What is the Difference Between Mediation and Arbitration?

An image of an ADR professional with hands of 2 parties

Arbitration and mediation share a common lineage as alternatives to the traditional legal system of court and jury trials.  Known as different forms of alternative dispute resolution (ADR), they are both intended to offer less expensive, more efficient outside-of-courtroom approaches to resolving disputes than afforded by more formal litigation.  Yet there, the similarities end.  The difference between arbitration and mediation lies in their distinctively different approach to conflict resolution.

The Continuum of Processes Available to Resolve Disputes

A graph of various dispute resolution processes based on formality, cost and decision-making authority

To best understand these important distinctions, it’s helpful to envision ADR processes along a continuum of choices.  To the far left lie the less formal, less expensive, and voluntary processes, including conciliation and mediation.  As one moves conceptually toward the right end of the continuum, one moves towards the more formal tribunals like arbitration until reaching the most formal approach to dispute resolution — litigation — the civil trial and appellate court process itself.

Alternatives to Litigation for Resolving Disputes

Before deciding on an alternative to litigation for pursuing a conflict, it is essential to understand the key differences between mediation and arbitration.

What is Arbitration?

Image of hands of an arbitrator making the decision for parties

Arbitration is a method of resolving a civil dispute outside of the court system in which the disputants present their case to an impartial third party, who then makes a final decision for them that resolves the conflict.  Historically, arbitration was synonymous with this alternative form of dispute resolution as it was the first process developed to save the time and expense of protracted litigation.

Situated to the right of the center of this continuum, arbitration is more formal than mediation or conciliation and can look more like the litigation process.  That is because, like litigation, arbitration is, at its core, an evidence-based, adjudicative process.

Arbitration involves a hearing resembling a trial that takes place outside the courtroom, requiring the participation of the parties in dispute.  The arbitration process is conducted according to formal rules of arbitration administered by a single neutral arbitrator (or a panel of arbitrators) whose task is to conduct a formal hearing, including lay and expert testimony.

Like a trial, the hearing can often take weeks to complete.  Once testimony is concluded, the arbitrator rules on the evidence presented by issuing a decision.  The arbitrator’s decision, or “award,” is legally binding (unless the parties previously agreed to a non-binding arbitration).  Because the decision is final, there is no formal appeals process available.  Even if one party feels the outcome was unfair, unjust, or biased, they cannot appeal it. Unlike mediation, in arbitration, there are no discussions about working out the parties’ differences.

Arbitration is typically compelled by contract or statute, although parties can also agree to arbitrate after a conflict occurs.  A contract that includes an agreement to arbitrate disputes (an arbitration clause) will outline some key aspects of any potential future arbitration.  The rules and procedures that will be used in arbitration are typically part of this agreement.  If a third-party ADR service such as JAMS or AAA will be used to handle an arbitration, the contract may specify whether the rules and procedures of that third-party service will be used.   Rules typically address:

  • Number of arbitrators
  • Selection of arbitrators
  • Timeline for arbitration
  • Evidence
  • Awards
  • Confidentiality and records

The Arbitration Process

The main phases of an arbitration process include:

Initiation: An arbitration case begins when one party submits a demand for arbitration, which outlines the parties involved, the nature of the dispute, and the relief being sought.

Selection of Arbitrator: Both parties identify and select an arbitrator

Preliminary Hearing: Conducted by the arbitrator, a preliminary hearing with the parties may be held to discuss the issues in the case witnesses, depositions, sharing information, and other procedural matters.

Discovery: The parties identify witnesses, evidence, and experts, exchange information, and prepare for the hearing.

Hearing: At the hearing, parties present testimony and evidence to the arbitrator.  There is usually only one hearing before the arbitrator unless the case is very complex.

The Award: The arbitrator concludes testimony, closes the record on the case, and issues a final decision, including an award.

What is Mediation?

Image of a hand of a mediator bringing the parties together to come up with solution
In mediation, the mediator helps the parties make a decision that works for them

A more recent alternative to the court processes is mediation, often defined as a facilitated negotiation.  Mediation is a process where two or more parties meet outside of court with a qualified and neutral third party, the mediator, and discuss their various issues to try to come to an agreement and final settlement.  In commercial mediation, lawyers represent the disputants and are referred to as Mediation Advocates.

Mediation is a flexible, private process, reflecting both the dispute’s unique requirements and the parties’ underlying needs and interests.  Typically, mediation involves a combination of face-to-face discussions with the parties and private meetings with the mediator.  Because there is no formal presentation of evidence, mediation can often be called upon early in a dispute before the parties’ positions harden and costs become another component of the conflict.

Perhaps most important, what distinguishes mediation from arbitration is that the mediator’s role is to assist the parties in finding common ground and fashioning a solution of their choosing.  Unlike arbitration, the mediator’s role is to facilitate difficult conversations, not sit in judgment of the parties.  In other words, the parties in mediation, at all times, retain control of decisions impacting the outcome of the dispute and their lives.  If and only if the parties voluntarily agree on an optimized solution, will they move toward concluding the dispute.

As a voluntary, non-binding process, many courts and contracts will require mediation as a first step in a stair-step approach to other, more formal dispute resolution processes.  All these advantages are capped with an appreciation that mediation is successful more often than not and can often be successfully implemented in a single day or less.  It is thought to be the preferred alternative, particularly where an ongoing relationship between the parties might otherwise be destroyed by the fallout of an adverse arbitration ruling.

The Mediation Process

More and more, courts are adopting mandatory requirements for mediation as a first step in solving civil disputes.  In cases where mediation remains discretionary, most parties initiate mediation before or sometimes after litigation has been undertaken, without any involvement by the court.  This could be at one of the following critical junctures in a case:

  • At the outset, following a demand letter or service of the complaint
  • Just after a dispositive motion has been filed and is pending
  • After the completion of limited but critical discovery
  • On the eve of trial, following the completion of expert discovery

Selection of the mediator:  Once the two parties have agreed to mediate, they jointly agree on a neutral third party to mediate the case.  The opposing parties should try to find a mediator who is knowledgeable about the subject matter of their case, has experience litigating or mediating similar cases, and whom they think has the mediation skills necessary to bring the opposing parties together in a settlement.

The Mediation Brief:  Once a mediator is chosen, the parties submit to the mediator copies of briefs and exhibits that they may have filed in court or may have created for the mediator. A mediation brief is a central tool for the mediator to understand the factual, legal, and practical issues affecting settlement.  An effective mediation brief includes a concise statement of material facts, applicable law, damages, and settlement expectations, wrapped in a historical overview of the case.

In-person mediation session: The mediation is held in an office, usually provided by the mediator, not in the courthouse.  The parties, their lawyers, and the mediator attend the session.  The typical length of a mediation is less than one day.

Joint meetings: Mediation in a complex case typically begins with all parties, their attorneys, and occasionally experts assembled for a joint meeting to present the facts and legal arguments to the other parties, attorneys, and the mediator.

Private caucuses: Following the joint meeting, particularly in commercial mediation, the mediator will typically separate the parties and begin meeting with them in a series of private, confidential meetings, or “caucuses.” In the caucuses, the mediator works with each side to discuss the strengths and weaknesses of the case, bring the parties’ positions closer together, and explore settlement opportunities.  Either or both parties can decline to accept settlement offers.

Closing the mediation: The goal of mediation is to obtain a durable settlement agreement acceptable to all parties.  If a settlement is reached, the mediator will draft, and the parties will execute, a binding settlement agreement that will include the dismissal of the case or the entry of an agreed judgment.  The mediator may encourage the parties to reconvene to continue settlement efforts if no settlement is achieved.

Comparison of the Key Characteristics of Arbitration and Mediation

By understanding the key characteristics and the pros and cons of arbitration and mediation, as well as their place on the continuum of ADR processes used to resolve legal disputes, parties in a dispute can decide on the process that best suits their needs.

A table comparing key differences between Mediation and Arbitration

What is Better, Arbitration or Mediation?

Both arbitration and mediation have their advantages and disadvantages.  Both are effective ways of solving disputes outside of court that are faster and more economical than traditional litigation and take place outside the public eye.

Certain situations, nevertheless, may benefit from mediation rather than arbitration.  Meditation may be the preferred option when:

  • Both parties believe they can reach an understanding on their own terms.
  • It is the first attempt to deal with a conflict, and it will likely not escalate to arbitration or litigation.
  • The parties will continue working together and must maintain an ongoing relationship despite disagreement.

Mediation in civil disputes often involves business partners, landlords and tenants, labor unions, and management.  Mediation is one of the most commonly used ADR methods in the construction industry and is becoming increasingly more prevalent in franchise law.

Arbitration may be preferred over mediation in other conflicts—particularly those with high stakes or complexity.  Arbitration may be a better option than mediation when:

  • A legal matter has escalated and become a more serious issue
  • Both parties have not been able to settle on an agreement

Generally, arbitration is used as a step to resolve the dispute before going to court.  It is widely used to resolve a wide range of commercial disputes.   Arbitration clauses are found in many construction contracts, contracts for selling consumer and business products, contracts between employers and employees and between co-owners of a company, and in many other situations.  Some agreements, such as insurance contracts, require a dispute to be resolved by arbitration and not by the traditional court system.

In Conclusion

Many disputants, in-house counsel, courts, and judges are demonstrating a strong preference for mediation, arbitration, and other forms of alternative dispute resolution for resolving conflicts outside the courtroom.  Offering a less expensive, more efficient option to traditional litigation, they are effective methods of resolving civil disputes of all complexities.

By understanding the difference between mediation and arbitration, and their place on the continuum of ADR processes, parties in a dispute can decide on the process that best suits their needs.

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Bruce A. Edwards is an ADR industry pioneer and recent chairman of the board of directors of JAMS, this country’s largest private provider of ADR services. Along with his wife, Susan Franson Edwards, Mr. Edwards cofounded Edwards Mediation Academy, an online education platform dedicated to improving the skills of mediators around the world.

Bruce A. Edwards

Bruce is one of the pioneers in developing mediation to resolve commercial disputes in the United States. He has been a professional mediator since 1986 and has mediated over 8000 disputes. Bruce was a co-founder and former chairman of the board of directors of JAMS. In 2023 he joined Signature Resolution to continue his mediation practice while pursuing his passion for delivering high-quality mediation training through Edwards Mediation AcademyBruce has consistently received recognition for his work as a mediator, most recently being accepted into the inaugural edition of Who’s Who in ADR by ADR Times 2022; once again recognized as a Best Lawyer in the ADR category by Best Lawyers® 2022 and recognized as a Global Elite Thought Leader and Mediator in the US by Who’s Who Legal, 2023.