Comparing Mandatory Arbitration vs. Mediation vs. Litigation

What is Mandatory Arbitration?

Over the past decade, public disapproval of mandatory arbitration enforced by employment contracts has risen dramatically. This prevalent objection to mandatory arbitration clauses emerged from the fact that this type of clause prevented victims of workplace sexual misconduct from going public with disputes. In March 2022, the U.S. House of Representatives passed the Forced Arbitration Injustice Repeal Act of 2022 (FAIR Act), which prohibits mandatory arbitration agreements for antitrust, consumer, civil rights, and employment disputes. Although the FAIR Act has yet to pass the Senate, its public and congressional support could reflect possible changes to existing arbitration policies.

Currently, mandatory arbitration clauses are included in some contracts to outline how the employer and employee will settle any future disagreements. When both parties sign a document containing a mandatory arbitration clause, this indicates that both parties have agreed to bypass litigation if disputes arise over the contract. In other words, both parties will be legally required ("mandated") to settle disputes outside a court through arbitration only.

What is Arbitration?

An arbitrator is a person who hears both sides of a dispute before making a legally binding decision. Arbitration is the process of two parties presenting their case to an arbitrator and accepting the decision. In most arbitration cases, decisions made by the arbitrator cannot be appealed and remain confidential. Therefore, arbitration decisions are not made known to the public via local or state court websites.

Arbitrators are typically practicing attorneys or retired judges working for arbitration organizations like the American Arbitration Association.

What is Arbitration vs Mediation?

The main difference between mediation and arbitration is that an arbitrator's decision is legally binding. Mediation allows two people to resolve their disputes with the assistance of a mediator. During a conflict-mediation process, all parties involved can express their grievances and explain why they think the other parties should accept their solution to the issues. Mediators listen to individual sides of the story, ask questions that help come to a resolution, and suggest different forms of compromise that parties may agree upon.

Family law, personal injury, and contractual issues are commonly settled through mediation. Although the disputing parties may resolve their arguments during mediation, they are permitted to litigate the case in court if they change their minds about the resolution.

Advantages and Disadvantages of Arbitration, Mediation, and Litigation

Litigation involves arguing disputes in courtrooms in front of judges. Parties involved in litigation are represented by attorneys presenting the case to a judge who makes a legally binding decision. Litigation of disputes may also be heard in front of a jury that renders the decision, not the judge. Litigation is more expensive than mediation or arbitration and takes much longer.

Arbitration is the preferred method of resolving disagreements between unionized employees and a company's labor relations department.

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Accessing past arbitration and grievance data impacting organizations can identify latent recurring issues that should be addressed with strategies to prevent their recurrence. 

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