Effective January 1, 2027, California’s Assembly Bill 2155 amends the California Arbitration Act to provide that arbitration agreements are unenforceable under California law to the same extent they are unenforceable under the Federal Arbitration Act (FAA).
The legislation is intended to align California arbitration law more closely with existing federal arbitration limitations and exclusions.
Arbitration Agreements Must Now Mirror Federal Enforceability Standards
Prior California law generally provided that written agreements to arbitrate disputes were valid, enforceable, and irrevocable, subject to traditional contract defenses. AB 2155 adds a new limitation by expressly stating that an arbitration agreement is not enforceable under California law to the extent it would not be enforceable under the FAA.
As a result, employers can no longer assume that an arbitration agreement valid under California law will be enforceable if federal law excludes the agreement from FAA coverage.
Incorporates Existing Federal Arbitration Exclusions
In enacting the legislation, the California Legislature stated that it intended to incorporate into the California Arbitration Act all exclusions recognized under the FAA.
These include:
- Certain transportation workers and other classes of workers engaged in interstate or foreign commerce who fall within the FAA’s statutory exemption; and
- Claims covered by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which permits individuals to pursue qualifying sexual assault and sexual harassment claims in court notwithstanding arbitration agreements.
Rather than creating new restrictions on arbitration, the law adopts existing federal limitations and applies them under California law as well. For example, certain transportation workers and employees bringing sexual assault or sexual harassment claims may not be required to arbitrate if federal law gives them the right to pursue those claims in court.
Potential Impact on Employment Arbitration Programs
Many California employers rely on mandatory arbitration agreements to resolve workplace disputes. Beginning January 1, 2027, employers should evaluate whether their agreements may cover individuals or claims that fall within federal exclusions.
Issues employers may wish to review include:
- Whether any employees fall within categories exempt from FAA coverage;
- Whether employment arbitration programs adequately address sexual assault or sexual harassment claims;
- Choice-of-law and enforceability provisions; and
- Existing arbitration templates and onboarding documents.
Even where employers continue to use arbitration agreements, the scope of enforceable claims may be narrower than previously assumed.
Employers Impacted
The law affects virtually all California employers that use arbitration agreements, including employers that:
- Require arbitration as a condition of employment;
- Include arbitration provisions in employment contracts, offer letters, or standalone agreements; or
- Rely on arbitration programs to resolve wage and hour, discrimination, harassment, or other workplace disputes.
Employers with transportation-related workforces may face particularly significant implications because of existing FAA exemptions for certain categories of workers.
Employer Takeaway
With the amendments taking effect January 1, 2027, California employers should review arbitration agreements and dispute resolution programs to ensure they accurately reflect the limits imposed by federal law.
Key action items include:
- Reviewing arbitration agreements for compliance with FAA exclusions;
- Reassessing the treatment of sexual harassment and sexual assault claims;
- Evaluating whether certain worker classifications may fall outside FAA coverage; and
- Updating onboarding and employment documentation where necessary.
Although AB 2155 does not eliminate employment arbitration, it reinforces that arbitration agreements will only be enforceable in California to the extent they remain enforceable under federal law.