Mediation vs. arbitration is an important topic to understand for those considering some form of dispute resolution.  What both methods have in common is that courts of law aren't used in order to settle differences between the opposing parties. Mediation and arbitration serve a different purpose for the parties even though they are similar in some respects.

Mediation vs.  Arbitration: Purposes

In mediation, for example civil mediation, the purpose is to have the two sides meet with a third party who will remain neutral.  The job of this third party is to arrange some kind of settlement that will satisfy both sides.  The settlement may be monetary in nature or may include non-monetary agreements.  In mediation, there is no legal requirement that the dispute be settled.  In addition, anything said during mediation is not regarded as evidence in a court of law should a lawsuit be filed at a later date.  This remains an option if the mediation fails. 

The purpose of binding arbitration, however, is to provide a substitute for legal process.  Instead of what may be a somewhat informal discussion as in mediation, arbitration resembles a trial in some respects.  The process is conducted in front of a panel of experts, typically between one and three.  These experts will issue a decision in the case, much as a judge does in a court of law.  Arbitration results are final and only in rare cases can any appeal be made to a court of law.