Mediation and arbitration are cousins. They’re both part of the alternate dispute resolution family. While there are some similarities, for example, both methods utilize a neutral to hear the case there are also a number of significant differences.
1. More cost savings . Arbitration may involve a less extensive exchange of discovery than litigation; but mediation typically involves even less. It can therefore provide even more cost savings than arbitration.
2. Negotiations. Arbitrators decide cases, mediators don’t. Regardless of whether the arbitration is binding or non-binding, arbitrators listen to the evidence and make a decision on the merits of the case. Mediators listen to both sides too; but their role is different. Their job is to act as a facilitator between the parties and to help you negotiate a settlement.
3. Stronger solution potential. Instead of being stuck with an arbitrator’s decision, parties to a mediation can influence the result in a constructive way through the negotiation process. It allows both parties to address their needs and walk away with more than they might otherwise be awarded if the case goes to trial. A win more/win more result is possible because the parties aren’t limited to a common law or statutory awards scheme. They can be more creative and add deal sweeteners that may be minor concessions for one side to give; yet, offer a significant benefit to the other. Top notch mediators can help decode the other party’s signals and help them focus on their needs instead of their wants. Such mediators are keenly aware that the art of listening can resolve conflicts.
4. Different attitude. Bunker mentalities and entrenched positions are the antithesis of good negotiation. While arbitration, similar to litigation, takes a more adversarial approach; mediation requires good faith participation and a different mindset.
5. Potential lack of closure. The fact that mediators don’t decide cases also means there is no guaranteed closure to the case. If the parties can’t reach agreement during mediation the controversy continues. The potential for lack of a guaranteed conclusion is one reason you rarely find a mediation provision in contracts. Sometimes an agreement will require the parties’ senior management to meet face-to-face in an effort to resolve a dispute. Sometimes that face-to-face will include a mediator. If they can’t fix it to their mutual satisfaction within x number of days the contract provision might provide for arbitration.
The more common scenario is for court ordered mediation in connection with a lawsuit that is already in progress. In those circumstances mediation typically occurs after some preliminary discovery has already been exchanged between the parties and the facts have been fleshed out a bit exposing each side’s strengths and weaknesses. At that point it is easier to focus on the facts and negotiate an effective settlement.
Both arbitration and mediation are valuable tools to have in your risk management arsenal, especially if you know how to optimize their use.