Arbitration vs. Mediation – What’s The Difference?

Accountancy Resources

Arbitration vs. Mediation – What’s The Difference?


The world of law, lawyers, legalese, and courtrooms is one that is rightly feared by everyday law-fearing Americans. Because of the complexities and costs involved with any lawsuit, cooler heads have found legal alternatives to the long and arduous process of the legal system that offers binding and amicable solutions to legal disputes. Two commonly known and utilized systems are those of arbitration and mediation, terms that seem intimidating and unfeasible at first but are, in reality, much simpler than most legal system alternatives.


The legal definition of mediation does not differ far from the common colloquial understanding of the term.

Mediation calls for a third-party actor to assist in clarifying disputes between two parties, allowing both parties to voice their opinions and standing on the dispute in question. The mediator helps to get to the core of each party’s points of view, allowing a greater understanding of the fundamental disagreements at hand and, in theory, allowing both parties to come to an amicable decision.

Mediation, in many cases, is performed between two parties that are still on stable terms with one another. Mediation’s primary purpose is to further enlighten each party of perceived injustices and also allow a third party (the mediator) to give its opinion on those injustices. The mediator then helps find common ground between both parties, and attempts to broker a deal between both parties that can then be willingly, and hopefully amicably, carried out. After mediation, both parties must agree to the results of the mediation and can only willingly fulfill the terms of the mediated agreement.


Arbitration is a process of conflict dispute that focuses again around a neutral third party, this time known as an arbitrator. Arbitration looks not to find a comfortable middle ground between the conflicted parties but instead looks to lay find its own decision – known as a judgment – that will end the dispute between both parties. Arbitrators are often used in situations where the relationship between both parties is tenuous, and an amicable agreement seems out of reach.

The key portion of arbitration is that the arbitrator, the neutral third party that will make the judgment in a dispute, will give a decision that is considered legally binding. The arbitrator is more of a judge than a facilitator, utilizing their knowledge and position to effectively act as a judge. The major difference between court and arbitration is that the arbitrator is agreed upon by both parties, and in most cases, the process of arbitration is significantly less costly and time-consuming than a court process.

Which to use?

Both systems of resolution have their merits but are better suited to separate situations. Mediators are often called upon to find mutually beneficial and agreeable results, ending with a favorable decision for both parties that can preserve or even strengthen the relationship between the two parties being mediated. A business and a client who are having a disagreement, but would like to continue to work in the future, can utilize a mediator to try to find an acceptable solution – a solution that they can then reject if they find unfair.

Arbitration, on the other hand, has the same finality of court proceedings and can render decisions that feature the same animosity and disdain as losing a court case. The arbitrator lays down a decision that they think is fair, not that is necessarily mutually beneficial or believed fair by either party. If a business does not mind burning a bridge, has a strong case, and does not care about the negative effects of being known for ‘beating’ clients, arbitration may be a viable option. However, businesses that are looking not just for future relationships with a disputed party but also for being known for reaching magnanimous and acceptable agreements with their clients – mediation may be the high road that ends with satisfaction (and future business) for all parties involved.