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Mediation vs. Arbitration – What’s the Difference?

Legal BooksEven with every precaution accounted for, business disputes can arise and create hurdles for your day-to-day operations or long term financial goals. Once you are in a dispute, your best option is to get out of it with as little financial setbacks and headaches as possible. Ignoring a dispute will only make it that much more expensive and emotionally draining down the road.

If you are faced with a dispute, it is important to know your options for a resolution. Alternative Dispute Resolution (ADR) has two common forms: mediation and arbitration. The key differences between mediation and arbitration are the formality of the process and how the final decisions are made. In mediation both sides must agree on a resolution; the mediator cannot make a final decision without consent of both sides, as an arbitrator can. Additionally, many times during arbitration there will be a formal swearing in process much like a trial – a process not used in mediation.

ADR can happen at any time during a dispute and may sometimes be forced upon you in the terms of your contract. Often times, there may be a mediation or arbitration clause within a contract that specifies whether you will go into mediation or arbitration, and possibly even outline the terms of the ADR process.

Mediation is generally the more popular choice primarily because a mediator does not have the power to make a final decision without the consent of all parties, like an arbitrator does. A mediator’s role is to present each side with their strengths and weaknesses of its case and, and often more importantly, the strengths and weaknesses of the opposing side’s case.

Because mediation is not successful unless both sides agree, it is important to know what you can and cannot bargain with before you enter mediation. Make sure your expectations are reasonable and attainable. If they are not realistically attainable, entering into mediation will be a frustrating exercise for both sides.

It is also important, when entering mediation, to be aware that sometimes the opposing side may be entering mediation with the sole intention of “smoking you out.” This means that person is only coming to the table to figure out your position on how you are approaching the case. They will look for the strong points of your case as well as what you are willing to let go, but will not give any information in return. While it doesn’t happen often, if you ever get the feeling you are being smoked out during mediation, your best decision is to end the process.

During the mediation process the mediator will usually break the two sides into groups and put them in different rooms. The mediator will go back and forth between the two rooms identifying the strengths and weaknesses of both sides in an effort to reach an agreement. Once an agreement has been reached, be sure to get it in writing immediately to avoid either party changing their minds about any part of the agreement.

In contrast to mediation, arbitration can take many different forms. There could be just one arbitrator present, or there may be a panel of arbitrators. Arbitration can even take form similar to that of a trial. Witnesses may be sworn in under oath and testimony may be taken. The drawback to arbitration as compared to mediation is the expense. Arbitrators are generally more expensive than mediators and because the process is more formal and takes more time, arbitration is a greater financial investment.

While there are some distinct differences between mediation and arbitration, in his new book, The Naked Contract, business litigation attorney Fred Gaston notes that he generally encourages arbitration over mediation. While arbitration can be more expensive than mediation, Gaston says it is usually less costly than going to trial and can be quicker than mediation. In the event a dispute comes up, avoiding trial in a more timely process will save both sides a lot of aggravation.

When it comes to disagreements, credibility often plays a crucial role. If you happen to take your problem to a mediator, judge, or jury, and you have written every event and conversation down, you will have evidence to support your claim. If you come into court and the situation is a good old fashion “he said-she said” scenario, having a chronological timeline created as events were unfolding will give you credibility. Remember, credibility is buttressed by evidence, and credibility is what will win.

You can purchase The Naked Contract the book on Amazon today!

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