California Embraces the Federal Arbitration Act: Legislature Imports FAA Exclusions into the California Arbitration Act

On June 30, 2026, California Governor Gavin Newsom signed Assembly Bill 2155 (AB 2155), amending California Code of Civil Procedure section 1281 to provide that arbitration agreements are unenforceable under the California Arbitration Act (CAA) “to the extent” they would be unenforceable under the Federal Arbitration Act (FAA). The new law takes effect January 1, 2027. 

Although brief, AB 2155 could have significant consequences for employers that rely on arbitration agreements in California. For years, the principal battleground in California arbitration litigation has focused on whether an arbitration agreement is governed by the FAA. Employers routinely relied on the FAA to defeat state-law efforts to limit arbitration agreements. AB 2155 turns that dynamic on its head. Rather than resisting the FAA, California has expressly incorporated FAA exclusions into state law. 

The legislation is obviously intended to ensure that parties who fall outside the FAA’s reach or whose claims are otherwise excluded from mandatory arbitration under federal law cannot be compelled to arbitrate under the CAA as an alternative pathway. 

What AB 2155 Does

Before AB 2155, section 1281 broadly recognized written arbitration agreements as “valid, enforceable and irrevocable,” subject to traditional contract defenses. AB 2155 adds this new subsection: “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 expressly stated that it intended to incorporate into California law “any and all exclusions” under the FAA, specifically identifying:

• The FAA transportation-worker exemption for “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 permits claimants to elect litigation rather than arbitration for covered sexual assault and sexual harassment disputes. 

Why the Bill Matters

Transportation Worker Cases

The clearest and most immediate impact of AB 2155 will likely be in transportation-worker litigation.

Under FAA section 1, certain transportation workers engaged in interstate commerce are exempt from the FAA. Recent federal and state cases have addressed expanded arguments about who qualifies for the exemption, including challenges involving certain rideshare drivers, delivery and last-mile workers, airline-related workers, and other transportation personnel.

Before AB 2155, employers often argued that if the FAA did not apply, arbitration could be compelled under the CAA—which did not include a transportation worker exemption. AB 2155 effectively eliminates that argument in California. If an agreement is unenforceable under the FAA because of the transportation-worker exemption, it will now be unenforceable under the CAA as well. 

As a practical matter, workers who establish FAA transportation-worker exemption status will now have a materially stronger basis to resist arbitration altogether.

Sexual Harassment and Sexual Assault Claims

AB 2155 also expressly incorporates the EFAA.

The EFAA provides that a person asserting a sexual assault dispute or sexual harassment dispute may elect to invalidate a predispute arbitration agreement with respect to covered claims. By incorporating FAA exclusions into the CAA, California seeks to ensure that litigants cannot avoid this provision of the EFAA by seeking to arbitrate such disputes under state arbitration law instead. 

The effect may be less dramatic in the EFAA context because many courts likely would have reached the same result through application of federal law. AB 2155 removes any potential argument that the CAA independently authorizes enforcement of an arbitration agreement that federal law renders unenforceable.

Practical Considerations for Employers

California employers should consider reviewing arbitration agreements before the statute becomes effective on January 1, 2027. 

Employers should review:

• Worker populations that may fall within the FAA's transportation-worker exemption;
• Choice-of-law and severability provisions;
• Delegation clauses; and
• Fallback provisions that rely on the CAA when FAA coverage is unavailable. 

Many employers have drafted arbitration agreements with fallback provisions intended to preserve arbitration under state law if FAA coverage is later rejected. AB 2155 may diminish the effectiveness of that strategy in California where the basis for non-enforcement arises from an FAA exclusion that the legislature has now incorporated into the CAA. 

Bottom Line

AB 2155 marks a notable shift in California arbitration law. Rather than challenging the FAA, the legislature used federal arbitration law as the mechanism for narrowing enforcement under state law. Rather than attempting to limit arbitration through a direct challenge to federal preemption (which is common in California courts and has been consistent in previous California statutes), the legislature has embraced the FAA—at least its exclusions. Effective January 1, 2027, California law will generally treat arbitration agreements that are unenforceable under the FAA as unenforceable under the California Arbitration Act as well. 

The amendment appears targeted principally at transportation-worker disputes and EFAA-covered claims. However, because the statutory language is broader than just those examples, courts may be asked to determine whether California also imported other unspecified federal arbitration limits into state arbitration practice. The statute is primarily aimed at transportation-worker disputes and claims covered by the EFAA, but its language is broader than either category. As courts begin interpreting the amendment, employers should expect renewed challenges to arbitration agreements and should evaluate existing arbitration programs before the law takes effect on January 1, 2027.