Although the changes of AB 2155 are small, they could have significant consequences for California employers that have implemented arbitration agreements.
On June 30, 2026, Governor Gavin Newsom signed Assembly Bill 2155, amending California Code of Civil Procedure Section 1281 to provide that arbitration agreements subject to the California Arbitration Act (CAA) are not enforceable “to the extent” that the arbitration agreement is not enforceable under the Federal Arbitration Act (FAA). AB 2155 goes into effect January 1, 2027.
Although the changes of AB 2155 are small, they could have significant consequences for California employers that have implemented arbitration agreements.
AB 2155 Explained
Section 1281 recognizes arbitration agreements as “valid, enforceable and irrevocable,” subject to generally applicable contract defenses (e.g., unconscionability, duress). Come January 1, 2027, a new subsection will be added:
Notwithstanding subdivision (a), a written agreement to submit to arbitration is not enforceable under this section to the extent the agreement is not enforceable under the Federal Arbitration Act.
The Legislature’s intent behind the bill was “to incorporate into the CAA any and all exclusions under the FAA.” AB 2155 highlights two notable exclusions in particular:
- The FAA transportation-worker exemptions for “contracts of employment of workers engaged in foreign or interstate commerce”; and
- The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA), which permits individuals to elect to litigate, rather than arbitrate, sexual assault or sexual harassment disputes.
Implications of AB 2155 – A Dive into the FAA’s Existing Exclusions
Although the California Legislature focused on transportation-worker disputes and EFAA-covered claims, the statute’s reach is broader by including “any and all exclusions under the FAA.” However, it will be the courts, rather than the Legislature, that will define the scope of incorporation. In the meantime, employers should be aware of the two major exclusions. We take each in turn:
Transportation Workers Engaged in Foreign or Interstate Commerce
Section 1 of the FAA exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” This exclusion is confined to only transportation workers (e.g., rideshare drivers, gig economy workers, airline workers) who are actively “engaged in transportation” of goods across borders via the channels of foreign or interstate commerce. The focus is on the actual work performed by the employee rather than the employer’s industry as a whole.
Before AB 2155, California did not have a transportation-worker exclusion, which provided employers in the transportation industry a basis to argue that the arbitration agreement is subject to the CAA and that claims can be compelled to arbitration. However, AB 2155 eliminates this argument altogether. Regardless of whether the arbitration agreement is subject to the FAA or the CAA, if the transportation exemption applies, the agreement is unenforceable.
Sexual Harassment and Sexual Assault Disputes
AB 2155 will now also incorporate the EFAA into the CAA. As discussed in our previous Alert, the EFAA invalidates and makes predispute arbitration agreements unenforceable for cases relating to a sexual assault or sexual harassment dispute. The consequence of the EFAA is that the entire case cannot be compelled to arbitration, not just the sexual assault or sexual harassment claim.
Unlike the transportation worker exclusion, the inclusion of the EFAA does not have as large of an effect. Before AB 2155, courts applied the EFAA to arbitration agreements subject to the CAA. However, the cases where the EFAA was applied were limited to transactions that “sufficiently involve interstate commerce.”
By incorporating this change, AB 2155 will eliminate any argument that the CAA provides independent authority to enforce an arbitration agreement that is otherwise unenforceable under federal law. In short, regardless of whether the employee or the employer is involved in interstate commerce, if an employee were to bring a claim of sexual harassment or sexual assault, the entire case cannot be compelled to arbitration.
What Does This Mean for Employers?
California employers should review their arbitration agreements before the statute goes into effect on January 1, 2027. Employers should consider:
Identifying Potentially Affected Employees
Assess whether any roles may fall within an FAA exclusion, particularly the transportation-worker exemption, and consider how that exemption may affect the company’s arbitration strategy.
Reviewing the Arbitration Agreement’s Language
Reevaluate severability, delegation, choice-of-law and CAA fallback provisions to account for circumstances in which the FAA may be unavailable.
For More Information
If you have any questions about this Alert, please contact Jamie L. Gross, Poline Pourmorady, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.