What is the Difference Between Mediation and Arbitration?

Mediation and arbitration are two kinds of alternative dispute resolution (often referred to as ADR). Parties sometimes include clauses in their contracts mandating that future disputes between them be resolved through mediation and/or arbitration.

If a lawsuit has already been filed, courts also have the ability to refer the case to ADR where they see fit. Both mediation and arbitration have the potential to keep litigation costs low by encouraging settlements and sparing the parties the burdens of a bench or jury trial.

Cases are often referred to mediation before proceeding to arbitration as a first step to see if the dispute can be resolved relatively early through agreement between the parties. Mediation is a non-binding meeting of the parties, facilitated by a neutral third party – the mediator – with the purpose of settling the case out of court. The mediator is selected by the parties and is often an attorney or former judge who is familiar with the subject matter of the dispute.

However, the mediator does not have the power to make binding decisions; he or she is there only to facilitate settlement. If the parties are able to come to an agreed resolution, they will enter into a settlement agreement. That agreement is binding on all parties. If mediation is not successful, meaning the parties were unable to come to an agreement, the matter may move on to arbitration.

Arbitration is an out-of-court alternative to the classic trial in front of a judge or jury. Arbitration is generally considered to be faster and less expensive than a full-blown jury trial, but it still involves time and money.

There are two different kinds of arbitration – binding and non-binding. If a dispute is submitted to binding arbitration, it will be decided by a neutral third-party – an arbitrator. Disputes can also sometimes be decided by a panel of arbitrators, and the disputing parties typically get input into who their arbitrator or arbitrators will be.

In many ways, a binding arbitration looks like a trial – the parties put on evidence, examine witnesses, and make arguments. The arbitrator or arbitrators will make a decision that has final legal effect.

There is also non-binding arbitration. Parties in a non-binding arbitration will undergo the procedural process of a standard arbitration; however, the culmination is an informal hearing with no binding decision. Non-binding arbitration allows parties to get a neutral opinion on the merits of their case without the finality of a binding decision. Non-binding arbitration can bring parties closer to settlement who are too far apart going into the process.

Both parties must agree to an arbitration clause in their contract. However, some people may not realize they have ever entered into an agreement to arbitrate. For example, many online retailers include arbitration clauses in their terms of service. The clause appears in “click-through” agreements, which many consumers never read. These often-ignored clauses are important because they take away the consumer’s opportunity to have his or her case heard in court by a jury.