Mediation and arbitration are the two most common methods used to resolve financial disputes without going to court.
While each avoids the court system, the similarities end there. There are key differences between the two options. Here's what you need to know about mediation and arbitration:
Mediation is voluntary
Either side of a dispute can end mediation at any time. One side simply needs to walk away. Mediation ends if one side stops participating.
Arbitration, on the other hand, is binding. Once arbitration begins, both parties must continue with the process. The arbitrators control who participates.
Arbitration ends in a judgment
Arbitration relies on a third party. Once a decision has been made by the arbitrators, both parties are bound by the decision. While both sides have input, the arbitrators have the final say.
Mediation is a collaborative process that involves both sides working towards an agreement. The mediator facilitates the discussion, but the two parties develop the final compromise.
Mediation is collaborative
The goal of mediation is to reach a compromise that is agreeable to each side. The process can be as formal or informal as the two parties choose. If both sides can reach an agreement, the outcome will be the result of a combined effort.
The results of an arbitration usually favor one side over the other. One party receives the judgment they were seeking. The other party is required to follow its recommendations. Arbitration can have a "winner" and a "loser".
Arbitration has a set schedule
An arbitration has a definite end, where an arbitrator makes his or her final decision. The ruling is final and binding. Both parties are required to acquiesce to the ruling.
Mediation lasts as long as necessary. The two parties set the schedule. Mediation ends when the two sides find a compromise or someone walks away from negotiations.
Both options are useful in the right circumstances, but every situation is different. Consider the pros and cons of all options before making any decisions.
If you have a financial dispute, an attorney specializing in finance law can help you determine the best choice for your situation.