Employees who have a dispute with an employer or two businesses disagreeing over a contract may believe arbitration will resolve their dispute without a lengthy court process. But arbitrators, like court judges, can still hand down binding decisions, which may alienate some parties from choosing arbitration if they fear the arbitrator will award an excessive judgment. This is why some parties seek to limit potential monetary awards before submitting to an arbitration.
Harvard University explains that parties may seek to limit how much an arbitrator may award in a judgment by mutually deciding to limit both the maximum and the minimum amounts an arbitrator may grant. This method, known as hi-lo arbitration, can help assure parties going into an arbitration that they do not face excessive risk if one of them should lose the arbitration and have to pay out to the other party.
Disagreeing parties have other options if hi-lo arbitration does not work out. Each party may present what they consider a best, final offer deal to the arbitrator. Faced with two best offers from each party, the arbitrator will pick one or the other. This method also helps mitigate risk because it can motivate each side to come up with a reasonable deal that an arbitrator will accept.
Other ways may exist to limit monetary awards. FindLaw points out that parties who seek arbitration may place these limits in the arbitration agreement. Not only can parties specifically limit the amount of money an arbitrator may award, but they could also specify which issues the arbitrator may address. This arrangement can also restrict the kinds of remedies the arbitrator can grant.
Working out monetary awards in advance can offer some assurance that an arbitrator will come to a fair and reasonable decision. Some parties end up dissatisfied with an arbitration decision and seek to overturn it in court, but in general, such challenges do not succeed. Setting parameters in advance may help disputing parties feel better about going through arbitration and minimize the desire to appeal an arbitration.
