Arbitration vs. Litigation: What's the Difference?

Last updated: July 30, 2026

If your business is facing a dispute, you have options for how to resolve it. Two of the most common are litigation (taking the matter to court) and arbitration (resolving it through a private process outside the courtroom). Our Houston arbitration lawyers explain how each process works, and the pros and cons you should weigh before deciding which route to pursue.

Are you facing litigation or arbitration? Don't face it alone. Contact us today for a consultation. Our Houston-based attorneys have been protecting the interests of Texas businesses and individuals since 1987.

What Are the Differences Between Arbitration and Litigation?

Litigation means taking a dispute to court. Both sides present their case before a judge or jury, who then renders a decision. Arbitration is a private process in which both parties agree that an arbitrator, a neutral third party, will render a binding decision. Like litigation, both sides have a lawyer in arbitration, and both make arguments and present evidence to support their case.

The most significant difference is that litigation is handled in court and must follow strict procedural and evidentiary rules. Arbitration is handled outside the courts and can be a faster, more informal process, but it can only take place if it's provided for in a contract or agreed to by both parties.

Arbitration vs. Litigation:

Litigation

Arbitration

A court decides the outcome of the dispute.

A neutral third party studies the case, receives the evidence and makes a binding decision.

A public procedure, governed by established rules of procedure and evidence.

Confidential and private, a smart choice for businesses that want to keep disputes out of the public eye.

Typically takes longer, due to formal procedural rules and court backlogs.

Typically faster, since the parties and arbitrator agree on a schedule once the arbitrator is appointed.

Either party may appeal the court's decision based on an alleged material error.

The arbitrator's decision is final and binding and generally cannot be appealed, except in limited circumstances.

Parties may be compelled to participate in court proceedings.

You cannot compel the other party to participate unless your contract has an arbitration clause requiring it.

The trial judge is assigned by the court, without input from the parties.

The parties choose the arbitrator, often based on expertise in the relevant industry or field of law.

Can be more expensive, due to the lengthy discovery and appeals process.

Can be less costly, due to the compressed schedule, though the arbitration association and arbitrator both charge fees the parties must cover.

Arbitration vs. Court: Is There a Difference?

Arbitration and litigation are the two main paths to resolving a business dispute, and "court" is simply another word for litigation. When someone asks how arbitration compares to going to court, they're essentially asking how litigation compares to arbitration, the same question addressed in the table above.

As a review, here are the main differences between going to court and arbitration:

Going to court, or litigation, is a courtroom process with a judge or jury and public rules of procedure.
Arbitration is a private process with a chosen arbitrator and a binding, largely unappealable result.

What Are the Advantages of Arbitration?

Arbitration offers several advantages over litigation:

Speed and efficiency – arbitration follows less strict procedural and evidentiary rules, and there are typically fewer scheduling delays
Cost-effectiveness – fewer court fees and formalities generally mean lower attorney fees
Flexibility – the parties can agree on the rules of evidence, select the arbitrator, and tailor the process to their needs
Confidentiality – arbitration hearings are private, and the award isn't typically made public, which matters for businesses that want to avoid the negative publicity of a lawsuit
Expertise – parties can often choose an arbitrator with expertise in their industry or area of law
Finality – arbitration awards are generally binding, with limited opportunities for appeal, which can mean a quicker, more definitive resolution

What Are the Disadvantages of Arbitration?

Arbitration also has drawbacks. It isn't always the right choice for every dispute:

No jury trial – you lose the option of a jury that might be more sympathetic to your case than a single arbitrator
Limited discovery – arbitration typically restricts your ability to gather evidence and information from the other party
Limited appeal rights – you're generally stuck with the arbitrator's decision, even if you believe it's unfair
Cost concerns – arbitration is often marketed as cheaper, but the arbitration association and arbitrator both charge discretionary fees, and unexpected costs like filing fees, travel and hearing room rentals can add up
It takes two – you cannot compel the other party to participate in arbitration unless your contract requires it

A Note on Arbitration Expenses and Forum Selection Clauses

Large companies, such as multinational corporations and franchisors, tend to favor arbitration provisions that include a forum selection clause. This lets them choose where the arbitration takes place, usually the city where they're headquartered, which can require you to travel to dispute the matter.

Have an attorney review your contracts and agreements, especially franchise agreements, before you sign. A business attorney can flag potentially unfair provisions and help you negotiate more favorable terms.

Can You Challenge an Arbitration Agreement?

Under the Federal Arbitration Act and Texas law, an arbitration agreement can be challenged in court on the same grounds that would void any other contract, including fraud, duress, or an agreement so one-sided it's “unconscionable” (a legal term meaning fundamentally unfair).

What courts won't do is invalidate an arbitration clause just because another provision of the contract may be unenforceable. For example, in Buckeye Check Cashing, Inc. v. Cardegna, a 2006 dispute over whether a loan agreement's high interest rate made the entire contract illegal, the U.S. Supreme Court held that a challenge to the contract as a whole goes to the arbitrator, not a judge.

What this means for your business: If you're facing an arbitration clause you think is unfair, the strength of your challenge often depends on whether you can point to a problem with the arbitration clause specifically, not just a general complaint about the deal. An attorney can help you evaluate whether you have a real basis to challenge the clause or whether your best path is to prepare for arbitration on its merits.

Can You Go to Litigation or File a Court Appeal After Arbitration?

Generally, no. A binding arbitration clause forces disputing parties to waive their right to litigate.

What Happens If You Lose in Arbitration?

Losing in arbitration means the arbitrator's decision goes against you, and the arbitrator may issue an award. This could involve paying money damages, returning property, paying the other party's arbitration or legal fees, or taking some other action.

Unless otherwise agreed, the arbitrator's decision is final and binding and cannot be appealed, except in limited, rare circumstances, such as:

Arbitrator misconduct – there's evidence the arbitrator acted with bias or made procedural errors that significantly affected the outcome
Exceeding authority – the arbitrator ruled on something outside the scope of the arbitration agreement

If you don't pay the winning party what you owe under the arbitrator's award, they can take steps to enforce it, usually by going to court to have the award converted into a court judgment. Once it's a judgment, the winner can use the court's judgment enforcement powers to collect what they're due.

Choosing an Arbitrator

The arbitration clause in your agreement generally dictates how the arbitrator is chosen. In some cases, the agreement specifies an arbitration services provider. There are three primary providers in the United States: the American Arbitration Association (AAA), Judicial Arbitration and Mediation Services (JAMS) and the American Health Law Association (AHLA), each with its own selection process.

If the arbitration agreement doesn't specify an institution or process, or if there's no arbitration agreement, the parties must work together to select an arbitrator. Regardless of the selection process, both parties should carefully consider the proposed arbitrator's experience. Your attorney will likely have experience with arbitrators in your area and can share insights that account for your case's specific circumstances.

Arbitration vs. Mediation: What Is the Difference?

Like arbitration, mediation is an alternative to litigation, but mediation is merely a negotiation, with no guarantee the parties will reach a resolution. A mediator trained in dispute resolution facilitates the process, often while the parties await a court date or arbitration conference, with the goal of reaching a solution that works for both sides. If the parties fail to reach a resolution, litigation or arbitration is often the next step.

Many judges, especially in larger metropolitan areas, won't let a case go to trial without mediation, and automatically include a mediation deadline in the docket control order issued shortly after a lawsuit is filed. If a settlement is reached, it's recorded in a written agreement that's legally binding.

Put side by side, the three options differ mainly in who decides the outcome, and how final that decision is: mediation ends only if both sides agree to a settlement in writing; arbitration ends with a binding decision from a neutral arbitrator; litigation ends with a decision from a judge or jury, with the option to appeal.

Which Comes First, Mediation or Arbitration?

Mediation, whether an informal negotiation or one facilitated by a professional mediator, is usually the first step in resolving a dispute. It takes place outside the courts or the arbitration process. If mediation results in an impasse, the parties may then proceed to arbitration (if an agreement with an arbitration clause exists or both parties agree) or to litigation.

Frequently Asked Questions

Is arbitration considered litigation?

No. Litigation specifically refers to resolving a dispute through the court system. Arbitration is an alternative to litigation, not a form of it, even though both processes involve presenting evidence and arguments to a decision-maker.

Is an arbitration decision legally binding?

Yes, in most cases. Unless the parties agreed to non-binding arbitration, the arbitrator's decision is final and enforceable in court, with only limited grounds for appeal.

Do I have to use arbitration if my contract requires it?

Generally, yes. If your contract contains a valid, enforceable arbitration clause, courts will typically hold you to it and won't let the dispute proceed in litigation instead. See "Can You Challenge an Arbitration Agreement?" above for the limited exceptions.

Can a business choose arbitration even without a contract requiring it?

Yes. Parties who don't have an existing arbitration clause can still agree to arbitrate a dispute after it arises, if both sides consent.

How the Alternative Dispute Resolution Attorneys at Hendershot Cowart P.C. Can Help

Hendershot Cowart P.C. business attorneys have been resolving complex business disputes, in and outside the courtroom, for nearly 40 years. Whether you're deciding how to handle a dispute, preparing for a hearing or trying to determine if your arbitration clause is enforceable, our Houston arbitration and mediation attorneys routinely help clients resolve lawsuits, disputes and negotiations through litigation, arbitration or mediation. We align our legal strategy with your goals, then work with you to deliver the best possible outcome.

You may be facing this decision right now if:

You've received a demand letter or lawsuit and aren't sure whether your contract requires arbitration
You're negotiating a contract and want to know whether to include, or avoid, an arbitration clause
You're already in arbitration and want a second opinion on your strategy

You will likely need an attorney to review your case, and the provisions of any relevant contracts or agreements, to determine whether litigation, arbitration or mediation is the right path, or even available, for your matter.

Let us take care of the fight for you. Contact us online, or call (713) 783-3110, today for a consultation on your business or commercial dispute.