3 Business Situations That Are Ripe for Mediation





As a business owner, you know how expensive legal fees can be, so the sooner you can settle disputes, the less costly it is.

Mediation is a dispute resolution process in which parties agree to work out a legal matter themselves with the help of a third party.

Mediation typically is a speedy process (certainly quicker than going to court) and can save you money on legal fees. Recommendations resulting from mediation aren’t binding on the parties, but usually are acceptable after completing the process.

Here are 3 situations where you may want to consider using mediation before proceeding to litigation.



1. Contract Disputes

No matter how lengthy and specific the terms of a contract may be, there always seems to be room for ambiguity or situations that weren’t contemplated.

Unless parties can agree informally to resolve any conflicts, one party may take the other to court, seeking to enforce terms, prevent certain actions, or seek monetary awards. Instead of taking this costly and timely route, the parties can agree to mediation. They bring in a neutral third party to act as mediator. The mediator’s job is to help the parties reach their own solution.

It may be helpful in drafting your future agreements to include language suggesting that if a dispute arises, mediation will be the first option for resolving conflicts. Some contracts call for arbitration, which is a non-judicial dispute resolution process but which is binding on the parties; this may or may not be something you want to do.

You can even conduct mediation online under the right circumstances. For example, Mediation.org facilitates online mediation for a fee of just $200 when the amount in dispute is not more than $10,000 and other conditions are met.

Resources for finding a mediator include:

2. Tax Disputes with the IRS

The IRS’s Small Business/Self-Employed Division has a fast track settlement program that lets you resolve tax issues with the IRS that could not be settled through the IRS appeals process and without going to court. Once your application for mediation is accepted, the process usually takes about 60 days.

The Appeals mediator usually is an IRS-trained expert and there is no cost for using such a person. If you prefer to use an outside mediator, you’ll have to foot the bill.

Note: Certain cases can’t be mediated (e.g., those already in collection, frivolous issues, and other issues specified by the IRS in Announcement 2011-5). If you want to request mediation, file IRS Form 14017 (PDF) along with a written statement detailing your position about the issue in dispute. You can learn more about Fast Track Mediation in this video.

3. Marital Dissolution

The disposition of a business owner’s interest during a divorce can be traumatic and financially devastating. Couples who are splitting up can use mediation to structure their own property settlement and other matters. It has been estimated that legal costs for handling a divorce in the usual way can be 2 to 10 times higher than using mediation.

What’s more, mediation is confidential. In contrast, court proceedings are a matter of public record.

No matter how complex proper issues may be, mediation can address them. When needed, the mediator can suggest bringing in an appraiser, accountant or other professionals. The mediator’s recommendations can always be reviewed by each spouse’s attorney before finalizing any agreement.

Note: When couples can’t agree to marital dissolution issues (usually involving the dissolution itself or child custody matters), some states require mediation before a court will hear the matter. In Alaska, for example, a court can require mediation if the court believes this would lead to a settlement. The court appoints the mediator. In Delaware, the court can order mediation in a contested divorce. Maine has mandatory mediation if one spouse denies there are irreconcilable differences. Several other states have mandatory mediation under various conditions.

Conclusion

Mediation does not eliminate your rights to seek further legal redress for a problem. But it just may be the best, and least costly, course of action to resolve issues plaguing you and your business.


Mediation Photo via Shutterstock

5 Comments ▼

Barbara Weltman


Barbara Weltman Barbara Weltman is the Tax Columnist for Small Business Trends. She is an attorney and author of J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and is a trusted professional advocate for small businesses and entrepreneurs.

5 Reactions

  1. Aira Bongco

    I have to agree about the marital dissolution. In fact, I think it is enough of a reason to get a person to transfer to another job just because the business is no longer as stable.

  2. As an lawyer in Tennessee, the courts have moved to mediation for divorce. I find that even informal mediation between the parties and the attorneys can help as well.

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