Litigation—the process of resolving disputes in the judicial system—can be extremely costly and time-consuming. Even large companies often get financially strained during drawn-out court battles, which can take years to resolve and bring much unwanted publicity.
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As a result, many companies include requirements that disputes with employees are handled through some form of alternative dispute resolution (ADR). As the name suggests, this is basically an agreement to settle a dispute as an alternative to using the court system.
There are two forms of ADRs commonly used by many companies: arbitration and mediation. These two forms are frequently confused, but there is one important distinction that we’ll discuss here.
Mediation
In mediation, as Judicial Dispute Resolution (JDR) explains, “The parties to the dispute retain the right to decide whether or not to agree to a settlement. The mediator has no power to impose a resolution, other than the power of persuasion. All settlements reached through mediation are memorialized in a written settlement agreement.”
Arbitration
By contrast, in an arbitration, the parties agree ahead of time to give the power to decide the matter to an arbitrator. The arbitrator will consider the evidence and arguments presented and make his or her decision.
The key here is at what point the parties agree to make the decision of the arbitrator or mediator binding. In a mediation, if the two sides can’t agree, they aren’t bound by anything. The dispute continues.
In an arbitration, however, once arbitration has been agreed to, the parties are stuck with the decision of the arbitrator, whether they like it or not. And unlike in the formal court system, it is generally not allowable to appeal a decision one disagrees with.
Keeping employee disputes out of the court system is a common goal of Human Resource (HR) departments, and there are tools designed to do this. But companies and their HR departments need to make sure they understand which tool is right for their objectives and situations based on a solid understanding of these differences.