Arbitration vs. Mediation
By Sean Lally, Staff Writer
Though many people have seen public court cases played out on television, fewer people are aware of Alternative Dispute Resolution, or ADR. ADR refers to non-litigative practices aimed at resolving disputes. Both parties must agree to enter an ADR prior to its commencement. There are two major types of ADR: mediation and arbitration.
The former may be familiar to those who have gone through a divorce, as this is a relatively common method for resolving such a dispute. The latter has made its way into the headlines in recent years, as it is often enforced in consumer contracts. You might have noticed that in November, President Trump signed a resolution rescinding a Consumer Financial Protection Bureau rule meant to limit the scope of so-called mandatory arbitration agreements. In what follows, we will explore each type of ADR and how they can be both beneficial and detrimental to the parties involved.
Mediation is a preferred method for parties who have a good working relationship and who feel they can arrive at a mutually agreeable solution without the imposition of a judge or third-party arbitrator. In place of a judge, there is a mediator, who offers suggestions, taking into consideration each side’s relative priorities. A mediator does not impose a resolution that both parties must abide by. Instead, they work side by side with both parties, attempting to negotiate a settlement that everyone can agree to. When each party agrees to the terms, they sign a contract, which lacks the authority of an award. We will briefly explain what an award is below.
Benefits of Mediation
Mediation can be beneficial for parties seeking a flexible alternative to litigation and arbitration. Without the rigid imposition of a ruling, both parties can work at their own pace toward a solution. As with arbitration, mediation is 100 percent voluntary, though in some states courts require parties to undergo mediation prior to litigation. Mediators are generally trained in negotiation, but they do not necessarily have to be legal experts. This is important because the skill level of the mediator can affect the outcome of the proceedings. Some states enforce certain licensing requirements to ensure a certain level of rigor. One major drawback of mediation is that both parties might ultimately disagree and end up in court.
Arbitration is more like litigation in that it involves a third-party arbitrator or panel of arbitrators who act more or less like judges in the proceedings. The process is like a bare bones trial that is not encumbered by a complex set of rules and regulations. Lacking these, the arbitrator determines how evidence is to be presented, which concepts should be employed and any other rules that might bear on the proceedings. The arbitrator then hears both sides of the argument and, once all the evidence has been presented, decides the appropriate resolution. The actual proceedings are often very short, and it usually only takes a couple weeks for the arbitrator to issue a ruling.
If both parties agree to a binding arbitration prior to the proceedings, the final resolution, called an award, is enforceable in a court of law. This means that if either party fails to live up to the terms of the award, it may be brought before a proper judge. The terms might require monetary compensation or a particular action that must be taken.
Though arbitration is similar to litigation, it generally lacks a proper appeals system, so once a resolution is imposed, it’s usually there to stay.
Corporations prefer arbitration because it helps them save money in the courts. This is also why divorced spouses use mediation; lower costs. In general, ADR is beneficial because it helps all parties avoid lofty court fees and related expenses. What’s more, because arbitration and mediation are private in nature, the contents of their proceedings are generally not made public. This is helpful for corporations looking to evade regulatory oversight.
In the end, ADR can be a solid alternative for those looking to resolve a dispute without going to court.