What is the difference between mediation, arbitration and litigation?

If you own and operate a business of your own, one thing is certain: You’re bound to encounter an occasional disagreement. Your problem could be with a supplier, a customer, a service provider or another business.

When business disputes escalate, they can take up a lot of time, energy and money, so finding ways to resolve those disputes as quickly as possible can be very wise. Generally, you have three options at your disposal: Mediation, arbitration or litigation.

How mediation works

Mediation takes place outside of the court under the guidance of a mediator. The mediator is an unbiased third party that does not take sides in the dispute. Instead, they help the parties reach a mutual agreement by encouraging communication and cooperation. Mediation is often seen as the most peaceful way to resolve a dispute, and it is a good way to preserve a working relationship.

How arbitration works

Arbitration also takes place out of court, but it is not the same as mediation. With arbitration, the parties in disagreement present their case to a lone arbitrator or a panel of arbitrators and wait for them to decide the issue. As with mediators, arbitrators are unbiased and take no sides in a business dispute.

The results of the arbitration may be legally binding or non-binding. If binding, the parties in disagreement must abide by the decision. If non-binding, the parties can choose to resolve the matter another way.

How litigation works

Litigation is another way to refer to a lawsuit. Each party presents their argument in court to resolve their legal disagreement. This offers the least amount of control to both parties, and it often permanently sours a business relationship — but it’s also sometimes the only viable way to end a dispute if the other party refuses to be reasonable or negotiate.

An ideal way to minimize the hardships that disagreements cause is to learn about all the business dispute resolution methods at your disposal.