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A mediator normally has no authority to render a decision. It's up to the parties themselves -- with the mediator's help -- to work informally toward their own agreement. An arbitrator, on the other hand, conducts a contested hearing between the parties and then, acting as a judge, rends a legally binding decision. Arbitration resembles a court proceeding: Each side calls witnesses, presents evidence, and makes arguments. Although arbitration has traditionally been used to resolve labor and commercial disputes, it is growing in popularity as a quicker and less expensive alternative to going to court.
Arbitration has its critics, however. There has been a lot of controversy lately about big businesses requiring their customers or employees to arbitrate disputes with them, rather than taking those disputes to court. Often, these arbitrations are conducted under rules that favor businesses -- for example, damages are limited, time limits for filing a claim are shortened, or information sharing is cut off. Some courts have ruled that businesses can't require consumers and employees to participate in these one-sided proceedings, although others have ruled differently.