Most people have likely heard the terms Alternative Dispute Resolution (ADR), Arbitration, and Mediation mentioned in different contexts, but many may not know exactly what they are and how they differ.
"Alternative Dispute Resolution" is generally any procedure for settling disputes by means other than litigation. "Arbitration" and "Mediation" are two types of ADR; although not the only two. There are also different forms of arbitration, such as Baseball Arbitration, and different forms of mediation.
The end-game of mediation and arbitration is the same, that is, to have the disputing parties resolve their dispute and evidence the terms of that resolution or settlement in writing. The major difference is the way in which that goal is achieved.
What is Mediation?
Mediation is an informal process where an impartial third-party helps the disputing parties find a mutually satisfactory solution to their differences. Mediation is a voluntary, confidential extension of the negotiation process where a facilitator guides the parties toward a mutually agreeable settlement. This is achieved by helping the parties clarify their underlying interests and concerns, and encouraging compromise and trade-offs based on the relative importance of each item to each party.
Mediation is usually well-suited to disputing parties who still have a somewhat amicable relationship, who are still able to negotiate, and who do not want a third-party to make final decisions.
Mediators cannot impose a resolution upon the parties since they are not able to make legally binding decisions. Any settlement reached, if in fact one is reached, is simply a contract signed by the parties just like any other contract. The settlement does not have the same legal force as an arbitration “award”, which is the written decision resulting from an arbitration.
What is Arbitration?
Arbitration is a procedure whereby two or more parties agree to have an unbiased, neutral, third party (or third parties) act as judge and jury to resolve their dispute for them in private - outside of the court system. It is a simplified version of a trial involving limits on procedural requirements and simplified rules of evidence. After giving the parties the opportunity to present their side of the story and to present any relevant documents or other evidence, the arbitrator(s) decide, based on the evidence, who wins and who loses the case. Arbitrators have more flexibility than court judges to decide how the arbitration should proceed and what weight to give evidence. The parties typically agree to abide by a particular arbitral institution’s existing rules and procedures - such as those used by the American Arbitration Association or JAMS.
If the parties agree in advance to "binding arbitration", the decision of the arbitrators, called an “award”, is enforceable in a court of law if the losing party does not comply with the terms of the decision. If the parties agree in advance to "non-binding arbitration", the decision is not enforceable in a court of law. Binding arbitration is more comparable to litigation than is mediation. One important difference is that, unlike court decisions, arbitration typically offers very limited rights of appeal after a decision is made by the arbitrator.
Many contracts, including some consumer contracts like your cell phone service contract or credit card application, have a clause that requires disputes arising out of that contract be subject to binding arbitration rather than being litigated in court. This helps companies keep their costs down and keep disputes private.