LAW TALK NO. 6: Kurt Schmalz Discusses the Differences Between “Arbitration” and “Mediation”

August 30, 2022
Kurt L. Schmalz

Over the past 30 years, parties in civil disputes have frequently turned to private arbitrations and mediations to resolve these disputes.  Clients frequently confuse these two important dispute resolution alternatives to judge and jury trials in the court system, and this confusion can often cause difficulties in the attorney-client relationship and in resolving disputes.

This article discusses the basic distinction between arbitration and mediation and offers some tips to those who may not be that familiar with these alternatives to adjudication of disputes in the judicial system.  In addition, we point out how private mediations and arbitrations usually arise and how parties use the arbitration process in creative ways to resolve difficult disputes.      

What is Arbitration?

Arbitration is an adversarial process in which a neutral third party (the arbitrator) is empowered to decide the outcome of a dispute.  Usually the arbitrator’s decision is binding on the parties and there is no right to an appeal.  

In California, the arbitrator’s decision (”the award”) can be confirmed in Superior Court as a judgment that has the same force and effect as a judgment by a judge or jury, but (unlike a court judgment) a party’s right to appeal the judgment is strictly limited.

What is Mediation?

Mediation is “a process in which a neutral person or persons facilitate communication between the disputants to assist them in reaching a mutually acceptable agreement.”  Cal. Evidence Code § 1115 (a).  The mediator does not make decisions on who wins or who loses the dispute, and the mediation process does not produce a binding result, unless the parties agree to a settlement.

In California, the private mediation process is strictly confidential and what is said or done in the mediation process (from its beginning to its conclusion) cannot be used in litigation or arbitration or be the subject of discovery in any subsequent proceeding.  Like Vegas, what happens in mediation stays in mediation.  These confidentiality provisions are codified in Cal. Evidence Code §§ 1119 – 1129. 

Tips to Remember:

Given the significant differences between arbitration and mediation, it is crucial for lawyers and their clients to know and appreciate the distinction between these two dispute resolution methods.  

For Arbitration – Think binding final decision to be made by arbitrator to end the dispute.

For Mediation – Think negotiation of a dispute in hopes settling it.  No decisions made by mediator.  Parties are free to walk away at any time.  You do not have to settle.  The mediation process is Confidential.

Both arbitrations and mediations usually arise by contract or in some other agreement between the parties.  Over the years, arbitrations have evolved in various ways and can arise in a variety of situations.   

Kinds of Arbitration

Contractual arbitration is a legal process in which a dispute arising from or related to a contract is resolved.  In contractual arbitration, the parties have agreed pursuant to an arbitration clause in their contract that in the event of a dispute, the matter will be resolved by arbitration. In most cases, arbitration arising from a contract is legally binding. Most commonly, an arbitrator or a panel of arbitrators will listen to evidence and arguments from both sides regarding the dispute. The arbitrator will decide the dispute and issue an award that is final except for certain extraordinary circumstances. In contractual arbitration, a set of rules or procedures is usually incorporated into the arbitration clause that dictates how the parties will proceed.

Arbitration by stipulation is based on a post-dispute agreement between the parties whereby they have agreed to arbitrate their dispute after it has arisen. The parties must then choose which set of rules and procedures to follow to guide the proceedings. Arbitration by stipulation is typically binding and the arbitrator’s award is final except for certain extraordinary circumstances.

Judicial arbitration is a statutory procedure in which the Court directs certain types of cases to nonbinding arbitration before trial. Court-ordered arbitrations are non-binding, meaning that either party who is dissatisfied with the arbitrator’s award may request a new trial. Since the process is non-binding, no party has given up any constitutional rights by engaging in this type of arbitration.  See also Mandatory Fee Arbitration to resolve attorney-client fee disputes provided in Business & Professions Code §§ 6200-6206 (non-binding arbitration conducted by State Bar or Local Bar Associations).

Baseball Arbitration.  Major League Baseball has even developed its own unique arbitration process to handle salary disputes among players and their teams.  Baseball Arbitration is a type of arbitration in which each party to the arbitration submits a proposed monetary award to the arbitrator. After a final hearing, the arbitrator will choose one award from the submitted awards without modification. It gives each party to the arbitration an opportunity to offer a reasonable proposal to the arbitrator with the hope that the arbitrator will accept his /her award. 

Baseball arbitration is increasingly used in commercial disputes other than in Major League Baseball salary arbitrations.  In a spinoff of Baseball Arbitration, Night Baseball is a form of arbitration in which the Arbitrator does not look at the parties’ submissions until after the arbitrator makes his/her own decision.  Then the arbitrator picks the party’s submission that is mathematically closest to the arbitrator’s decision to make the arbitration award.

1 The definitions for “Arbitration” and “Mediation” and other related information above come from various sources, including the websites of ADR Services and JAMS, two leading alternative dispute resolution providers in Southern California.