requires specialized knowledge to fully understand, it is a good idea to keep the resolution of those disputes outside of court where your judge (or jury) may or may not understand your industry and the intricacies of the dispute. In that case, mediation and arbitration leave you with the ability to choose who decides the case. This is a strong option if you are in a complicated field. This is especially true in the software world.
Once you have made the determination of whether a dispute resolution policy makes sense for your business, you then need to decide in which relationships you need to apply that policy (e.g. employees, clients, vendors, partners, investors).
Next week, we will talk about considerations in drafting dispute resolution policies in your contracts and some tips and tricks on how not to get yourself in hot water!
I will talk to you next week, unless you talk to me first 😉