The cost of defending a lawsuit – win or lose – can easily reach six figures. Many employers are forced to settle lawsuits simply to avoid ruinous legal expenses. There are, however, common alternatives to protracted and costly litigation: mediation and arbitration.

Government agencies and private litigants are increasingly turning to these alternatives to resolve their disputes without going to court. Since they offer a quick and economical path to resolution of problems that would otherwise wind up in front of a judge and jury, building service contractors and other employers should understand exactly what they mean.

“Mediation” is a process in which both sides to a dispute sit down with a trained and neutral third party. The neutral party’s only job is to assist the parties in reaching a mutually agreeable settlement. Everything that is said in the mediation is deemed confidential and cannot be brought up later. If no settlement is reached, the mediator tears up his or her notes and the parties return to litigation; nobody ever finds out why an agreement was never reached.

The advantages of mediation is that it is quick, cheap, informal, confidential and, unless the parties reach agreement, non-binding. Lawyers, although occasionally helpful, are not necessarily required. A skilled and persistent mediator can work wonders in untangling even the most complicated disputes and making the warring parties see reason. Because they are not bound by the confines of the law, mediators can often suggest novel and creative solutions that the parties never thought of themselves.

“Arbitration” is a different process. Long a staple of union-management grievance procedures, it involves an agreement by both sides to submit their dispute to a neutral third party for binding resolution. The arbitrator will hold a hearing at which the parties will present testimony and evidence. Although arbitration is less formal than court litigation, basic rules of evidence and procedure are usually applied. For that reason, representation by a lawyer for all but the simplest disputes is desirable. The advantages of arbitration over litigation are that it is faster and cheaper because it dispenses with time-consuming and expensive motion practice and pre-trial discovery.

Arbitration awards are legally binding. As long as the arbitrator applies basic rules of fair play, a court will uphold his or her ruling, even if the award contains mistakes about the applicable facts or law. This should lead the parties to only select an arbitrator who is knowledgeable about the area of law involved in their dispute. Some sophisticated arbitrators try to assist the parties to reach a settlement without the necessity of rendering an award.

Many employers have found the advantages of mediation and arbitration to be so appealing that they write them into employment agreements, even where no union is involved. As laws relating to the workplace grow more numerous and complex every year, this is a trend that can be expected to continue.

Perry Heidecker is senior counsel for Milman Labuda Law Group PLLC, Lake Success, N.Y. The firm is a full-service Employment Law practice focused on counseling, preventive advice and training, policy and procedure design, representation before administrative agencies, litigation, and appeals.