When Non-Payment Isn’t “Refusal”: The Second Circuit Weighs in on Arbitration Fee Disputes
Few issues generate more friction in arbitration than money — specifically, who pays the fees required to keep the proceeding alive. In employment cases, where arbitration is often required as a condition of hiring, the stakes are especially high. Employees rely on arbitration as the only path forward for their claims, while employers face steep administrative and arbitrator costs, multiplied many times over in the era of mass arbitration.
The Second Circuit’s September 2025 decision in Frazier v. X Corp. brings important clarity to this recurring problem. The court held that a party’s refusal to pay arbitration fees is not, in itself, a “failure, neglect, or refusal to arbitrate” under Section 4 of the Federal Arbitration Act (“FAA”). Instead, once parties are before their chosen arbitral forum, disputes about fee allocation are procedural matters for the arbitrator or the forum — not the courts — to decide.
For litigators, corporate counsel, and neutrals, this case has direct implications for how arbitration agreements are enforced and how stalled proceedings are handled.
The Case in Context
The Agreements
Like many employers, Twitter (now X Corp.) required employees to sign Dispute Resolution Agreements (“DRAs”) committing them to resolve employment disputes through individual arbitration at JAMS. Employees had the right to opt out, but most did not.
The agreements incorporated JAMS Employment Arbitration Rules by reference. Those rules — and JAMS’s Minimum Standards of Procedural Fairness — place most arbitration costs on the employer whenever arbitration is required as a condition of employment. The only fee an employee may be required to pay is the initial case management fee.
The Dispute
When mass layoffs followed Elon Musk’s acquisition of Twitter, thousands of employees filed arbitration demands, including the petitioners in Frazier. Initially, Twitter participated, paying what it viewed as its share of fees. But midway through, Twitter balked: it argued that the DRAs required a 50/50 split of fees, rather than employer payment of nearly the entire cost.
JAMS disagreed. Citing its rules and Minimum Standards, it insisted Twitter must pay nearly all ongoing fees. When Twitter refused, JAMS refused to appoint arbitrators, and the proceedings ground to a halt.
The Lawsuit
The employees petitioned the Southern District of New York to compel arbitration under 9 U.S.C. § 4, arguing Twitter’s refusal to pay was a refusal to arbitrate. The district court agreed, ordering Twitter to pay. But on appeal, the Second Circuit reversed.
The Second Circuit’s Ruling
Narrow Role of Courts Under the FAA
The FAA allows courts to compel arbitration only when a party has truly refused to arbitrate. Once arbitration is underway, however, the court’s role ends. Procedural disputes about how arbitration unfolds belong to the arbitrator or arbitral body.
This principle, rooted in the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., reflects arbitration’s nature as a private, rule-governed system. By signing an arbitration agreement that incorporates JAMS rules, parties accept that JAMS — not the courts — will control its administration.
Fee Allocation as a Procedural Issue
The Second Circuit joined other circuits in holding that payment of arbitral fees is a procedural issue. Whether an employer or employee bears the lion’s share of costs, and what happens if one side refuses to pay, are matters left to the arbitral forum’s rules. Courts have no authority under Section 4 to step in midstream.
Not a “Refusal” to Arbitrate
Importantly, Twitter did not disclaim arbitration altogether. It stated repeatedly that it was “ready and willing” to arbitrate, but on terms it believed the DRAs allowed. The court found this to be procedural delinquency, not outright refusal. A refusal to arbitrate requires more than a dispute over fees.
Practical Implications
For Employers
Limited Court Intervention: Employers can resist arbitral fee allocations without automatically triggering judicial enforcement. Courts will not force payment mid-arbitration.
Risk Remains: If JAMS refuses to administer the arbitration altogether, employees may argue the arbitration obligation is exhausted, and litigation may resume. Several circuits, including the Seventh and Ninth, have held as much in similar cases.
Contract Drafting Lessons: Employers should recognize that incorporating arbitral rules effectively incorporates fee policies too. Attempting to contract around those provisions may not succeed in practice.
For Employees
Procedural Limbo: Employees may find themselves stuck in suspended arbitrations unless they advance fees themselves, as one claimant did here. While they may recoup costs later, many will not have the resources to do so.
Termination vs. Suspension: The distinction is critical. If the arbitral body suspends the case, employees may be stuck waiting. If it terminates, courts are more likely to find arbitration obligations exhausted and allow claims to proceed in litigation.
For Arbitrators and Counsel
Authority to Decide: Arbitrators retain authority over fee allocation disputes, consistent with their forum’s rules.
Managing Stalemates: Arbitrators may need to consider creative procedural orders, cost-shifting at the final award, or conditioning further proceedings on fee advancement.
Preparation is Key: Counsel should be prepared to brief these issues fully before the arbitrator, rather than expecting judicial rescue.
Broader Trends: Mass Arbitration Pressure
The Frazier case illustrates the pressures created by mass arbitration — a relatively new phenomenon where thousands of individual claimants file demands simultaneously.
Arbitral fees multiply rapidly in these situations. Providers like JAMS and AAA have adopted employer-pays rules to ensure fairness and accessibility for employees. But employers often argue that fee-shifting provisions in their contracts should control, creating conflict between contractual language and institutional rules.
The Second Circuit’s decision reinforces that arbitral institutions — not courts — have the power to police those conflicts. For companies facing the financial strain of mass arbitrations, this ruling underscores the need to evaluate risk at the contract drafting stage, rather than banking on judicial intervention later.
Lessons for Litigators
Draft With Precision: If fee allocation is a concern, draft arbitration agreements carefully. But remember that most providers enforce minimum fairness standards that override contrary provisions.
Know the Forum’s Leverage: Providers like JAMS and AAA hold the ultimate trump card — they can refuse to administer. Counsel must anticipate this possibility.
Manage Expectations: Non-payment by the other side does not mean the court will step in. Clients must understand that remedies are limited to the arbitral body until administration ends.
Monitor Circuit Splits: While the Second Circuit’s ruling aligns with other circuits, questions remain about when refusal to pay ends the arbitration obligation. That issue will likely continue to percolate in future cases.
Why This Case Matters
The Second Circuit’s decision affirms a central truth about arbitration: it is a creature of private contract and forum rules. Courts play a narrow gatekeeping role. Once arbitration begins, its procedures — including fee allocation — belong to the arbitrator and the forum.
For practitioners, the ruling is both a warning and a guide. Don’t expect courts to resolve procedural disputes mid-arbitration. Do expect arbitral institutions to enforce their rules strictly, even if it means suspending or terminating proceedings.
In the age of mass arbitration, where fee burdens can dictate strategy, these lessons are critical.
Conclusion
Frazier v. X Corp. draws a firm line: refusing to pay arbitration fees is not the same as refusing to arbitrate. Fee disputes are procedural questions, entrusted to the arbitral forum, not federal courts.
For employees, employers, and litigators, the message is clear. Arbitration agreements carry not just promises but procedures, and once chosen, those procedures control. Whether convenient or costly, the forum’s rules govern — and courts will stand aside.
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