CA Aligns Arbitration Law With Federal Exemptions
California employers must review their arbitration agreements after the state passed a new law, effective January 1, 2027, incorporating FAA exclusions for transportation workers and sexual assault claims.
Effective January 1, 2027, a new California law will make arbitration agreements unenforceable under state law to the extent they are unenforceable under the Federal Arbitration Act (FAA). Governor Gavin Newsom signed Assembly Bill 2155 to align the California Arbitration Act with federal law, specifically incorporating key FAA exclusions. The change is significant for employers because it directly adopts the FAA’s Section 1 exemption for certain transportation workers in interstate commerce and the federal statutory bar on mandatory pre-dispute arbitration of sexual assault and harassment claims. The development introduces new uncertainty for employers, particularly in the logistics and transportation industries, who have relied on FAA preemption to enforce class-action waivers. While the law's text suggests that state-law enforceability now hinges on FAA enforceability, it remains unclear how courts will treat agreements that are merely exempt from the FAA but not otherwise invalid. Sophisticated employers should proactively review existing arbitration programs to identify workers who may fall under the transportation exemption and watch for early court decisions interpreting the new statute once it takes effect.