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Six months after she dissolved a graphic-arts business in Fircrest, Wash., Carolyn Osborne was still wrangling with her former
associate over $7,000. Litigation seemed the only way to get her money back. Osborne knew, though, that legal fees could eat up most of what she
might recover. Then her brother, a businessman who had dealt with such situations, suggested the ex-partners go to a mediator at the Tacoma office
of U.S. Arbitration & Mediation, a national provider of dispute-resolution services. Within two hours, the ex-partners hammered out a deal. The
fees? Less than $300, which they split.
The experience left Osborne a big fan of mediation — if not partnerships. "Everything was conducted in plain English. It was a
very comfortable experience," she says. Osborne received payment in full within a couple of months, as specified under their agreement.
Osborne's experience shows why mediation has become popular with small businesses that have internal and external conflicts to
resolve. It gets both sides to the table
to hammer out a solution rather than talking through lawyers. Unlike small-claims court, where the object is to win by presenting the strongest
possible case, mediation requires the parties to listen, negotiate, and be willing to reassess their positions. It's dealmaking — which makes business
owners feel they're on familiar turf.
Faster and less formal than litigation, it's often indicated when the parties want to minimize costs or preserve a working relationship.
"Unlike litigation or arbitration, no one forces a decision upon you. The parties control the process, and they can keep the results confidential."
says Richard C. Reuben, a senior fellow in dispute resolution at Harvard Law School. According to Reuben, every state court system in the country
now uses mediation — voluntary or mandatory — in some way. For example, in California, all claims under $50,000 have to go through mediation
before they can be tried in court.
PLENTY TO LOSE. Mediation is definitely less adversarial than litigation. There's nothing soft and squishy about it,
though. Proposing mediation shows you're serious about your interests. The subtext is you'll sue if your opponent declines the offer. Osborne says
her ex-partner settled because the mediator showed him that he had plenty to lose if the spat went to court.
How does mediation work? First, says Rochester (N.Y.) mediator Peter Lovenheim (who has written three books on the subject), the
mediator lays out the ground rules, and the two sides state their respective positions. Then the mediator talks privately with each side. Next
comes shuttle diplomacy: The mediator relays offers back and forth until the parties reach an agreement. When that's impossible, the parties can go
to court. If there's a meeting of the minds, they usually draw up a binding contract, says Lovenheim.
Lawyers get into the act as legal advisers to the parties or mediators. When the stakes are high, you may want a lawyer at your
side. At least, consult with one before you sign the final agreement.
Mediators are unlicensed so their training and experience can vary widely. Philosophically, they tend to be "facilitators," who
focus on getting the parties to communicate, or "evaluators," who steer the talks with opinions about the strength of each side's position and who
would be more likely to prevail in court. Facilitators often have counseling backgrounds. Evaluators tend to be lawyers. The choice is a matter of
preference. Either way, make sure the mediator knows your field if you have a technical dispute, such as one dealing with construction practices.
The key to effective mediation is timing, says Lovenheim. Disputes are ripe for mediation when parties understand the case
against them and their options, but aren't frozen in their positions. Start mediation too soon and neither party will have a clear understanding of
its interests. Wait too long and they'll be too angry to sit at the same table. Attitude also counts for a lot. "When people enter the process
voluntarily, with goodwill, it makes a big difference," he says — the difference between an ending you can live with and a protracted wrangle in
court, that is.
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