California Strengthens State Law Arbitration Exemptions
By Dasha Dranovsky
On June 30, California Gov. Gavin Newsom signed Assembly Bill 2155 into law. The legislation amends California’s arbitration statute to align it more closely with the Federal Arbitration Act. Sebastian Chilco, et al., “California Embraces the Federal Arbitration Act: Legislature Imports FAA Exclusions into the California Arbitration Act,” Littler (July 6). The law takes effect Jan. 1, 2027.
Prior to the law’s enforcement, California generally provided that written agreements to arbitrate existing or future disputes were “valid, enforceable, and irrevocable,” subject to certain exceptions under state law. Id. AB 2155 limits this broad scope by stating that an arbitration agreement cannot be enforced under California law if it would not be enforceable under the Federal Arbitration Act. Id.
The legislature expressly stated that it intended to incorporate into California law “any and all exclusions” under the FAA. August V. Pearson, “AB 2155 and California Arbitration Agreements: When the FAA's Exclusions Become California Law,” CDF Labor Law LLP blog (July 1).
Specifically, the law stated two particular exclusions. First, the FAA’s Sec. 1 transportation-worker exemption from arbitration, which covers “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The addition of this exemption eliminates the argument employers had made about FAA rules not applying in California, and finding roundabout ways of compelling arbitration under the CAA for transportation workers. Id.
Additionally, California has now expressly adopted the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which states explicitly that individuals who file claims on the topic of sexual harassment have the option to litigate rather than arbitrate. Id. While many courts would have likely reached a similar result by applying federal law, expressly adopting this act removes any potential arguments on the enforceability of arbitration agreements under state arbitration law, making for a more efficient litigation process. Id.
Historically, there have been many battles between federal and state law concerning arbitration agreements. AB 2155’s passage shows that California is using a different approach in order to limit the number of disputes surrounding arbitration.
This creates a multitude of benefits and consequences. "I'm grateful AB 2155 has been signed into law by the governor,” noted Assembly Majority Leader Cecilia Aguiar-Curry, a California District 4 Democrat based in Winters, Calif., who introduced AB 2155, in a statement to CPR Speaks.
She continued: “Californians shouldn’t have less protections under state law than they do under federal law. Now that California law matches federal law, workers who've experienced sexual harassment or sexual assault can't be forced into arbitration. This helps our survivors get their day in court, holds employers accountable, and makes sure workers have the protections they deserve."
On the other hand, others, such as the CDF Labor Law, an employer-side law firm based in Irvine, Calif., say that there are unfortunate byproducts that are created due to the bill’s passage. The firm’s main concern, according to the July 1 blog post linked above, is that the new law creates a loss of a second line of defense for employers; previously, when workers argued the FAA did not govern a particular agreement, they could still turn to state law for aid.
Due to these changes, law firms, such as Littler, above, and Greenberg Traurig, are advising employers to reassess their arbitration agreements in California as agreements that have not been revisited may provide less protection than expected. Vanessa C. Krumbein & William A. Llamas, “How California's Assembly Bill 2155 Stands to Impact Arbitration Agreements in the State,” GT L&E Blog (July 17).
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The author, entering her second year this month at the Washington and Lee University School of Law in Lexington, Va., is a 2025 CPR Summer Intern.
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