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How do arbitration and mediation work?

On Behalf of | Mar 31, 2022 | Business Law |

As a business owner, your most important assets exist in the ties you make. This can be to customers and consumers, to contractors, and to business partners.

The last thing you want is to sever these ties, but how do you handle disputes when they arise? While it can feel tempting to jump to litigation right away, it is better to pursue other means of solving these issues.


FINRA examines both arbitration and mediation as viable alternative methods to resolve disputes. Arbitration leans more toward litigation, and thus serves better in events where a stronger legal hand seems necessary.

An arbitrator holds similar power to a judge. They will listen to all parties present their cases, evidence and counter-arguments. They will then make a decision based on this information. The decision they make serves as a legally binding agreement that all parties must by law follow.


Mediation, on the other hand, is a little more freeform and leans more heavily on the parties involved. It is up to the parties to work together to come up with an arrangement that satisfies grievances. The mediator will act as referee and may speak up, direct the conversation and otherwise ensure all parties have their say. However, they cannot make legally binding decisions.

Both options allow parties to avoid the downsides of litigation. This includes the cost of taking something to court and the time it takes court cases to get through the system. It also avoids having a public record of the case, which all court cases keep, which keeps the private affairs of business owners out of the public eye.