Is Litigation the Right Choice for Your Business? What Every Owner Should Know

Running a business is full of challenges, and, unfortunately, disputes are an inevitable part of the process. You may have a contractual conflict, a disagreement with a partner, or a complaint from a customer. Sometimes, it is unavoidable. You have to go to court.

While we encourage mediation and other forms of peaceful resolution, there are times when litigation is the best, or even the only, way to resolve a dispute and get the compensation you need and deserve for your business.

In this article, we’ll take a look at circumstances where you might consider bringing a lawsuit against a business, how to weigh your options, and practical steps you can take before filing.

Understanding Business Litigation

Before addressing any specific scenarios, it might be helpful to clarify what business litigation actually is. In general terms, business litigation is an attempt to resolve business disputes through the courts. That may mean a lawsuit arising out of a breach of contract, termination of employment, a copyright or patent infringement, an antitrust violation or other business cause of action under the law. The relief sought often relates to monetary compensation or specific performance (forcing the breaching party to do what it is contractually obligated to do).

But litigation often takes years and costs thousands of dollars, so consider whether it’s right for your situation by weighing the considerations below!

Common Scenarios for Business Litigation

Below are some common scenarios where litigation may be necessary to protect your business.

1. Breach of Contract

Contracts underlie nearly all business relationships, from agreements with vendors to employment contracts and partnerships. Contractual breaches occur when one party to the contract fails to perform its obligations. When alternative dispute resolution mechanisms such as negotiation or mediation falter, litigation can be pursued in order to recover damages or to perform the agreement as required by the contract.

Key signs you may need to litigate if someone else breached your contract with them:

• Significant financial losses due to the breach
• The other party refuses to negotiate or compromise
• The breach impacts your business’s ability to operate

2. Intellectual Property Infringement

Your company’s intellectual property (IP)—trademarks, copyrights and patents—is valuable. If another party uses your IP without your permission, your brand, your reputation and your bottom line can suffer. Litigation can help to protect your intellectual property rights and prevent further infringement.

Consider litigation if:

• The infringement is causing financial harm or diluting your brand.
• The infringer refuses to stop using your IP after a cease-and-desist letter.
• License agreements are being violated, impacting your revenue.

3. Employment Disputes

Disputes with employees can escalate to litigation, whether involving wrongful termination, discrimination, harassment, wages, or other employment disputes. Many employment matters can or should be resolved before litigation through internal dispute resolution or alternative dispute resolution (ADR) procedures.

You may need to litigate if:

• An employee files a lawsuit against your company, and a settlement cannot be reached.
• The dispute affects your company’s compliance with labor laws.
• Internal resolution efforts have failed, and your business reputation is at stake.

4. Partnership or Shareholder Disputes

Disagreements between business partners or shareholders can result in litigation when there’s a deadlock on important decisions or claims of misconduct. If your partner is not upholding their end of the bargain or is behaving in a way that is detrimental to the business, you may need to initiate legal proceedings to preserve your investment.

Signs that litigation may be needed:

• Breach of fiduciary duty (e.g., misappropriating company funds).
• Deadlock on key business decisions, putting the company at risk.
• Efforts to negotiate or mediate the dispute have failed.

5. Customer or Vendor Disputes

Disagreements with customers or vendors can arise over issues such as payment terms, product quality, or delivery timelines. While many disputes can be resolved through negotiation, litigation may be necessary if the conflict threatens your business’s financial stability or disrupts operations. Legal intervention can help protect your interests and ensure fair treatment.

Signs that litigation may be needed:

• Unresolved payment disputes affecting your cash flow.
• Breach of contract impacting your ability to deliver goods or services.
• Attempts to resolve the dispute through negotiation have failed.

Evaluating the Pros and Cons of Business Litigation

In making this decision, it’s important to look at both the potential benefits and the drawbacks of litigation. Large-scale business litigation can be an effective means of resolving serious business disputes, but at the same time, it raises complicated considerations that business owners need to bear in mind before they proceed with a lawsuit.

The Pros:

• Enforcement of rights: Litigation is a powerful way to enforce your legal rights, such as performance of a contract or cessation of unauthorized use of your intellectual property.
• Deterrent effect: It can help send a message to others in your industry that you are serious about enforcing your rights or agreement and reduce violations of your rights or agreement in the future.
• Monetary compensation: In certain cases, you may be entitled to compensation that will allow you to recoup the losses you suffered as a result of the other party’s conduct.
• Court-enforced resolution: Unlike mediation or arbitration, litigation ends in a court-ordered determination. A court’s ruling in a litigated case is enforceable, which means the case is conclusively resolved.

The Cons:

• Cost: Litigation can be pricey. Attorney’s fees, court costs, and any settlement you may pay can add up. You need to figure out if the proceeds you are likely to receive are worth the cost.
• Time involvement: Legal disputes can last for months or years. In the process, you shift your focus away from your business. More money and resources are spent, and more time is wasted on a case that drags on.
• Reputational risk: Protracted litigation with a partner, client, or employee has the potential to undermine the reputation of your business.
• Uncertain outcomes: Even a meritorious case may not result in a favorable outcome. Courts are unpredictable, and you may end up with a poorer settlement or judgment than you hoped for or lose the case altogether.
• Strain on relationships: Litigation raises the temperature between the parties and may end up destroying important business relationships. This can be especially damaging if the other party is a long-standing partner, supplier or customer.
• Emotional toll: Beyond the financial costs of time and money, litigation can be emotionally draining for business owners and their teams. Your emotional well-being, decision-making abilities, and overall business morale could be negatively impacted by ongoing legal battles.

Alternatives to Litigation

Before you go to court, think about whether there are other ways to resolve your business dispute. Many fights can be resolved without the need to file a lawsuit. This will save you time, money and stress.

Negotiation 

Often, the first step is to negotiate directly with the other party. Usually, you can discuss the problem and reach an agreement that avoids the need for litigation.

Mediation

Mediation involves a neutral third party that shepherds a discussion between both parties to agreement. Mediation is less formal and less expensive than litigation, and parties may be able to come to a solution that might not be available to them in court.

Arbitration:

Arbitration, although more formal than mediation, also takes place outside the courtroom. Here, the claimant and respondent air their sides of the dispute while a neutral arbitrator, or panel of arbitrators, makes a binding decision. Arbitration is typically faster than litigation and less expensive, too, but the process is final. There is little room for appeal of the arbitrator’s decision.

Thinking about these options can help you achieve a quicker resolution of a dispute and maintain an important relationship that might be damaged by litigation.

When Litigation Becomes Inevitable

Occasionally, negotiation, mediation or arbitration will fail, and the other party will refuse to compromise. When your business’s bottom line, reputation or intellectual property are at stake, you might be better off litigating. When all efforts to resolve a dispute out of court have been exhausted, a lawsuit can provide a binding judgment from a judge or jury that puts an end to the dispute.

If, ultimately, you decide that litigation is your best option, you should hire a business litigation attorney to protect the business and increase your chances for a favorable outcome in court. The attorneys at Washington Legal Group, have years of experience and a winning track record in bringing and defending business lawsuits. If you have a business litigation matter, please call us. We can help you resolve your dispute and get the result you deserve.