Robert J. Herrera, Esq.
The Mediation Clause: How to Control a Business Dispute Before it Happens
When I talk with small business owners or business law students, I am often asked how they can best protect their businesses if they are sued. My response is always the same.
“If you are in business, the question is not if your business will get sued, but when your business will get sued and how prepared you are for that day when it comes.”
Given the litigious climate that we live in, protecting your business from time consuming and costly litigation is not as difficult as you might think. The simplest way to protect your business from litigation is to control business disputes from the beginning with a mediation clause in all your business contracts. As a business owner, you know the importance of having a written contract that spells out the terms and conditions of selling your product or services to customers and dealing with vendors, but if your business contracts do not have a critical mediation clause, you are inviting litigation whenever a dispute arises with your customers and/or vendors. If a customer or vendor is unhappy with your product or service, they can simply file a complaint in court against your company which will require you to spend significant time and money defending, even meritless complaints. If, however you have smartly elected to insert a mediation clause in all your business contracts, the other party will have to first go through mediation with your business before they would be permitted to file a law suit. This additional step makes it more difficult for your business to be sued and directs the parties to utilize mediation which is a superior mechanism to resolving disputes. Mediations typically have an 80% or greater rate of success resolving disputes for a fraction of litigation costs and in most cases the time commitment is measured in hours, not days.
The following is an example of a general mediation clause:
The Parties agree that any and all claims, controversies, breaches or disputes arising from or related to this Agreement, including those pertaining to the formation, construction, performance, applicability, interpretation, or enforceability of this Agreement is subject to a requirement to mediate in good faith prior to filing any lawsuit. The mediation shall take place in (YOUR BUSINESS COUNTY/CITY HERE) within 30 days of written notification of dispute, utilizing a qualified mediator selected by the Parties.
If you own a business and would like to discuss mediation clauses further or you are a business owner in the midst of a dispute, feel free to give us a call to discuss how to protect your business today. (970) 515-5958