In transactions and partnerships, business disputes can often arise. Sometimes, these disputes escalate when common ground cannot be found. Legal action is certainly an option, but many organizations find that option less than palatable because it is time-consuming and expensive.
There are other options to litigation, however. Mediation and arbitration are alternative ways to solve disagreements in business that can help you without the need for lengthy court proceedings.
There are advantages and disadvantages to court actions, mediation, and arbitration, and one of these situations may be better than the others to address your particular issue. Before you decide how to resolve your problem, learning about the benefits and detrimental factors of arbitration and mediation can be helpful.
What Is Arbitration?
Arbitration is more similar to a court trial because it involves the presentation of legal arguments and evidence. However, it is a popular option because it is less expensive, the parties can select the arbitrators, and a decision is reached in less time.
Unlike a court case, there is no judge or jury, but there are instead one to three arbitrators who hear the proceedings. It’s less formal than a state or federal court case, but the result of arbitration is legally binding.
Arbitration is an alternative dispute resolution method that can be much less expensive and time-consuming than court. It is legally binding, and there is no traditional appeals process, which can be beneficial if the decision is favorable to you.
Some of the disadvantages of arbitration include:
Mandatory Arbitration
If mandatory arbitration is required by contract, you won’t have the option to a court trial, even though a jury may benefit one party or the other.
Fairness Is Questionable
Because the arbitrator may have a business relationship with one of the parties or because it is selected from an agency list, the arbitrator may be biased.
It May Be Unbalanced
When an individual employee or smaller entity engages in arbitration, they may be unaware of how the process works. This can lead to an uneven decision-making process that favors the larger entity.
The Law Is Followed Arbitrarily
The arbitrator doesn’t necessarily follow the legal reading of the law. While these proceedings are supposed to follow the rule of law, the arbitrator in your case may decide to weigh the fairness of the claims instead.
Decisions Are Rarely Reviewed by Courts
Arbitrations are private and lack transparency, meaning that the arbitrator need not justify the decision or explain why they ruled the way they did. The arbitrator simply acts as judge and jury.
No Opportunity to Appeal
Arbitration is binding and final, even if the decision seems unfair. After an award is issued, the opportunity for an appeal is slim to none. Both parties must agree to the appeal, and even when it’s filed, it gets treated as a new case file that results in more fees.
Not having a traditional appeals process can be beneficial if the results are in your favor. But consider whether an unfavorable decision is something you can live with before choosing arbitration.
Unpredictable Outcomes
Since arbitration doesn’t follow the ordinary rules of court procedure and evidence presentation, you may find that an arbitrator can consider evidence that isn’t submissive in a court of law. This can lead to unconventional and unexpected outcomes.
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What Is Mediation?
Mediation is a means for solving minor disputes in business. The idea is to reach a resolution that works for both parties, but the decisions made there are not legally binding. This is a way Mediation is a private process with confidential proceedings conducted with a mediatory.
This person is generally a trained attorney but is not there to function as a judge or provide advice. The mediator’s function is to facilitate discussion and help both parties to reach an agreement as an unbiased third party.
Mediation is a preferable way to begin any negotiation because it is the least expensive option and generally only takes a day to conduct. This process lets two parties create a mutually acceptable resolution together, where a court trial or arbitration makes the decision for you.
Some of the disadvantages of mediation include:
Willingness to Compromise Is Necessary
If the parties are completely unwilling to compromise, mediation is not likely to work. The mediator doesn’t solve your problem or impose any resolutions.
Mediation Does Cost Money
Though mediation is inexpensive, it still costs money. If it fails you will still face the added costs of litigation.
Complete Fairness Isn’t Always Possible
The settlement may not be fair to both parties, especially when one party has greater financial resources. If one party is more familiar with mediation processes, they may have the upper hand.
You May Tip Your Hand if Mediation Isn’t a Success
If your case proceeds to court, a previous mediation session may have exposed critical evidence. If the other party already knows what is coming, they will be better prepared to combat your argument.
