Many people use the terms “mediation” and “arbitration” interchangeably, mistakenly believing they are two different words that mean the same thing. While the English language is curiously replete with examples of different words with the same meaning (i.e. “car” and “automobile”), the words “mediation” and “arbitration” are not such a pair.
The confusion is possibly caused by the concepts of the two often appearing in the same contractual provision, and maybe even in the same sentence. Adding to the confusion is that the vast majority of individuals who function as mediators will also function as arbitrators.
What is Mediation
Mediation is a “settlement conference,” presided over by a mediator, who will attempt to the get the parties to come to a negotiated settlement to resolve their dispute. A mediator will use their powers of persuasion to broker a settlement by encouraging one side to give more than they think they should have to give, while simultaneously encouraging the other side to take less than they think they are entitled to receive. While engaged in mediation, a party cannot be forced to settle by the mediator, and by participating in the mediation process, a party does not give up their right to proceed with arbitration or trial if a settlement cannot be reached.
How Arbitration is Different
Arbitration basically serves as a substitute for a trial with the arbitrator being the “judge” who will listen to the testimony, review the evidence and ultimately render a decision, which equates to a judgment received in a court proceeding. The use of the arbitration process, rather than the judicial system, is oftentimes required by the terms of a contract entered into by the parties, such as a listing agreement, purchase agreement, or employment contract. The terms of the contract will also usually specify the number of arbitrators, the rules and procedures that will apply to the arbitration, and the circumstances, if any, under which the parties may opt out of arbitration.
While there is a general belief that arbitration proceedings are both quicker and less costly than judicial proceedings, such is not always the case. One big distinction, however, does exist; namely, that except under very limited circumstances, which seldom arise, an arbitration award is final, and is not subject to being reversed upon an appeal. On the other hand, the right of a party dissatisfied with a judgment rendered by a judge or jury always has the right to appeal the judgment to an appellate court.