Mediation, Arbitration, Litigation, OH MY! What is the Best Option for Me if a Client Doesn’t Pay?
Contracts 101, When Working with Clients
Contracts generally include a clause providing how the parties will resolve conflicts. There are three main ways in which disputes are resolved – mediation, arbitration, and litigation. Before drafting this clause in your own contracts, do your research and think carefully about the time, cost, and rights associated with each dispute resolution option.
Mediation involves the parties meeting with an agreed upon neutral, third party (i.e. a mediator). A mediator does not judge the case and does not provide interpretations of the law. Rather, the mediator facilitates communications so the parties arrive at a mutually acceptable solution to the dispute. As a less formal process for resolving disputes, mediation does not require that the parties comply with strict procedural and evidentiary rules. The goal instead is for parties to resolve the disputes between themselves. Although the parties can agree to be bound by the agreement reached through mediation, mediations are not necessarily binding on the parties.
Among its benefits, mediation is less costly than litigation. It does not require representation by an attorney and without the formal procedural and evidentiary rules in place, it can save a lot of money on court and lawyer fees. Mediation also proceeds much faster than litigation. It can be scheduled as it suits the parties needs, rather than waiting for your “day in court” which is progressively taking longer due to backlogged court dockets. Mediation is also less contentious than litigation. The neutrality of the mediator and the more relaxed environment creates a setting where parties are less hostile and adversarial. However, since the mediator is not in a position to make decisions, your effort might be futile if the parties become deadlocked in their negotiations.
With arbitration, the parties choose an arbitrator or set of arbitrators – who are usually retired judges or lawyers with specialized knowledge about the topic in dispute. The arbitrator(s) will review the case presented by the parties and issue a decision, much like a judge would in court. It is a more simplified process than trial, with arbitrators having more flexibility than judges on how to conduct the process and what weight to give to evidence. Arbitration can either be voluntary or mandatory, and the arbitrator’s decision can be binding (i.e. irreversible) or non-binding (i.e. reversible) – which can be agreed upon in advance in your contract. If arbitration is mandatory and binding, the parties are essentially waiving their rights to a court proceeding. Like mediation, arbitration is usually cheaper and faster than going to court, but the cost of hiring arbitrators can add up. If an arbitrator’s decision is binding, a party will have limited recourse to overturn it.
Filing a lawsuit in court is the option most people think of when a dispute arises. However, many courts are so backlogged with cases that pursuing litigation can prove to be a very long process. Not to mention, litigation can also be quite costly, as you will likely need to hire an attorney to handle your case. The delay and cost associated with having disputes resolved in court encourages parties to explore other forms of dispute resolution like mediation and arbitration.
Small claims court is a legal court of law designed to resolve disputes involving small amounts of money in an expeditious manner. The amounts vary by state, but range between $2,500-$25,000. If your claim falls within the prescribed amount, then pursuing your case in small claims court is an option. If you do so, you must be prepared to attend the hearing and present your case to the judge as most small claims courts do not allow you to be represented by a lawyer. Fortunately, the procedural and evidentiary rules are simplified. After the parties present their case, the judge will issue a decision, which may or may not be appealed.
WHAT’S RIGHT FOR YOU
Before drafting your contracts, do your research and think carefully of how you will want to resolve any potential disputes with a client. Ask yourself the following questions:
- How much will it cost to get the dispute resolved? Consider the cost of hiring a mediator, arbitrator, lawyer, court fees, travel, and/or time spent away from work and on this matter.
- How much am I seeking to recover from my client?
- How long will it take for us to have this dispute resolved?
- Do I need to hire a lawyer to represent me and/or understand my legal rights?
- What are the facts at hand and do I have strong evidence support my claim