Litigation is often a reality of owning a small business, but business owners should avoid it as much as possible. Litigation has many downsides, including ruining relationships and being a huge time investment.
Two common alternatives to litigation include mediation and arbitration. Both of these options keep the dispute out of the court system, but they work differently. According to FindLaw, a big difference between mediation and arbitration is that mediation is non-binding while arbitration is binding.
What is arbitration?
Arbitration typically involves a panel of arbitrators that act as a judge. Sometimes there is only one arbitrator, but it is more common for there to be three. Typically, one party will each select an arbitrator and then compromise on the third one. The arbitrators will listen to both sides, consider the evidence, and then issue a written opinion.
Arbitrated decisions are usually binding. This is good because it can introduce a level of finality that is similar to litigation, without the actual litigation process. However, it can be difficult to reverse the decision of arbitrators, even if evidence exists to prove that the arbitrators’ decision was incorrect.
What is mediation?
Mediation is far more like a guided conversation on the subject. Typically, both parties will decide on a single mediator. The mediator will then guide the conversation about the subject and hopes that both parties will come to an amicable resolution to the issue.
Mediated decisions are not binding. It is possible to end up in court after going through mediation if neither party is happy with the result. However, even if you suspect that you will end up litigating, it is generally a good idea to at least try mediation first.