Taking it off court: arbitration can be a cost-effective way to settle disputes.

A growing number of companies are turning to alternative dispute resolution (ADR) methods such as arbitration or mediation as a way to avoid the high costs of going to court. But often, business owners are not informed about how to properly begin arbitration or mediation hearings.

The number of ADR cases has more than double over the past five years for the American Arbitration Association, moving from 95,143 in 1998 to 230,258 in 2002 (the most recent data available) according to statistics from the global nonprofit organization.

To distinguish between the two, in arbitration, the arbitrator decides the outcome based on the facts presented. In mediation, the mediator uses skills that bring the parties together to find common ground so that they can reach their own amicable solution.

Once a dispute arises, business owners can contact their local or state bar associations who may either recommend an arbitrator or suggest how to find one. A quick way to start an arbitration proceeding is to visit www.adr.org, where you can download claim forms, file your claim, and/or fax it to the organization. From there, a case manager is assigned. He or she has the responsibility of speaking to both the plaintiff and the defendant and providing them with a list of arbitrators.

Typical fees can range from $175 an hour to $350 or more per hour, depending on the size of the mediation claims. While many neutrals are attorneys or retired judges, some are business people in specialized areas such as engineering and others are psychologists or social workers. Depending on the case, on average, arbitration can take three to six months, and arbitrators charge on an hourly, daily, or sliding scale depending on the amount of the claim.

According to Monty Ahalt, a retired Maryland judge who has been arbitrating since 1999, it's a much faster process than legal proceedings. "If you file a suit in court you can expect, even in a small claims situation, to take six to nine months ]before a decision is rendered], and in a court of general jurisdiction you are probably talking about two to three years."

One thing to keep in mind is that whether you are hiring a new employee or entering a professional service contract or a construction agreement, business owners should include an arbitration or mediation clause in their contract agreements that would require disputes to be addressed through this process. Companies should check to see whether their state laws allow for binding arbitration clauses in employment contracts before requiring employees to sign one. Employees need to pay careful attention to arbitration clauses in their employment contract because it means that they will lose their right to a jury trial. To include an arbitration clause in your contract, you can ask your lawyer to draft one, which is a procedure Ahalt highly recommends to small-business owners.

If you want to set precedence in a case, alternative dispute resolution methods may not be the answer. If you are convinced that you have a strong case that will win substantial money from a jury decision, or if you want to have the ability to appeal a decision, you will want to go to court.

WHEN TO CONSIDER ARBITRATION

According to arbitration experts, companies are turning to neutral third parties to arbitrate or mediate some of the following prickly business issues:

* A customer refuses to pay for an item that he or she claims is substandard,

* An employee cries discrimination because he or she has been fired or someone else has been promoted.

* A landlord insists that a tenant must leave before the lease agreement expires.

* A vendor delivers shoddy goods or services and demands payment.