Alternative Dispute Resolution (ADR) in Business: Mediation and Arbitration

Mediation and arbitration are two distinct methods of alternative dispute resolution that offer effective solutions in business and beyond traditional courtroom litigation. Both methods are valued for their efficiency, confidentiality, and ability to preserve relationships between the parties involved. Commercial contracts often include clauses specifying which method to use in the event of a dispute.

Mediation

Mediation is typically a voluntary process (although in certain cases, it can be court-ordered) where a neutral third party, called a mediator, helps the parties that are in a dispute to find a mutually acceptable solution. It tends to be more flexible in terms of process and outcome than formal litigation. The mediator does not make decisions for the parties but facilitates dialogue and helps them explore potential solutions, thereby controlling the outcome. Since mediation sessions are private and confidential, open communication is encouraged.

There are advantages, as well as disadvantages, to mediation.  The advantages are that it preserves relationships because it is often less adversarial. It is also usually quicker and less expensive than going to court. In addition, it allows for creative resolutions that might not be available if the parties were to get involved in litigation.

One disadvantage of mediation is that there is no guaranteed resolution, meaning the parties might not reach an agreement. In addition, unless the agreement is formalized legally, it may lack the enforceability of a court judgment. Mediation may also not be an effective tool if there happens to be a significant power imbalance between the parties.

Arbitration

Arbitration is a process where a dispute is submitted to one or more arbitrators who make a binding decision regarding the dispute. It is less formal than a court trial but more formal than mediation. A neutral arbitrator is selected by the parties or appointed by an arbitration institution. The outcome is a settlement agreement, which is created and agreed upon by the parties. It is legally binding if the parties choose to make it so. The arbitrator acts similarly to a judge, but the process is private. 

The advantage of arbitration is that it is typically faster than court proceedings. There are limited grounds for appeal, which has the effect of providing closure once a decision is made. The arbitrators that are selected also might have more specialized knowledge in the particular field, or concerning a particular business.

A disadvantage of arbitration is that it can be expensive, especially if professional arbitrators are used. In addition, the opportunity to appeal an arbitration decision is limited compared to a court judgment. Lastly, there is limited room for evidence and discovery compared to litigation.

Choosing Between Mediation and Arbitration

The choice between mediation and arbitration depends on several factors, including the nature of the dispute, the relationship between the parties, the desired outcome, and how much control the parties want over the resolution. Businesses may choose mediation for its collaborative approach and flexibility, especially when they wish to maintain a relationship after the dispute. Arbitration is chosen for more definitive, binding resolutions, and when the parties want a decision made for them.

Pennsylvania State Laws Governing Mediation and Arbitration

In Pennsylvania, including Pittsburgh, the laws governing mediation and arbitration are primarily defined by state legislation and regulations. The Revised Uniform Arbitration Act (RUAA), effective July 1, 2019, is the most current law governing agreements to arbitrate in Pennsylvania​​​​. Parties can choose to have their arbitration governed by the terms of the RUAA’s predecessor, the Uniform Arbitration Act, or the RUAA itself for agreements executed after July 1, 2019​​. In Pennsylvania, mediation services are provided by the Bureau of Mediation. They provide impartial professional mediators to assist with negotiations and offer proactive training and services​​. These laws and provisions apply to the state of Pennsylvania, including cities like Pittsburgh, and provide a framework for both mediation and arbitration processes within the state.

Takeaway

Mediation and arbitration can both be effective alternative dispute resolution tools for businesses that find themselves embroiled in controversies. They are distinct processes and each has certain advantages, as well as disadvantages. Although less formal than court proceedings, it is highly advisable to have an attorney present with you at these types of proceedings. The law firm of Jones, Gregg, Creehan & Gerace has experienced attorneys who can help you through arbitration or mediation. Contact us for an initial consultation if you find yourself considering mediation or arbitration and want a highly skilled Pennsylvania business law attorney who can help you protect your interests.