What Is Litigation vs. Arbitration for Small Business?

Litigation and arbitration are formal methods of resolving business disputes. However, they differ in the process parties must go through, who oversees the case, and whether appealing the decision is an option. 

Primary Differences Between Litigation and Arbitration

Litigation is a public process that takes place in a courtroom before a judge, while arbitration is a private meeting between the disputing parties. Additional differences separating litigation from arbitration in a business-related matter include:

• The evidence – The court must follow the federal rules of evidence when permitting or dismissing specific evidence during the case. The process for evidence during arbitration is less restrictive. The federal rules of evidence don’t apply. Instead, the arbitrator decides what the parties can present.
• Jurisdiction – Jurisdiction doesn’t apply in arbitration. In lawsuits, jurisdiction depends on the location of the parties or the subject matter of the case. Jurisdiction dictates which court has authority over the parties in the case and where the legal action must take place.
• Authority – After filing a business lawsuit, the court assigns the case to a particular judge. The parties don’t get to choose which judge will oversee their case. However, they might be able to decide whether they want a jury trial. Opposing sides can jointly select an arbitrator if they choose to resolve their disputes during the arbitration.
• Outcome and possibility of appeal – A judge enters a legally binding decision in a lawsuit. The losing party can file an appeal with a higher court to try to get that decision overturned or remanded back to the original court for review. Arbitration doesn’t allow appeals. However, either party could challenge the award if an error contributed to the result.
• Duration of the process – Arbitration is a straightforward process that doesn’t take much time. An arbitrator can hear the case and enter a judgment within hours or days. In civil litigation, the trial might not begin until months or years after the initially filed complaint.
• Cost – A lawsuit is more expensive than arbitration. Since litigation can last years, both sides incur attorney’s fees, court filing costs, copying fees, and other expenses. Pursuing arbitration requires only paying the arbitrator’s and attorneys’ fees.

Mandatory Arbitration in Business Contracts

Mandatory arbitration is a clause commonly included in business contracts. It requires the parties to use arbitration to handle any disputes they encounter during the agreement term. Sometimes, litigation isn’t allowed under any circumstance. Implementing the clause could reduce expenses related to disagreements and preserve the working relationship.

Deciding What’s Best for Your Business

As a business owner, you know how to approach problems with clients, employees, partners, and other individuals. Sometimes, arbitration is mandatory if it’s specified in the contract you signed. However, if you have a choice, you should consider whether arbitration or litigation suits your needs.

Arbitration is often less costly and time-consuming than filing a lawsuit. Instead of spending years on the case, you might settle within a few months.

The flexibility in procedures and scheduling is another benefit of arbitration. Because arbitration is private, the matter won’t appear in public records or be searchable by anyone with an internet connection.

Business owners typically want to avoid litigation to preserve their reputation and keep their companies out of the news. Although arbitration offers numerous advantages, litigation can be a better alternative when handling a dispute. Since it occurs in a public courtroom, you might mitigate the risk of the other party lying under oath. The availability of filing an appeal also makes a civil lawsuit more attractive in some cases, especially if you fear legal errors that influence the outcome.

Get Help with Your Small Business Dispute

When you run a small business, issues can arise that interfere with operations, professional relationships, and your brand’s reputation. You must take immediate action to resolve the dispute before it complicates every aspect of your business.

Mullen Holland & Cooper P.A. has represented business owners for over 60 years. We will protect your rights and fight for the best possible result. Call us at 704-864-6751 for a confidential consultation in Gastonia, NC, to learn more about how we can help you.