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Alternative Dispute Resolution ADR: Arbitration, Mediation
Definitions, Meaning Explained, Usage Examples


Settling disputes through the court systems can be a time consuming and costly process. Alternative dispute resolution methods offer disputing parties a faster, less expensive approach to settlement."

Sometimes it is better to resolve disputes outside of the court system.

What is Alternative Dispute Resolution?

Alternative dispute resolution (ADR) (including arbitration and mediation) refers to legal methods for resolving disputes outside the court systems. This article defines and explains ADR and related terms, mediation, mediator, arbitration, and arbitrator.

Why Use Alternative Dispute Resolution?

Compared to using the courts and law suits to settle disputes or conflicts, ADR methods can offer the parties to the dispute—and those impacted by the dispute—advantages including faster resolution and lower legal fees. Under these methods, for instance, decisions are typically reached more quickly and, if any party is unsatisfied with the result, there is much less chance to prolong the legal process through appeals. These methods may also offer the advantage of allowing parties to specify a mediator or arbitrator with expertise in the area of dispute, in contrast with a legal trial in which the judge may not have specialized expertise in the subject.

The most commonly used ADR methods are:

  • Arbitration, an adversarial process, resulting in an arbitrator's decision that is binding.
  • Mediation, a more cooperative process, under guidance of a mediator, with an outcome that is binding only if is mutually acceptable to all parties.



What is Arbitration?
Explaining the Role of Arbitrator

Arbitration is typically the chosen legal method for dispute resolution when one or both parties to an agreement believe the other has not performed as agreed, or when parties cannot agree on terms for a new contract. Under arbitration …

  • The disputing parties submit their cases to a third party arbitrator (or panel of arbitrators).
  • Arbitrators review the evidence, the applicable law, and the original contract or agreement.
  • After this review, arbitrators then render a decision for the parties.

Agreement to use arbitration as the method of dispute resolution is typically specified in the original contract between parties.

Under most forms of arbitration, the arbitrator's decision will rule in favor of one party and against the other (i.e., will not necessarily attempt to satisfy all sides) and the decision is legally binding. In this way, arbitration is thus essentially an adversarial process, as contrasted with mediation (below) which can be a more cooperative process.

Arbitration decisions are binding because parties to the dispute have already agreed (contracted) to abide by the arbitrator's decision. An arbitrator's decision can be appealed or reversed only under rare and extreme circumstance, as for example when there is compelling evidence that the arbitrator was biased.

Who Uses Arbitration?

Businesses often resort to arbitration when there are consumer disputes or labor/management disputes.

Customer contracts with investment and brokerage firms, for instance, typically specify that any disputes will be settled by arbitration.

  • In the United States, especially, collective bargaining agreements between labor and management typically require that arbitration be used to settle disputes.
  • For addressing disputes that are not international, most countries have their own arbitration bodies and associations (sometimes including both arbitration and mediation).

Arbitration for International Business Disputes

Firms with International business disputes frequently submit them for arbitration to bodies such as the International Court of Arbitration (part of the International Chamber of Commerce). For international disputes, the use of an international arbitrator helps avoid problematic jurisdictional issues (questions over which party's laws or procedures should prevail). The requirement that arbitration be used, the steps in the arbitration procedure, and the international body to be used, may all be specified in the original contract itself.

What is Mediation?
Explaining the Role of Mediator

Mediation is typically defined as a cooperative form of alternative dispute resolution. Under mediation, disputing parties present their cases to an impartial mediator, who then attempts to open communication between them and bring them to a mutually acceptable resolution. The mediator is not in a position to impose a binding solution however, and any resolution agreement reached must be mutually acceptable to the disputing parties.

Mediation may be the ADR method of choice in a very wide range of dispute categories, involving commercial business contracts, but also labor contracts (e.g., between professional athletes and their employers), family disputes (e.g., divorce), and disputes between communities or other government organizations.