By Miguel J. Chamorro

Introduction

Every so often an employee files a demand in arbitration against its employer as required by an employment agreement, but the employer refuses to pay the arbitration fees despite the parties’ agreement or the arbitral body’s rules to the contrary. The arbitral body, under its rules, threatens to suspend or terminate the arbitration proceedings unless someone makes payment in full. What is the employee to do? While there is no ideal answer, there is a clear one: resist the temptation of going to court to compel the employer to pay. The Second Circuit Court of Appeals recently made that clear in Frazier v. X Corp., 2025 WL 2502133 (2d Cir. Sep. 2, 2025).

When Elon Musk acquired Twitter and laid off nearly 75% of its staff, the petitioner-employees “were among the casualties.” Frazier, 2025 WL 2502133, *3. Believing that they had been wrongfully terminated and denied severance, many employees filed arbitration demands against Twitter (now known as X Corp.) before Judicial Arbitration and Mediation Services (“JAMS”). Like other employees, the petitioners had signed Dispute Resolution Agreements upon being hired (“DRAs”), in which they agreed to arbitrate any employment-related disputes against Twitter before JAMS. Insofar as arbitration fees were concerned, the DRAs provided in pertinent part that, “in all cases where required by law, the Company will pay the Arbitrator’s and arbitration fees.” Id., at *2. Furthermore, JAMS’s Policy on Employment Arbitration Minimum Standards of Procedural Fairness added:

[i]f an arbitration is based on a clause or agreement that is required as a condition of employment … [t]he only fee that an employee may be required to pay is the initial JAMS Case Management Fee. All other costs must be borne by the company, including any additional JAMS Case Management Fees and all professional fees for the arbitrator’s services.

Id., at *2 (emphasis added). To be clear, JAMS’s rules include a non-waivable requirement that the employer be assigned all costs except the case initiation fees if the case is being arbitrated pursuant to agreements that an employer requires the employee to sign as a condition for employment. Id., at *2. Other arbitral bodies have similar provisions. See, e.g., American Arbitration Association’s (“AAA”) Employment/Workplace Fee Schedule; National Arbitration and Mediation’s (“NAM”) Employment Rules and Procedures, Rule No. 5(A) (“The Employer shall pay NAM’s Administrative fees and NAM’s hourly fees for the total time spent by the Arbitrator/Mediator …. The Employee shall pay NAM the Filing fee”).

Things went well at first. The employees paid the initial filing fees and expected Twitter to pay all other fees that became due throughout the duration of their cases. But then Twitter objected that the DRAs required arbitration fees to be shared equally between it and the employees, and stopped paying the fees Id., at *3. That’s when the case ran off the rails.

The fees issue heads to JAMS.

JAMS, the arbitral body, responded to Twitter’s objection by stating that JAMS’s rules and minimum standards required Twitter to pay the ongoing costs of the arbitration. Twitter replied that JAMS’s position conflicted with the DRAs’ provision that any fee disputes would be resolved by the arbitrator—not JAMS—and its interpretation of the DRAs’ fee allocation provision, which, it argued, required a 50/50 split on the payment of fees. Thus, Twitter made it clear that it would proceed accordingly but otherwise “remain[ed] perfectly willing … to arbitrate on the terms specified in the DRA[s].” Id., at *3 (quoting Appellants’ Br. 4).

Twitter’s position put the employees between a rock and the hard place. They did not want to pay any more arbitration fees than necessary. But if the fees went unpaid JAMS could stay or terminate the case—something arbitral bodies typically warn about in their rules. See, e.g., AAA Employment Arbitration Rules & Mediation Procedures, Rule 56(c)-(d); JAMS Employment Arbitration Rules & Procedures 6(c); NAM Employment Rules and Procedures, Rule No. 5(A). So, what to do?

The fees issue heads to district court.

The employees decided to take the matter to court. They filed a petition against Twitter in federal district court arguing that by refusing to pay the fees allocated to it by JAMS, Twitter refused to arbitrate as required under the DRAs. Pursuant to section 4 of the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 4, they asked the court to order Twitter to arbitration in accordance with the DRAs’ terms (“in other words, to order Twitter to pay.”). Id., at *4 (emphasis added). The move seemed reasonable. After all, section 4 of the FAA provides that “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court … for an order directing that such arbitration proceed in the manner provided for in such agreement.” (Emphasis added).

The district court granted the petition and ordered Twitter to advance the fees while the arbitration was ongoing. See Frazier v. X Corp, 739 F. Supp. 3d 219 (S.D.N.Y. 2024). It held, inter alia, that “JAMS had been vested with the discretion to make the initial decision on the procedural matter of who should pay,” Id. at 227-28, and that enforcing the DRAs “meant compelling Twitter to arbitrate – and accordingly, ordering it to pay the fees JAMS had initially apportioned to it on an interim basis, so that the issue could ultimately be addressed by the arbitrators as contemplated by the DRAs.” Frazier, 2025 WL 2502133, at *5. Twitter appealed.

The Second Circuit holds that such intra-arbitration disputes are for JAMS to decide.

The Second Circuit reminds one that a court’s role under the FAA is limited to a “‘relatively narrow category’ of issues that ‘includes disputes about ‘whether the parties are bound by a given arbitration clause’ and ‘whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.’” Mulvaney Mech., Inc. v. Sheet Metal Workers Int’l Ass’n, Loc. 38, 351 F.3d 43, 45 (2d Cir. 2003) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). Once a court determines that the parties agreed to arbitrate and that their claims are within the arbitration agreement’s scope, the court should simply direct the parties to arbitration, and at that point “the court’s analysis under 9 U.S.C. § 4 is at an end.” Frazier, 2025 WL 2502133, at *6.

In other words, Section 4 of the FAA is inapplicable to resolving procedural issues internal to an arbitration case. One “cannot use Section 4 as a vehicle to seek review of the [arbitral body’s] decision about how to proceed with the arbitration process.” Jacobs v. USA Track & Field, 374 F.3d 85, 89 (2d Cir. 2004). Once arbitration is underway, the arbitrator decides such issues (unless the agreement says otherwise). See Howsam, 537 U.S. at 84, 123 S.Ct. 588 (“‘procedural questions which grow out of the dispute and bear on its final disposition’ are presumptively not for the judge, but for an arbitrator, to decide”) (internal quotation marks omitted); quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964)).

The Second Circuit aligned itself with other circuits in deciding that courts have no role under Section 4 of the FAA to review the rulings of an arbitrator or an arbitral body (e.g., AAA, NAM, or JAMS) as to whether a party has satisfied the conditions for an arbitration case to proceed:

• Hernandez v. MicroBilt Corp., 88 F.4th 215, 220 (3d Cir. 2023) (declining to compel arbitration when the arbitration agreement’s failure to satisfy the AAA’s “Consumer Due Process” protocol led the AAA to refuse to arbitrate the respondent’s claims)
• Dealer Computer Services, Inc. v. Old Colony Motors, Inc., 588 F.3d 884, 887 (5th Cir. 2009) (holding that the payment of fees during an arbitration “is a procedural condition precedent” that the district court “should not review” under the FAA and that the issue is preserved for the arbitrators)
• Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012-13 (9th Cir. 2004) (finding no “failure, neglect, or refusal” by defendant to arbitrate when defendant did not pay fees that AAA required for arbitration to proceed)
• Bedgood v. Wyndham Vacation Resorts, Inc., 88 F.4th 1355, 1363 (11th Cir. 2023) (holding that “whether a party has complied with the [AAA]’s policies is an administrative decision that can and should be made by the [AAA].”)

As explained by the Second Circuit, “a party’s decision not to abide by the procedural determinations of an arbitrator or arbitral body is ordinarily not a ‘failure, neglect, or refusal to arbitrate’ under § 4 – it is simply an intra-arbitration delinquency that arbitral bodies, like JAMS here, are empowered to manage.” Frazier, 2025 WL 2502133, at *8 (emphasis in original). By way of analogy, a court should likewise not get involved in an arbitration dispute over whether a party has failed to abide by an arbitrator’s discovery orders—that too in an intra-arbitration dispute that a court cannot address under Section 4 of the FAA. See Frazier, 2025 WL 2502133, at *9.

In conclusion, the Second Circuit held that Twitter’s refusal to pay the fees is not a “failure, neglect, or refusal … to arbitrate” by Twitter that could be remedied under 9 U.S.C. § 4, even if it led JAMS to terminate the arbitrations. Thus, it reversed the district court’s order requiring Twitter to pay the arbitral fees. See Frazier, 2025 WL 2502133, at *9-10. JAMS or the arbitrator(s) would have to decide the ultimate impact of one party’s failure or refusal to pay ongoing fees.

So, what’s next for the employees?

Like other arbitration litigants frustrated by a respondent’s failure to pay arbitration fees, the employees in this case face three options: (1) pay all the fees themselves and hope for a favorable outcome in the case that will permit them to tax the fees as prevailing parties; (2) let the arbitration end; or (3) ironically, try litigating the entire case in court under the theory that Twitter’s refusal to pay fees is a refusal to arbitrate at all. The Second Circuit suggested the third option in a footnote in which it noted that Twitter had “repeatedly suggested” that “its refusal to pay the fees that JAMS requires opens the courthouse doors to the Petitioners.” Frazier, 2025 WL 2502133, at *10 n.10. While that may be a topic for another day, what is clear today is that you should not expect the courts to intervene if your opponent does not pay its share of the arbitration fees. That is a matter for arbitral body or arbitrator to address.