Disputes are costing businesses in England and Wales an estimated £11.6 billion each year, with the average amount of resolving the dispute reaching nearly £17,000 in time and money. The largest cause of disputes? For 72% of small businesses, legal struggles are put down to late or non-payment.
The data from the Federation of Small Businesses also found that half a million businesses had disputes which were unresolved, with 19% taking their case to court. However, with only 43% of businesses dealing with a disputer informally or semi-formally, it’s clear that more organisations could benefit from more information on the subject.
As a business owner, you manage and oversee all areas of the business; interacting with a variety of employees, business partners, agencies, contractors and clients. Therefore, it’s to be expected that at times conflicts and issues – however unwarranted – will arise. However, managing these disputes effectively will help to maintain business relationships and brand image, and minimise any damages which may occur.
If a dispute gets out of hand, then litigation may be the only option left. Yet, not all disputes need to get to that stage. At present, only one in ten resolve their issue using alternative resolution methods such as mediation or arbitration – but, using such alternatives can avoid costly legal expenses.
Mediation resolves misunderstandings and involves a third-party mediator who aids the parties in reaching a settlement. It’s more than likely that a mediator does not have authority to make a binding decision, and is there to oversee the matter instead with an objective view.
Mediation is private and confidential, meaning that disputes are kept away from the public spotlight, and is often the first step. The cost of a mediator is often shared between those involved.
If still unresolved, the next possibility is arbitration.
Arbitration involves submitting a dispute to an impartial person who will then determine a binding decision. The arbitration process does not follow any of the normal legalities when supplying evidence.
An arbitrator may ask for documentation related to the case, and once reviewed will submit a decision.
When compared with mediation, arbitration is a formalised process of dealing with a dispute and reaches a binding decision. Mediation allows either party to withdraw at any time, whereas with arbitration those involved are committed to resolving the dispute.
If the dispute still remains, then businesses may be involved in litigation.
Types of dispute which your business may find itself involved in include employment, contract, fiduciary and commercial.
Below we have listed the most common types of dispute and how they can be resolved.
Employment Dispute
Disputes with employees can arise from a range of issues such as; unfair treatment, unclear job roles, poor communication and working environment and discrimination claims.
Often, employee disputes can be avoided by ensuring that an employment contract is watertight and covers every eventuality. All employees are entitled to a written contract within the first two months of their employment with an organisation. However, it’s worth remembering that verbal contracts should also be upheld – although they are hard to prove in a court of law. To ensure that your business is covered keep all contractual agreements in writing to prevent a dispute arising. This includes covering details which you may deem obvious to state.
As an employer, you should confront disputes head-on, rather than let issues fester. However, this can be tricky if a dispute arises which is outside of the remit that you usually deal with – for example, if you aren’t familiar with the inner workings of a particular department with which the dispute is contained, it can prove difficult to solve.
To effectively manage employee disputes, you should aim to take action as soon as you have evidence of the issue, understand employee boundaries and enable employees to know when a line has been crossed, respect employee differences and confront tension.
To aid management of disputes and grievances, you should set out a policy which details expectations of employees and how such situations will be handled. This can help to make the company stance clear and set out a path to be followed if required.
Director and Shareholder Disputes
When a company is started, little is often thought to what happens if a dispute arises. After all, it’s likely to be the last thing that a business owner or shareholder has on their mind when they start a business. However, disagreements and disputes can occur when relationships between parties break down.
Disputes can derive from a variety of issues such as, disagreements over strategy, level of dividends, salaries paid to shareholders, service contracts and remuneration, conflicts of interest and disproportionate contributions of money or time from shareholders. This list is by no means complete, and these issues can have a devastating effect on director and shareholder relations, and the business in question.
To avoid shareholder disputes, it’s advised that you draw up an agreement which covers likely causes of disputes, financing of the organisation, dividends, directors fees and salaries, responsibilities for key business areas, company objectives and authority required to take certain actions. The agreement should also aim to predict future eventualities as best as you are able to – this will help minimise any future conflicts which may arise in the future. A shareholder agreement should also detail that a majority or all shareholders are required to give approval before the business is bound to a certain development or policy.
To guarantee board members and directors are effective in their role, an open communication policy can help to ensure issues are discussed openly. Before a board meeting an agenda should detail the topics which will feature in the meeting and give directors the chance to reach a consensus prior to the discussion.
Directors are legally required to declare any conflicts of interest which they may have and not use their position to make private properties at the company’s expense. This is due to the legal responsibilities that director’s hold, which include loyalty, good faith, and duty of care, diligence and skill to aid the success of the company. If these duties and responsibilities are not upheld then they could be disqualified as a director, fined, face criminal prosecution, or made responsible for the company’s debt.
Directors should have the courage to speak up if they feel that a board member is acting improperly. For example, if a simple mistake was made or process overlooked this should be bought to attention and rectified. However, if you feel that a board member is acting deliberately improperly, then you should ensure that there is evidence of your objection in writing, meeting minutes or take legal advice.
If you are found to be taking a blind eye this is not enough to protect you. As a director, you are responsible for keeping yourself informed about what is going on in the business and participate in management meetings.
Commercial Disputes
A commercial dispute often occurs when payment has defaulted on delivery of goods, issues concerning payment or finalisation of a project, and any issues regarding contract obligations.
If you receive notification that your business is part of a commercial dispute, then you should look at the matter immediately. Most formal notifications will include a date which you need to respond or take action by.
To handle a commercial dispute, you should review the terms of your agreement and how clear it was, before discussing how either (or both) sides failed to live up to that expectation. If either side has suffered a loss this should be detailed, alongside any other evidence which you may hold, such as contracts, correspondence, witness statements etc. Any negotiations or attempts to resolve the issue should also be documented.
If the claim is financially driven, then you should take into account the party’s ability to pay by running a credit check. If the case does go to court, then you will want to consider how the costs of proceeding to trial will weigh up against the cost of remuneration.
Going to court can also set a precedent for other suppliers, clients or business partners who may feel the same way. Therefore, avoiding such a public setting, and settling out of court, can help to prevent the case from being made public. Remember to include a confidentiality clause in your settlement.
Where you are required to have an ongoing business relationship, then an amicable settlement should be reached at the earliest stage to avoid any further damages to the partnership. It’s best practice to have legal advisors present and ensure that they are aware of what you are hoping to achieve. Negotiations will often focus on where the breach occurred and how damages can be resolved.
Effective dispute resolution can help to minimise the costs your business may incur, and avoid damaging professional relationships and your brand image. If you are unable to resolve a dispute and the case proceeds to litigation, then you should bear in mind that a willingness to negotiate can often put you in better light.
Luke Hutchings
Email: [email protected]
Luke is a Partner of Taylor Rose TTKW and the head of our employment department and has years of experience in a variety of employment cases. Instructed in both employee and employer cases, Luke has a flair for employment law that comes from working both sides of the fence.
