Litigation is not always the best choice for solving business disputes. In some cases it is necessary, but generally it is better to treat it as a last resort. Many business entities seek to mediate or arbitrate as opposed to litigate.
However, it is important to understand how mediation and arbitration are different, as they have different processes and often different results. According to FindLaw, mediation is typically non-binding whereas arbitration is binding.
What is mediation?
Mediation is less legally complicated than arbitration. Mediation typically involves a mediator. Both parties agree upon the mediator in advance. This mediator then conducts a discussion between both parties and hopes of seeking a mutual resolution.
With mediation, the mediator does not come to a judgment on the case at hand. Rather, the mediator is trying to facilitate an active discussion that comes to a resolution. Again, mediation is not binding legally. It is still possible to end up in court afterward.
What is arbitration?
On the other hand, arbitration usually involves a panel of arbitrators. Generally, there are three, and each side will get to select one and compromise on the third one. It is possible to have a single arbitrator, but this is more rare. The panel of arbitrators essentially works as a judge. The parties present evidence to the arbitrators and then the arbitrators will give written opinions on the case.
Arbitration is typically legally binding. It can be difficult to reverse an arbitration decision, even if one party falsified evidence or the decision ultimately turns out to be provably wrong. However, a benefit of arbitration is that it finalizes the situation without resorting to litigation.