For many people, when they think about resolving a legal dispute, they think of a trial. For many problems, mediation or arbitration can be a better solution. Both mediation and arbitration are alternative dispute resolution methods (commonly referred to as ADR). ADR is a means to resolve a dispute outside of the normal channels of litigation. ADR is often faster and less expensive than drawn out court battles and in many cases can be beneficial to both sides. In some states, including California, the court may compel arbitration or mediation. Some contracts can require a form of ADR to be pursued in the case of a dispute. It's important to understand the differences between the two.
In mediation, a neutral third party is present to help the parties involved come to an agreement. The mediator cannot force either party to take action, and their purpose is primarily to act as a facilitator, encouraging compromise, reasonable discussion and an amicable settlement. Both parties may leave mediation with the dispute unresolved, although it is expected that all parties act in good faith to reach an agreement.
In arbitration, one or more neutral third parties decide the issues in contention after hearing arguments from both sides. An arbitrator essentially takes the place of a judge - in fact, many arbitrators are former judges. Their decision is legally binding. Arbitration takes the place of trial, although in cases with multiple parties, not all may necessarily participate.