In mediation, the mediator does not decide the outcome. Their role is to facilitate communication, help each side understand the other's position, and guide the parties toward a mutually acceptable resolution, but ultimately any agreement requires both sides to voluntarily consent to it.

In arbitration, the arbitrator functions much more like a private judge, reviewing evidence and arguments from both sides and then rendering a decision. Neither party has to agree with the outcome for it to take effect — the arbitrator's ruling is imposed on the parties, much like a court verdict.

Because mediation depends on mutual agreement, it can end without any resolution at all, in which case the parties typically remain free to pursue litigation or other dispute resolution methods. Nothing said or offered during mediation is generally binding unless it is formalized into a signed settlement agreement.

Arbitration, by contrast, is usually binding, particularly when the parties agreed in advance (often through a contract clause) to resolve disputes through binding arbitration. Binding arbitration awards are generally enforceable in court and are extremely difficult to overturn on appeal, with only narrow grounds available to challenge them.

Mediation tends to be less formal and more flexible, often conducted through a series of conversations, sometimes with the parties in separate rooms and the mediator moving between them. It generally has fewer procedural rules than either arbitration or litigation.

Arbitration is more structured, often resembling a simplified trial with the presentation of evidence, witness testimony, and legal argument, but generally without the strict procedural rules and lengthy discovery process typical of full court litigation. Costs and timelines for arbitration usually fall somewhere between mediation and full litigation.

Mediation is often preferred when the parties want to preserve a relationship, retain control over the outcome, or explore creative solutions that a court or arbitrator could not order, such as an apology or a modified business arrangement rather than only monetary compensation.

Arbitration is often chosen — or contractually required — when the parties want a faster, more private, and more definitive resolution than court litigation, particularly in commercial and employment contexts where arbitration clauses are common in the underlying agreements.