What to Include in an Effective Dispute Resolution Provision

Disputes are almost inevitable in the business world. There are big decisions to make as well as risks that business owners may take to stay in or grow their business. Sometimes those decisions can lead to disagreements with partners, employees, vendors and customers.

Business owners should understand this eventuality and plan for disputes in advance. Almost every business contract-whether it is an employment agreement or a partnership agreement-addresses how the parties should resolve a dispute.

Here are some of the essential elements that every business owner should include in a dispute resolution provision.

1. The method of communication to use during the dispute

Business owners should establish policies for addressing and resolving disputes with partners, employees, vendors and customers. For example, not only should businesses keep documentary records, they should also require all complaints or issues to be in writing so that they have a record of how the dispute developed and was handled.

This Forbes article also provides business owners with critical factors they should consider when discussing a business dispute.

2. A realistic time-frame

As the adage goes, "time is money", which sometimes has the tendency for business owners to ignore the problem and hope it goes away by itself while they focus on other things in the business. Instead, it is very important for the owner to be proactive. If you'd rather focus on other business matters, then hire an attorney to deal with the problem before it takes on a life of its own. Having a plan in place ahead of time can help you:

  • Manage both time and money spent on resolving the dispute
  • Be proactive in reaching a resolution
  • Encourage in-house negotiation and compromise

Many business owners want to resolve disputes quickly. However, quickly does not always equal effectively. And glossing over a dispute might lead to even more issues in the future. The opposite is even more true: ignoring a dispute hoping it will just go away van be catastrophic.

Most dispute resolution provisions include a time-frame. However, the time can change depending on the type of dispute.

3. How to address potential litigation

A dispute resolution provision can address other strategies for resolving disputes. Some business owners may want to refer the matter to a neutral mediator to help resolve the dispute. The mediation provision should include the rights and responsibilities of each party, and the path to take in the event mediation fails and litigation is necessary. These details can include:

  • Should the matter be resolved by arbitration or conventional litigation?
  • If arbitration, which arbitration service will preside and what additional details do you want to include to maintain as much control of the process as possible?
  • Will there be an attorney's fee provision for the prevailing party?

It is not always possible for business owners to avoid litigation. However, effective dispute resolution provisions in your contracts can help you save time and money, avoid otherwise controllable exposure, and get back to your real business faster.

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