Company bet on settlement and skipped arbitration fees. The bet failed
A Papa John's franchisee lost its power to enforce arbitration after skipping a payment deadline, a cautionary tale for employers who rely on these agreements.
In a decision dated February 12, United States Court of Appeals for the Tenth Circuit ruled that Papa Texas, which operates Papa John's pizza stores, cannot force its former delivery driver into arbitration after the company failed to pay required fees to the American Arbitration Association.
The decision affirms what HR professionals have long suspected: arbitration agreements are only as good as your ability to follow through on them.
Luke Myers started working as a delivery driver for Papa Texas in Las Cruces, New Mexico, in January 2023. As a condition of employment, Myers signed a document agreeing to submit employment disputes to arbitration with AAA.
By May 2023, Myers had sued Papa Texas in federal court, claiming the company violated the Fair Labor Standards Act. He wanted to bring a class and collective action on behalf of himself and other similarly situated delivery drivers. Papa Texas moved to dismiss and compel arbitration, and Myers agreed to drop the federal lawsuit and take his claims to AAA instead.
That September, Myers filed his arbitration demand and paid his portion of the filing fee. AAA sent both parties a letter explaining that Papa Texas owed its share by October 9. The letter included a warning in bold: the employer's fee is due once the employee meets filing requirements, even if the case settles or gets withdrawn.
Here is where things went sideways. Papa Texas and Myers started settlement talks around the October 9 deadline. The company asked AAA for more time to pay, citing the ongoing negotiations. AAA granted an extension to October 24.
On October 20, Myers accepted a settlement offer. Papa Texas, apparently confident the case was resolved, did not pay the filing fee on the new deadline. AAA sent another warning on October 25: pay by November 1 or the case closes.
Papa Texas still did not pay. On November 9, AAA closed the file and told Papa Texas it might refuse to handle any future employment cases involving the company. AAA even asked Papa Texas to stop putting AAA's name in its arbitration agreements to avoid confusing the public.
The settlement fell apart by December. Myers filed a second lawsuit in federal court. Papa Texas tried to force arbitration again, but Myers argued the company had already blown that option by failing to pay the fees.
The district court agreed that Papa Texas had defaulted on the arbitration. Even though the court found the company had not waived its right to arbitrate through the nonpayment, it ruled that Papa Texas was in default under the Federal Arbitration Act. The court ordered both sides to check whether AAA would take the case. Myers asked AAA but made clear he was not consenting to reopen the arbitration. AAA briefly reopened the case, then closed it again when Myers refused to consent.
The district court lifted the stay on the federal lawsuit, allowing Myers to proceed in court. Papa Texas appealed.
The Tenth Circuit found no reason to reverse. The appeals court pointed to its earlier decision in Pre-Paid Legal Services, which held that failure to pay arbitration fees constitutes a default. Papa Texas tried arguing that the second lawsuit involved different claims, but the court found the company never made that argument to the district judge and could not raise it for the first time on appeal.
The court also rejected Papa Texas's claim that default and waiver should be treated the same way. The district court had noted that Papa Texas received multiple payment notices from AAA and either ignored them or asked for extensions without ultimately paying. Nothing in the record suggested the company could not afford the fees.
The decision leaves Myers free to pursue his claims in federal court, potentially as a class or collective action. For HR departments, the lesson is straightforward: if your employment agreements include arbitration clauses, make sure someone is tracking the deadlines and cutting the checks when fees come due. Missing a payment can cost you the very protection the arbitration agreement was meant to provide.
