Small Businesses Choose to Stay Out of Court

A recent article in the New York Enterprise Report reports that alternative forms of dispute resolution (mediation and arbitration) are on the rise among small businesses. Steven Davi, a practicing attorney, writes:

The consensus in the business community is that litigation is “too much, too time-consuming, and too expensive.” To defend a claim through the entire arc of litigation could take years and thousands of dollars in attorneys’ fees and expenses, which you are unlikely to recoup, win or lose. Even when lawsuits are settled out of court, which happens much more often than not, settlements usually occurs only as the trial date approaches and after most of the costs have been incurred.

Although not without its shortcomings, ADR generally promises reduced legal fees, litigation expenses, and diversion of resources. In most cases it also offers speedier resolution; more creative, business-driven solutions that are based on parties’ real interests rather than on attorneys’ legal posturing; and greater privacy and confidentiality.

I found this article interesting because most of the published studies and surveys — including this one by the American Arbitration Association — focus on medium and large businesses. That’s not surprising. Larger businesses simply have more disputes. Therefore, they use alternative dispute resolution more frequently than smaller businesses.

Yet, smaller businesses have as much to gain — sometimes more. Small businesses have less financial cushion than large companies to absorb the costs of litigation. Another critical issue among small businesses is what I call the management distraction factor. When a business owner is preoccupied with litigation, it leaves little mindshare for critical business imperatives such as increasing sales or improving the bottom line.

So what does this trend mean? For one thing it opens up new opportunities for attorneys to become mediators and arbitrators. For another, it suggests that attorneys who serve small businesses need to become well versed in how ADR can help their small business clients.

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Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

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