They're both methods of alternative dispute resolution, but don't confuse mediation and arbitration. They're also two very different animals.
Mediation involves the use of a skilled facilitator, often an attorney, who assists two opposing parties in reaching a negotiated settlement. Businesses often enter mediation voluntarily to avoid litigation, though many California courts now require legal adversaries to at least attempt mediation before pursuing a lawsuit already on file.
Arbitration is generally pursued outside the court system, and involves the use of arbitrators, often retired judges, who act as judge and jury. It can follow a failed mediation process, and is often mandated by employment and other contracts, including between businesses. An arbitrator's award is generally final and nearly impossible to appeal.
Besides mediation and arbitration, there also are other alternative dispute resolution services such as judicial-reference, in which a private judge is hired to hear a lawsuit following traditional court rules but avoiding busy trial courts. Those decisions can be appealed.
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