Mediation is non-binding; the parties sit down with a neutral and try to work things out. Sometimes the parties are in the same room, sometimes the neutral shuttles between the parties. Frequently, mediation is contractually-required prior to initiation of litigation or arbitration.

Arbitration is binding. The largest arbitral body in the US is the AAA which has some good public info on the topic.

Some MauMau-ers have raised the issue of due process. And while the Supreme Court brushed this argument aside in Prima Paint , the dissent by Justice Black (joined by Douglas & Stewart) is worth reading; (esp. regarding Michael Webster's Q about what was intended when FAA was passed, and how that morphed into the sledgehammer which FAA has become) Here is how Justice Black begins:

Arbitration is conducted either in person or sometimes by mail submissions. It may have a single arbitrator or a panel. The arbitrator is a private judge, and generally his decision will be enforced by the courts, and there is a treaty governing recognition of arbitral awards internationally. (Grounds for vacatur may be found under state or federal law). Which law can be important here: for example, under NY law if you participate in the proceeding you waive any jurisdictional objection, but if you conduct your proceeding under the federal law, that is not true.

Parties to a contract may agree to grant the arbitrator power to issue injunctive relief. Some franchisors put such a clause in their contracts, but some deliberately leave it out precisely because the f'zor wants to be able to go to federal court for injunctive relief based on Lanham Act (Intellectual Property) or other claims (which the f'zor will likely win) while simultaneously forcing the f'zee to arbitrate on the f'zors home turf. You can see an example of a court noticing this in footnote 2 at the end of the Florence Bolter case . (This decision also discusses the nexus between adhesory contracts and unconscionability).

The leading reporter critical of arbitration is Reynolds Holding of the San Francisco Chronicle, whose October 7-9, 2001 series of articles caused a huge ruckus out in California (ironically, the ABA Forum on Franchising was meeting in SF at the time). If I can find a public database with the articles, I wil post hyperlink; I highly suggest asking your local library to pull up the series from one of the library subscription databases.

Of particular note is the repeat player phenomenon , which is mentioned by a former Prez of the Academy of Arbitrators in the above article, mentioned by the co-chair of JAMS (cite on fn  840) and the AAA even had a "marketing effort" to convince corporations to send their business to AAA (cite fn 834), was documented in employment cases , and in Prima Paint the Black dissent noted: "I think it raises serious questions of due process to submit to an arbitrator an issue which will determine his compensation."

Class action is a separate and distinct issue. You can have class action claims in litigation and class action in ADR. The leading authority on the use of ADR clauses in franchise agreements is Edward Wood ("Jack") Dunham of Wiggin & Dana, who advocates their use as a means of effectively prohibiting franchisees from bringing a class action claim. The leading academic is Professor Jean Sternlight, who has written about the topic primarily in the context of ADR bars to class action in consumer cases .

I am a huge fan of ADR and believe that it can be particularly beneficial in cases where the parties have an interest in maintaining a relationship and/or where the "real" issues in a case may not be susceptible to judicial resolution-- such as franchise, business partnerships, matrimonial/family law cases, etc.

BUT... there are ways of abusing ADR and the FAA, and we should be realists about this, particularly given the growing importance of ADR in all walks of life.