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How To Use Mediation And Arbitration To Avoid Costly Business Lawsuits

According to a 2025 report by the Insurance Information Institute (III), small businesses in the United States incur over $160 billion in costs each year due to business lawsuits. The III calls this “excessive litigation,” noting that it also leads to almost 5 million lost jobs each year. By using mediation and arbitration, businesses in New York may be able to avoid these costly business lawsuits. Strategies involving mediation and arbitration may be preventative in nature, going into effect long before the threat of a lawsuit arises. They can also be reactive, allowing business owners to respond to lawsuits already in process. 

Andy Schwab, co-founder of Schwab & Gasparini, has over 20 years of experience in trial practice and civil litigation. Louis U. Gasparini also has considerable experience with commercial litigation. Business owners may choose to expand on this topic with the experienced New York business litigation lawyers at Schwab & Gasparini. Consider contacting our Hudson Valley office at (914) 304-4353, our Albany office at (518) 591-4664, our White Plains office at (914) 304-4353, or our Syracuse office at (315) 422-1333.

Use Arbitration Clauses, Suggest Mediation, and Negotiate in Good Faith 

The most obvious way to use arbitration is to include an arbitration clause in a business contract as a preventative measure. If no arbitration clause existed before the dispute, business owners can still suggest mediation or other forms of alternative dispute resolution (ADR) to avoid costly business lawsuits. Whether parties engage in arbitration or mediation, it always makes sense to negotiate in good faith. 

Summary of How to Use Mediation and Arbitration

Businesses in the United States face significant financial exposure from litigation, prompting many to use mediation and arbitration to reduce the risk of costly business lawsuits. 

• Arbitration clauses in contracts can serve as a preventative measure that directs parties to resolve disputes before pursuing litigation. 
• Mediation and arbitration may reduce legal expenses, accelerate dispute resolution, and help protect confidential business information. 
• Negotiating in good faith during alternative dispute resolution processes can lead to more efficient and mutually beneficial outcomes. 

Business owners in New York may explore these approaches with the knowledgeable attorneys at Schwab & Gasparini, who address a wide range of commercial and business litigation matters.

Use Arbitration Clauses to Avoid Business Lawsuits

A business can use arbitration clauses, a form of alternative dispute resolution, to reduce the chances of business lawsuits. This is a preventative strategy that business owners should implement before entering into relationships, deals, and agreements with other parties. The process is relatively straightforward, and a business law attorney can help the business include an arbitration clause when drafting a contract. This clause will state that if any dispute arises between the two parties, they must attempt to resolve it during arbitration before proceeding to a trial. For example, a business might face a lawsuit for failing to provide a manufacturer with agreed-upon raw materials according to a supplier agreement. If the agreement includes an arbitration clause, the manufacturer would need to go through the arbitration process before suing the supplier for breach of contract. 

Remember, parties must voluntarily agree to sign contracts and engage in arbitration. In other words, there is no guarantee that the other party will agree to sign a contract if it includes an arbitration clause. Both parties have the right to walk away from a prospective contract, and they may ask for the removal of the arbitration clause. They may do this because they want to preserve their right to a trial if a dispute arises, and this is a relatively common concern for business owners, customers, and many other parties approaching contracts. A party might also challenge an arbitration clause after a dispute arises, even if they initially signed a contract with the clause. A court could potentially reject an arbitration clause, allowing a case to proceed directly to trial. These issues highlight the importance of effective negotiations before signing a contract. An experienced business litigation attorney may be able to help make an arbitration clause more enforceable and less vulnerable to legal challenges. Expand on this conversation with Schwab & Gasparini. 

Suggest Mediation and Arbitration if a Dispute Emerges

If a dispute emerges and no arbitration clause exists, business owners can still suggest arbitration or mediation as an alternative to litigation. There is no guarantee that the opposing party will agree to this process, although ADR offers numerous benefits. Once a business owner becomes familiar with these benefits, it may be easier for them to convince an opposing party to attempt ADR. Perhaps the most obvious advantage is the reduction of legal costs for all parties. Mediation and arbitration occur during private negotiations outside of court. As a result, there are inherently fewer legal fees involved. The speed of this process also generally leads to reduced legal fees. 

Faster resolutions can be beneficial in and of themselves, allowing parties to continue with business as quickly as possible. Litigation can divert not only business capital, but also attention and human resources that would otherwise benefit normal operations. Mediation and arbitration are also private, and the confidential nature of these discussions helps protect trade secrets, sensitive financial data, and other information that should remain outside of the public record. The New York International Arbitration Center notes that US and New York courts recognize the potential benefits of arbitration for all parties. 

Negotiate in Good Faith During Mediation and Arbitration

If business owners and relevant parties are serious about avoiding costly business lawsuits, they should negotiate in good faith during mediation and arbitration. To negotiate in good faith means to genuinely attempt to reach a positive outcome that serves the best interests of all parties. This might involve listening carefully to the needs and wants of the opposing party, making compromises, and suggesting alternative solutions. While making compromises may seem difficult, parties should always weigh losses against the cost of a full-blown business lawsuit. In many cases, a negotiated compromise is more cost-effective than litigation. 

Learn More About Business Lawsuits With Schwab & Gasparini

Mediation and arbitration represent incredibly flexible strategies when dealing with business litigation. Due to this flexibility, the most appropriate way to implement these strategies may vary from one case to the next. Sometimes, business owners must negotiate with stubborn parties who are very reluctant to compromise. In other situations, the other party may be far more amicable and willing to negotiate in good faith. In some cases, the threat of subsequent litigation may be relatively high. In others, both parties may understand that a trial is unlikely. Due to these varying factors, it makes sense to discuss the unique aspects of each case with a business litigation lawyer in New York. Consider contacting Schwab & Gasparini to expand on this conversation. Consider contacting our Hudson Valley office at (914) 304-4353, our Albany office at (518) 591-4664, our White Plains office at (914) 304-4353, or our Syracuse office at (315) 422-1333.

Common FAQs About Mediation and Arbitration

Listed below are several common points of confusion when crafting arbitration clauses and preparing for mediation as a business. 

What Is the Difference Between Mediation and Arbitration?

Mediation involves a neutral facilitator who referees the negotiation process, while arbitration results in a binding or nonbinding decision from an arbitrator. Mediation focuses on collaborative negotiation, whereas arbitration resembles a private trial conducted outside of court.

How Do Arbitration Clauses Help Prevent Business Lawsuits?

Arbitration clauses require parties to attempt dispute resolution through arbitration before filing a lawsuit. These clauses can create a more predictable process, reduce legal costs, and streamline conflict management for ongoing business relationships.

Can Businesses Suggest Mediation Even Without an Arbitration Clause?

Businesses may propose mediation or arbitration when a dispute arises, even if no contractual clause exists. Although the other party must voluntarily agree, the cost savings and confidentiality of ADR often make it an attractive option.

What Are the Primary Benefits of Mediation and Arbitration for Businesses?

ADR processes often reduce legal fees, resolve disputes more quickly, and help preserve privacy. They also limit disruptions to normal business operations and allow parties to maintain ongoing commercial relationships.

Why Is Negotiating in Good Faith Important During ADR?

Negotiating in good faith promotes constructive dialogue and increases the likelihood of reaching an efficient and balanced resolution. When both sides approach discussions sincerely, ADR has the potential to avoid prolonged conflict and unnecessary expenses.

Can an Arbitration Clause Be Challenged or Invalidated?

A party may challenge an arbitration clause if it believes the clause is unenforceable or was agreed to under improper circumstances. Courts may review the clause and, in some cases, allow litigation to proceed instead of arbitration.

Does ADR Always Prevent a Case From Going to Court?

ADR may significantly reduce the likelihood of litigation, but it does not eliminate all possibility of a lawsuit. If arbitration is nonbinding or mediation fails to produce an agreement, a case may still proceed to court.

How Does ADR Protect Sensitive Business Information?

Because mediation and arbitration occur outside of public court proceedings, business records, trade secrets, and financial data remain confidential. This privacy can be especially valuable for companies concerned about competitive exposure.

When Should a Business Consider ADR Strategies?

Businesses may implement ADR preventively through contract clauses or consider ADR reactively once a dispute emerges. Either approach may help manage risk, minimize costs, and preserve valuable business relationships.

How Can Schwab & Gasparini Assist With Business Dispute Resolution?

The team at Schwab & Gasparini works to ensure that business owners understand available ADR options, contractual strategies, and litigation risks. Consider visiting with an experienced attorney at Schwab & Gasparini to learn more about potential approaches to resolving commercial disputes.

Mon Feb 9 2026, 12:00am