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The Differences Between Mediation & Arbitration

Mediation v. ArbitrationYou may have an “Alternative Dispute Resolution” clause in your business partnership or operating agreement. This may require that you participate in arbitration if you find yourself in conflict with your company or business partner. Unfortunately, many intelligent, educated people confuse “arbitration” and “mediation”, but the difference between these two types of alternative dispute resolution is stark. This brief overview, which imparts legal information, not legal advice, will describe the two types of alternative dispute resolution and present brief pros and cons for each.

MEDIATION

Mediation is an informal proceeding by which a neutral party, also known as a mediator, helps two other parties who are experiencing conflict with one another to reach a mutually agreeable resolution. The mediator helps the parties by facilitating a negotiation between the two conflicting parties, particularly if they are deadlocked. The mediator is not a judge or arbitrator. The parties sign an agreement only if they voluntarily choose to do so.

PROS

  • Costs less than a trial and typically less than arbitration
  • Faster than trial
  • Confidential; the proceeding does not become a matter of public record whereas trial does
  • Presided over by a neutral who has no stake in the outcome (which reduces bias)
  • Agreement reached can be legally binding
  • The parties self-determine how they want to resolve the conflict

CONS

  • Requires each party to enter mediation with good faith to find a resolution
  • Not appropriate for all disputes. For instance, criminal matters, such as domestic violence, are not appropriate for mediation and must be pursued in a criminal court.
  • Confidentiality not absolute. NOTE: For instance, in California, while the rules of evidence provide some safeguards through mediator immunity that protects mediators from having to testify as to what was discussed in the mediation (see CA Evidence Code §§1119-1128) note that the protection is NOT necessarily absolute. Consult with an attorney in your jurisdiction for further guidance.
    • Thus, there is a risk that the opposing side could enter a mediation under false pretenses, and use it as a “fishing expedition” opportunity to gather evidence before going to trial.
    • The best way to protect against such an occurrence would be to discuss with your attorney the best strategy prior to entering mediation jointly.

ARBITRATION

Arbitration is a more formal proceeding, but without a jury, in which a panel of arbitrators deliver a decision that is binding upon a judge’s approval of the settlement. Typically the panel is comprised of at least three members; two experienced attorneys and one non-attorney expert in the field.

PROS

  • Often more affordable than a trial
    • However, some arbitrations can be more expensive than a trial if expensive expert witnesses are called to testify.
    • Often faster than a trial
      • However, depending on the complexity of the case, it could take just as long.
      • Confidential; the proceeding does not become a matter of public record as a trial would.
      • The ruling is binding and can only be appealed if the arbitrators engage in misconduct during the proceeding.

CONS

  • Arbitrations exclude a jury of peers/members of the community
  • The Rules of Evidence are relaxed; while this can make for a more efficient proceeding, it is different than a jury trial where parties’ counsel must follow the Rules of Evidence
    • Thus, evidence that would not typically be allowed at trial may be admitted during an arbitration
    • Typically presided over by retired judges/attorneys, and can therefore be more expensive than mediation.
      • For instance, JAMS (Judicial Arbitration & Mediation Services) typically charge a rate of $400/hr

Bibliography

Cal Evid. Code §§1115-1128. Available from: http://www.leginfo.ca.gov/cgi-bin/displaycode?section=evid&group=01001-02000&file=1115-1128

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