QUESTION: What is “ADR” and should ADR language be included in my business contracts?
ASNWER: The term “ADR” refers to alternative dispute resolution—methods of resolving disputes outside of court. In my experience, resorting to litigation is generally a horribly inefficient way of resolving problems. Litigation is expensive, time-consuming, and stressful. Business owners should never underestimate how much of a distraction a lawsuit can be and the devastating impact it can have on your business and personal life. In some cases, litigation is inevitable and necessary, however, in most business contracts, it makes sense to include provisions outlining a process for resolving disputes outside of the judicial system.
Mediation and arbitration are the two most common forms of alternative dispute resolution. Both offer opportunities for disputing parties to avoid litigation and resolve their differences in a private, informal atmosphere. There are lots of substantive and subtle distinctions between mediation and arbitration, and there are no guarantees that either will be successful. Sometimes you end up in court no matter what you do. The point is that ADR can save time and money and should at least be considered when structuring a business transaction or negotiating a contract. Advance planning and documentation can reap meaningful dividends in the long run.