For years, the Federal Arbitration Act (FAA) has provided a mechanism for California employers to enforce arbitration agreements despite the state’s repeated efforts to narrow them. However, a newly signed law will change that. On June 30, 2026, Governor Gavin Newsom signed Assembly Bill 2155 (Chapter 46, Statutes of 2026), which amends Code of Civil Procedure section 1281 so that an arbitration agreement is unenforceable under the California Arbitration Act (CAA) “to the extent” it would be unenforceable under the FAA. The measure takes effect January 1, 2027.
The bill is only a few lines long, but its effects are significant. Beginning January 1, 2027, if an arbitration agreement falls outside the FAA because of one of the Act's exclusions, employers should no longer expect to be able to compel arbitration under the CAA instead. Rather than fighting federal arbitration law, California has imported the FAA's carve-outs directly into state law.
The Effect of AB 2155
Before this amendment, section 1281 recognized written arbitration agreements as “valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” AB 2155 leaves that language in place but adds a new subdivision (b):
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 (9 U.S.C. Sec. 1 et seq.).
The bill’s findings make the intent explicit. The Legislature declared that the purpose of AB 2155 is to incorporate into the CAA “any and all exclusions” under the FAA. It called out two in particular:
- The FAA’s transportation-worker exemption, covering “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”; and
- The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA), which lets an individual asserting a covered sexual assault or sexual harassment dispute elect to litigate rather than arbitrate.
A Reversal of the Usual FAA Fight
For more than a decade, California employers and the Legislature have been on opposite sides of the same question: how far the FAA reaches. Federal law, and the preemption doctrine behind it, generally favored employers. The FAA has historically allowed employers to enforce arbitration agreements and class-action waivers over a series of state statutes and court decisions that sought to narrow arbitration. Those state-law efforts to limit arbitration repeatedly ran into federal preemption.
AB 2155 changes tactics. Instead of challenging the FAA and inviting another preemption fight, the Legislature adopted the FAA’s own limits as a matter of California law. The practical consequence is the loss of a familiar second line of defense for employers. When a worker argued the FAA did not govern a particular agreement, employers could still turn to the CAA, which imposed no comparable exclusions, and compel arbitration under state law. After January 1, 2027, that option narrows: where a federal exclusion applies, the CAA will no longer offer a way around it.
Transportation Workers: The First and Biggest Impact
Under Section 1 of the FAA, certain transportation workers engaged in interstate commerce are exempt from the statute, and the scope of that exemption has been the subject of significant, ongoing litigation. It reaches workers such as rideshare drivers, delivery and “last-mile” workers, airline-related workers, and other transportation personnel.
Until now, winning the exemption argument was rarely fatal to arbitration in California. Because the CAA contains no transportation-worker carve-out, an employer could concede that the FAA did not apply and still compel arbitration under state law. AB 2155 closes that door. Because the Legislature expressly identified the Section 1 transportation-worker exemption as one of the FAA exclusions it intended to incorporate into the CAA, employers should expect plaintiffs to argue that arbitration agreements with FAA-exempt transportation workers likewise cannot be enforced under the CAA after January 1, 2027.
Sexual Harassment and Sexual Assault Claims
AB 2155 also folds the EFAA into the CAA. The EFAA already allows a person with a covered sexual assault or sexual harassment dispute to invalidate a predispute arbitration agreement as to those claims. By pulling that exclusion into state law, California closes off any argument that the CAA independently authorizes arbitration of EFAA-covered claims.
The practical change here is smaller. In many cases, courts applying federal law would have reached the same result. But the amendment removes a residual argument (that the CAA offers a separate route to enforce an agreement the EFAA renders unenforceable), and employers should not expect to salvage arbitration of these claims by pointing to state law.
How Far Do the Exclusions Reach?
The two carve-outs named in the findings are illustrations, not limits. The operative text disables enforcement “to the extent” an agreement fails under the FAA and speaks of incorporating “any and all exclusions” under federal law, which is broader than the transportation and EFAA examples the Legislature chose to spell out. That leaves room for plaintiffs to argue that other federal-law limits on arbitration now ride into the CAA as well.
Exactly how far that incorporation extends is a question the statute does not answer. Courts will ultimately determine whether AB 2155 reaches federal limitations beyond the transportation-worker exemption and the EFAA. Until then, employers should treat the two identified exclusions as a floor rather than a ceiling when assessing exposure.
What Employers Should Do Before January 1, 2027
Because the law takes effect on January 1, 2027, employers have a window to review their arbitration agreements before the change lands. Practical steps include:
- Map potentially affected worker populations. Identify roles that could plausibly fall within an FAA exclusion, particularly the transportation-worker exemption, and assess where the loss of the CAA fallback could affect arbitration strategy.
- Review arbitration agreement language. Revisit choice-of-law, severability, delegation, and CAA fallback provisions to assess how existing agreements would operate under AB 2155 and whether revisions are warranted.
Bottom Line
AB 2155 does not outlaw arbitration, and most employers can continue to enforce it. What it does is remove the state-law safety net employers leaned on when FAA coverage failed. Effective January 1, 2027, California will generally no longer allow the CAA to serve as an alternative basis for enforcing an agreement that is unenforceable under the FAA.
Although the Legislature focused on transportation-worker disputes and EFAA-covered claims, the statutory language reaches more broadly by incorporating "any and all exclusions" under the FAA. The courts, not the Legislature, will ultimately define the boundaries of that incorporation. In the meantime, employers should review existing arbitration agreements now, before the new rules take effect and before plaintiffs begin testing their reach.
