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Arbitration and Mediation: Alternatives to Going to Court

by Alex Lipton

Arbitration and Mediation: Alternatives to Going to Court

Nobody likes going to court. It costs time and money — and can cause a lot of anxiety. Arbitration and mediation are two alternatives to court. Let’s take a look at what they are, how they are different, and which one may be right for you.

Arbitration and Mediation: The Basics

In arbitration, two parties take their dispute to a trained, impartial person – an arbitrator– who listens to both sides and chooses a winner.

In mediation, both sides discuss their issues with an independent facilitator – a mediator. The mediator does not decide who wins; instead, the mediator helps the parties reach an agreement on their own.

Advantages of Arbitration and Mediation

Saving Money: Both mediation and arbitration can significantly reduce the time spent resolving legal disputes. In a time when lawyers charge $727 per hour on average, time saved through mediation and arbitration saves you money.

You can always choose to hire a lawyer to represent you during arbitration or mediation. However, when only a small amount of money could be won or lost, many people choose not to hire a lawyer in order to save money. Be mindful of whether the cost of the lawyer outweighs the potential payout when deciding whether or not to hire a lawyer for arbitration or mediation.

Maintaining Confidentiality: Arbitration and mediation proceedings remain confidential, whereas in a public court case, the hearings and decision become a matter of public record. So arbitration and mediation can help you avoid the harm to your reputation that a public legal dispute could cause.

Flexibility: Who has time for court? If you go to court, you will need to schedule a date based on the court’s availability. In arbitration or mediation, you schedule the proceedings to fit your calendar.

Differences between Arbitration and Mediation 

We know that mediation and arbitration can keep you out of court, but which one best fits your needs? Consider the following differences between arbitration and mediation:

Can I Withdraw?

If the parties in a mediation proceeding fail to come to an agreement, either party can withdraw without getting into any legal trouble. But this does not mean that the disagreement goes away; when a mediation fails, the parties will often go to court to resolve their legal dispute.

The outcome of mediation will only bind both parties if they agree to sign a contract at the end of the proceeding. On the other hand, the arbitrator’s decision binds both parties.

In arbitration, parties will often come to the table having previously signed a “mandatory arbitration clause” as part of the contract between them. Judges will not allow a dispute to continue in court if there was a mandatory arbitration clause. As the Supreme Court recently ruled in a landmark case, “contracts to arbitrate are not to be avoided by allowing one party to ignore the contract and resort to the courts.”

Is it Binding?

The outcome of mediation will only bind both parties if they agree to sign a contract at the end of the proceeding. On the other hand, the arbitrator’s decision binds both parties. Though either side can appeal the arbitrator’s decision in court, judges almost always defer to their decision.

Which Costs More?

While both options are usually less expensive than court, mediation is generally less expensive than arbitration. Many areas have non-profit dispute resolution programs that provide free or reduced-fee mediation services, and the American Arbitration AssociationJAMS and Mediate.com provide online mediator directories where you can find inexpensive and professionally-trained mediators.

How do I make it happen?

To stay out of court and ensure that you arbitrate or mediate your legal disputes instead, you may want to include a mandatory arbitration or mediation clause in your contracts. You can find examples of mandatory arbitration or mediation clauses through US Arbitration & MediationJAMS, and the International Chamber of Commerce.

Controversy over Mandatory Arbitration Clauses

Although mandatory arbitration clauses may sound like an excellent way to resolve legal disputes out of court, they are not free of controversy. Many consumer protection groups remain concerned about forced arbitration, especially when many consumers do not know that they signed a mandatory arbitration clause as part of their contract.

If you decide to include such a clause in your contracts, you should be mindful of the controversy surrounding mandatory arbitration. Companies that include such clauses should also consider including an opt-out provision for those consumers who know that they do not want to enter into mandatory arbitration.

And don’t try to hide these clauses in your contracts! Courts are far less likely to enforce these clauses when they believe that they were hidden deep in a contract or on a website.

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Arbitration and mediation can provide relatively inexpensive, confidential, and efficient solutions to legal disputes. As long as you do not hide clauses mandating arbitration or mediation in your contracts, arbitration and mediation can help you stay out of court — saving you time and money.

 

Alex Lipton is a Legal Researcher at Shake and a Mitchell Jacobson J.D. Scholar at NYU School of Law. He also serves as Vice President of Operations for the InSITE Fellowship. He writes about legal issues affecting early-stage companies. Find him on LinkedIn or on Google+.