The primary difference between arbitration and adjudication is the person or entity that makes the decision in a legal dispute. In arbitration, the disputing parties agree on an impartial third party—an individual or a group—to hear both sides and resolve the issue. In adjudication, the decision is the responsibility of a judge, magistrate, or other legally-appointed or elected official.

Arbitration is often used as a way to settle contract disputes. Parties signing a contract often agree to the use of arbitration to decide if a contract has been breached or whether it can be terminated. By choosing arbitration to settle disputes, the parties agree not to pursue their complaints in a court of law. If arbitration is not chosen, the parties' only recourse is typically adjudication.

The actual process of arbitration and adjudication is much the same. Mediation through a arbitration hearing is similar to a court hearing. Each party brings evidence and witnesses before the agreed-upon arbiter and makes his or her case. The arbiter weighs the evidence and draws a conclusion, either deciding for one of the parties or proposing a unique solution. Contracts usually include a clause that the parties agree to comply with the arbiter’s decision, typically the phrase ‘binding arbitration.’

Adjudication is usually a legal trial, also referred to as court-based litigation. Disputing parties appear before an appointed or elected official and plead their respective cases. Like the arbiter in arbitration, an adjudicator weighs the evidence and issues a determination in favor of one of the parties. One difference between arbitration and adjudication is that the parties in an adjudicated decision are compelled by law to comply. If the losing party refuses or is unable to fulfill the mandate of the decision, he or she may be fined or jailed.

Another difference between arbitration and adjudication typically involves the amount of time taken to reach a resolution. Since arbitration does not generally depend on time allotted for the legal calendar, it may be a quicker process. Adjudication, on the other hand, depends largely on the number of cases the judge assigned to the case has. This time constraint sometimes causes adjudication to take months or years.

Choosing between arbitration and adjudication is often determined by monetary factors. Since arbitration is a legal process, usually requiring legal filing fees and the employment of litigating attorneys, court costs can be high, increasing as the trial progresses. Arbitration is generally lower in the costs associated with case presentation.