How Mediation and Arbitration Work: Alternatives to Litigation

What Is Alternative Dispute Resolution?

Alternative dispute resolution (ADR) refers to methods of resolving legal disputes outside of traditional courtroom litigation. The two primary forms are mediation and arbitration. ADR has grown dramatically in use because it typically offers faster resolution, lower costs, more privacy, and — in some cases — outcomes that better preserve ongoing business relationships.

Mediation

How Mediation Works

In mediation, a neutral third party (the mediator) facilitates negotiations between the disputing parties but does not impose a decision. The mediator helps the parties communicate, understand each other's perspectives, identify common interests, and explore potential solutions. The mediator has no power to force a resolution.

Mediation sessions typically involve:

1. Opening statements from each party
2. Joint discussion facilitated by the mediator
3. Private caucuses (mediator meets separately with each side)
4. Negotiation toward a mutually acceptable resolution

Key Features of Mediation

• Voluntary: Either party can walk away at any time
• Non-binding (until settled): No resolution unless both parties agree
• Confidential: Statements made in mediation typically cannot be used in subsequent litigation
• Informal: No formal rules of evidence; parties speak directly
• Flexible outcomes: Settlements can be creative — apologies, future business arrangements, structured payments — not just money judgments

When Mediation Is Used

Mediation is commonly used in family law (divorce, child custody), employment disputes, business contract disagreements, landlord-tenant conflicts, and insurance claims. Many courts require parties to attempt mediation before a trial date is set.

Cost: Mediator fees typically run $150–$400 per hour, split between the parties. A full mediation session might cost $1,000–$5,000 total — far less than litigation.

Arbitration

How Arbitration Works

Arbitration is a more formal process in which a neutral arbitrator (or panel of arbitrators) hears evidence and arguments from both sides and issues a binding decision. It resembles a private trial but without a jury, with relaxed evidentiary rules, and with limited rights of appeal.

The arbitration process typically includes:

1. Selection of arbitrator(s) — often from lists provided by services like the American Arbitration Association (AAA) or JAMS
2. Discovery (more limited than in court)
3. Hearing where both sides present evidence and testimony
4. Written decision (award) by the arbitrator

Binding vs. Non-Binding Arbitration

• Binding arbitration: The arbitrator's decision is final and enforceable in court. Rights to appeal are extremely limited — courts will only overturn arbitration awards for serious misconduct by the arbitrator or procedural fraud.
• Non-binding arbitration: Advisory only — either party can reject the award and proceed to court. Used less frequently; often as a step before trial.

Mandatory Arbitration Clauses

Many consumer and employment contracts include mandatory arbitration clauses — provisions requiring disputes to be resolved through arbitration rather than court. By signing these agreements (credit cards, cell phone contracts, employment agreements), you waive your right to sue in court.

These clauses are controversial because they often:

• Prohibit class actions
• Use arbitration services paid for by the company
• Prevent appeals
• Keep disputes private (protecting company reputation)

The Supreme Court has broadly upheld mandatory arbitration clauses under the Federal Arbitration Act.

Mediation vs. Arbitration: Key Differences

When to Use Each

Choose mediation when you want to preserve a relationship, need creative solutions beyond money, or want to maintain control over the outcome. Choose arbitration when you need a definitive decision but want faster and cheaper resolution than court, or when your contract requires it.