Settling Business Disputes: Should You Try Small Claims Court?


In the U.S., the small claims court system is probably one of the best ways to sue someone. Think about it. It’s cheap to file, you don’t need a lawyer, and it appeals to the DIY’er in all of us. It’s also a relatively quick process and it’s informal. Yet, at the same time, there’s an element of the system that’s unsatisfactory. Like all DIY projects, the DIY court system (AKA small claims) is sometimes lacking that professional touch. Sometimes, going to small claims can even be downright dangerous.

Using Small Claims Court

Small claims court is typically used in situations where you need to sue someone and can handle the case yourself. Unlike civil court, small claims is very informal. Procedural rules are often relaxed, especially in small towns and cities. This is to accommodate the general public, who do not have law degrees but still need easy access to the justice system.

In most states, small claims courts also do not allow lawyers in the courtroom to represent clients. However, check with your state, because some court systems (i.e. like those found in North Carolina) do.

In general, small claims is designed for small, uncomplicated cases that involve person-to-person disputes, business-to-consumer disputes, or other disputes that involve a small amount of money. In fact, small claims will usually have a limit as to the size of the suit. For example, the court system may only hear lawsuits of up to $5,000 in damages.

When It’s Good To Use Small Claims

Small claims is an excellent place to exact justice for unpaid bills. Let’s say you have a deadbeat client who hasn’t paid his bill for 90 days. You’ve given him the standard 30 day notice, and that date has come and gone. Now, it’s time to sue.

Recovering small amounts of money can be problematic if you try hiring a lawyer. First of all, most lawyers’ fees will outstrip the amount of money you receive on a claim less than $5,000. Secondly, it’s usually much more time consuming to sue someone in civil court for a small amount of money – in other words, it’s not worth the effort involved.

When Mediation Is An Option

Mediation is an alternative to small claims that can be used to circumvent the need for a lawyer. In mediation, a third-party, called a mediator, helps both parties come to some kind of solution without the need for a civil suit. Not only does this save time and money, disputes can be settled for more than the monetary cap placed on small claims.


Probably the best aspect of mediation is the fact that it’s not adversarial. The purpose of it is to restore the relationship between the two divided parties. In that sense, mediation is about more than just money. It’s about making sure that relationships are not destroyed over money, while still resolving disputes involving money.

When It’s Bad To Use Small Claims

While small claims is helpful for many people, it’s also often overused. Contract disputes that are complex, involve multiple people, involve high dollar amounts in excess of $10,000, or require extensive deliberation often necessitate civil proceedings. Usually, these cases involve business to consumer disputes or, more often, business-to-business disputes.

This is where a law firm comes into play. Sites, like, can help you figure out whether or not you need to hire a lawyer. But, in general, bank on hiring one if you honestly believe your case cannot be resolved in one day and involves a dispute over multiple complex issues. For example, let’s say you’re in business, and your company wants compensation for damages done to your office building during an extensive renovation. The suit involves damages to the building of over $100,000 and includes injuries suffered by several of your employees.

Or, consider a lawsuit that involves employees not being paid their contractually-promised pay, the loss of multiple benefits, or even wrongful termination. These kinds of suits often require the skills of an experienced lawyer.

After you’ve made the decision to hire a firm, it’s time to decide how you will pay for the services.

There are two ways lawyers are paid for their services when hired for a civil suit. The first way involves a retainer and an up-front fee, either flat or hourly. Another way lawyers get paid is through a back-end fee called a “contingent fee.”

A contingent fee means that the lawyer makes only if you win your case. This often aligns your interests with those of the lawyer. Often however, lawyers charging contingent fees will charge a large percentage of the lawsuit judgment – up to 40 percent of whatever you win.

That means for every $10 you win, your lawyer collects $4. On a $100,000 lawsuit, that would mean you pay the lawyer a fee of $40,000 while you keep $60,000.

Eleanor Adkisson is an experienced business law tutor. When not mentoring students or preparing lectures, she enjoys blogging about common legal concerns in the business sector.

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