Mediation is generally used as an alternative to court litigation or arbitration, but it remains popular for resolving civil disputes in cases involving businesses. Companies choose to mediate because they want control over what happens during the process, unlike arbitration, which can feel less controllable. After all, an arbitrator makes the final decision. Mediation typically involves compromise but allows the parties a role in the ultimate decision to resolve a matter.
Arbitration is a form of out-of-court adjudication in which the parties appoint an impartial third party, instead of going before a judge, to settle their dispute. This third party is known as an arbitrator. While a written contract is not required for arbitration to proceed, they are binding and the decisions made by the arbitrator can only be appealed in extremely limited circumstances.
In mediation, a neutral mediator helps each side express their opinions and reach a mutually agreeable outcome without making any decisions or expressing any preference on how it should be resolved. In this way, mediation does not aim to provide finality in the case if the parties are unwilling to compromise to resolve their issues. Instead, mediation seeks to provide closure so that both sides can move forward from the dispute with fewer lingering effects given each side’s opportunity to tell their version of the story and, hopefully, resolve it through agreement.
Key Differences
Mediation may be a more suitable choice for businesses that want to control their destiny and where the parties have already started negotiations before an impasse is reached. Mediation can also be used as a form of conflict resolution in business, both internally and externally.
On the other hand, arbitration does not require either side to concede anything, so it might be better suited for situations where one of the companies has taken action first or has been wronged by the other company. Any agreement made through arbitration can only be appealed in very limited circumstances, so mediation would remain an option if both companies are interested in exploring options outside of arbitration once successful conciliation takes place. While business owners may prefer having a more significant influence on their outcome, arbitration will avoid the risk of litigation.
Mediation or Arbitration? Nine Real-World Situations & The Most Appropriate Paths to Take
1. Employees suing their employers for unfair treatment or discrimination
Here, mediation would likely be appropriate because both parties are looking to reach an amicable resolution that does not involve litigation.
2. A customer suing a company for some form of negligence or mishandling
This is another example where mediation may be the better choice, although the parties do not need mediation to avoid litigation. Arbitration might be appropriate in this case because it places more power in the hands of the business, which will likely want its legal team involved with deciding how arbitrators should rule on issues.
This can be particularly important if complex legal matters at play require special knowledge about the law, which an arbitrator may not have. For instance, attorney-client privilege becomes extremely difficult in arbitration, so there are different ways in which the parties may decide to manage the proceedings if they cannot meet when making arbitration decisions.
3. Two companies with a disagreement over how much money is owed
This situation would be most suitable for mediation because it requires both companies to find common ground in determining what should be done in terms of payment between them. Arbitration might become necessary if one company believes that the other party has no chance of meeting their demands and wants an arbitrator to determine whether or not this conclusion is correct.
4. A business owner suing another business for trademark infringement
Ideally, mediation would be the best choice because both parties are likely to have differing opinions about how this dispute should be settled. Arbitration might become necessary if one party feels that their case is so strong that they wish to avoid mediation and immediately proceed with arbitration instead.
5. A company suing an individual for defamation
Arbitration would likely be more helpful in this case because the individual will not have any control over how the arbitration proceeds. Mediation might provide both parties with a greater sense of control, leading to better cooperation among each other and making it easier to reach an agreement at the end of mediation without needing arbitration.
6. A business owner claiming that another business stole its idea
In this situation, mediation is most appropriate since both parties need some form of resolution but do not have a strong personal connection or desire to understand each other outside of the context of their dispute. Arbitration might become necessary if one party feels that they cannot trust negotiations even after a successful mediation session.
7. Two businesses with an agreement that needs to be enforced
Mediation may be most appropriate here because both parties are likely to have differing opinions about what should happen under different circumstances. Arbitration might become necessary if one party feels that their case is so strong that they wish to avoid mediation at the outset and proceed immediately with arbitration instead.
8. A company suing another company for infringing on its patents
Here, mediation would likely be most suitable since both parties want to resolve relatively quickly without necessarily placing more value on having their legal team involved full-time in the process of deciding how arbitrators should rule on issues relevant to patent infringement laws. Arbitration might become necessary if one party feels that its case is so strong that it wishes to avoid mediation entirely and proceed immediately with arbitration instead.
9. A small business suing a large company for antitrust violations
Although this scenario might sound like one where mediation would be best suited, arbitration could also prove helpful if the two parties do not want to go through a complete mediation process because they feel that their cases are so strong that they should be immediately decided arbitrators instead.
In addition, the large company may have its legal team involved throughout the entire process of determining how arbitrators should rule on issues relevant to antitrust laws. This makes the chances of successfully reaching an agreement without going through arbitration significantly lower than if both companies were able to manage negotiations themselves. The small business is likely less equipped in this regard.
Contact KGP Law, Today!
The business lawyers at KGP Law understand your company’s needs and will work hard on your behalf to protect your interests through all stages of the contract process. Get in touch with us if you need help creating an effective mediation and arbitration clause. We’ll be happy to assist you!