In arbitration, a neutral party, called the arbitrator, issues a decision after hearing each party's position. Arbitration offers an efficient means of resolving a dispute, with a greater degree of finality than mediation.

The following are examples of different types of arbitration:

Non-binding Arbitration

In non-binding arbitration, the arbitrator makes a decision but either party may void the decision by serving notice within a specified period. If notice is not served within that period, the decision becomes binding. The purpose of this type of arbitration is to give the parties an idea of what a neutral third party believes to be a reasonable resolution, without requiring either party to accept the decision.

Binding Arbitration

In binding arbitration, the arbitrator makes a decision that is final and enforceable. The purpose of binding arbitration is to provide a final resolution of the dispute.

There are a number of different types of binding arbitrations, including straight arbitration, Hi-Lo arbitration, and baseball arbitration.

Straight Binding Arbitration:
This type of arbitration involves the arbitrator assessing the strengths and weaknesses of each party's case and arriving at a reasonable decision which is both binding and enforceable.

Hi-Lo Arbitration:
This type of arbitration may be used if the dispute involves the payment of money.  Before the arbitration begins, the parties agree on a maximum dollar amount and a minimum amount. The arbitrator is not told the maximum (Hi) or minimum (Lo) figures.

After hearing all the facts and arguments, the arbitrator issues a decision.

  • If the amount awarded is between the Hi and Lo figures, or is equal to the Hi or the Lo figure, then the amount of the award is binding.
  • If the amount awarded is greater than the Hi figure, then the binding amount is equal to the Hi figure.
  • If the amount awarded is lower than the Lo figure, then the binding amount is equal to the Lo figure.

The purpose of Hi-Lo arbitration is to guarantee a minimum amount to the party seeking payment, but to limit the exposure of the party against whom payment is sought, while giving each party the chance of receiving a more favorable result.

Baseball Arbitration:
In baseball arbitration, each party offers a resolution of the dispute and the arbitrator chooses one of the offers, which becomes a binding decision. The purpose of baseball arbitration is to encourage each party to make a reasonable offer to resolve a dispute, because the less reasonable a party's offer is, the less likely it is that the arbitrator will choose that offer.