Arbitration and Mediation – What is the Difference and Why it Matters
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Arbitration and Mediation – What is the Difference and Why it Matters

Arbitration and Mediation – What is the Difference and Why it Matters

Not every legal fight winds up in a courtroom – in fact, only a very small percentage of cases ever go to trial. Many disagreements can be resolved through the alternate dispute resolution methods of arbitration and mediation. These two processes are designed to help parties resolve their legal disputes without going through the often expensive and time-consuming litigation process.

Unfortunately, the average person has little to no experience with arbitration and mediation, and the terms themselves can often cause confusion. Not only that, but the processes involved can be intimidating, especially when an unknowing consumer goes up against large financial organization. To help you get a better understanding of these processes and how they work, let’s take a closer look at arbitration, mediation, and why they matter.

Alternate Dispute Resolution

Often referred to as ADR, both alternate dispute resolution methods share several similar characteristics. In general, both processes are designed to help avoid having to go to court, but they also provide significant benefits, such as:

  • Neutral Third-party Involvement. Both ADR forms use a third party to help resolve or settle the dispute. These third parties, called mediators or arbitrators, are supposed to remain neutral throughout the process, much like a judge must remain neutral in a trial. This neutrality, however, is not always something you can count on.
  • Confidentiality. Mediation and arbitration aren’t public hearings, much like most trials. The parties can meet, negotiate, and come to an agreement in private. This also means, however, that the terms of the settlement will have to remain private as well.
  • Cost Effectiveness.  Arbitration and mediation are both usually much less expensive than litigation. The ADR process is also quicker, allowing the parties to resolve their differences more quickly than they would if they had to go to trial.


In North Carolina, every superior court case has to go through mediation before it can go to trial.  Most Federal cases and many bankruptcy litigation cases are ordered to mediation as well.  And in any dispute, whether or not a lawsuit has been filed, the parties can agree to mediate their dispute.

It can be useful to think of the mediation process as something akin to family counseling. The process involves a neutral third-party, called a mediator, who listens to the dispute between the two sides. The mediator is usually a lawyer, or sometimes a retired judge, and mediators are required to go through extensive training before they can be certified.  The parties involved in the conflict meet with one another in the mediator’s presence and discuss the issues surrounding the dispute.

The mediator can offer suggestions to help the two sides come to an agreement, but doesn’t have any authority to compel the parties to do anything. The mediator is not there to place blame, but rather, to give each side the chance to air their grievances in a private setting, and then try to come to a mutually agreeable outcome.

Mediation is flexible, informal, and non-binding. Either side can walk away from the mediation process at any time, and the mediator has no authority to force them to stay or come to an agreement. Even if the mediator suggests a resolution, the two sides have no obligation to accept it.


Arbitration is a more formal process than mediation. In an arbitration setting, the two sides present their arguments before an arbitrator. Much like two sides in a lawsuit presenting their cases before a judge, the arbitrator is there to act as a neutral referee.

The arbitrator’s role is substantially different than that of the mediator in the mediation process. In an arbitration hearing, the arbitrator has the authority to make a binding final decision. In much the same way that a judge issues a ruling in a lawsuit that goes to trial, the arbitrator will review the case and issue a ruling or decision with which both parties must comply.

This is the most important difference between mediation and arbitration. An arbitrator makes a final decision about your case, while a mediator does not.

Why Arbitration and Mediation Matter

Knowing how arbitration and mediation differ is important, but knowing when these processes apply is vital. According to at least one survey, about 98 percent of banks use contracts that contain arbitration clauses. About 66 percent of consumer checking account agreements contain mandatory arbitration clauses, though the average American would be hard pressed to tell you what this process entails.

To make the situation even more complicated, some banks that use these clauses hire their own arbitrators Even though the arbitrator is supposed to be neutral, the bank is essentially the arbitrator’s client. If the arbitrator rules against the employer too often, how long do you think the bank will retain that arbitrator’s services?

In other words, arbitration can be remarkably unfair to the consumer, and many consumers can be completely overwhelmed by the process.

If you’re wondering how arbitration and mediation works, what your options are, or what you need to do if you’re currently going through the alternate dispute resolution process, feel free to contact our office for help.

Jim White

Jim White helps people and companies facing serious financial injury by bringing and defending lawsuits and representing debtors in bankruptcy. He has successfully taken on banks, large financial institutions and other corporations in “David v. Goliath” cases. You can reach him at 919-246-4676.