What's Happening?
California has enacted Assembly Bill 2155, signed by Governor Gavin Newsom, which amends the state's arbitration laws to align more closely with the Federal Arbitration Act (FAA). Effective January 1, 2027, this law will render arbitration agreements
unenforceable under the California Arbitration Act (CAA) if they are unenforceable under the FAA. This change primarily affects agreements involving transportation workers and claims related to sexual harassment and assault, as these are specifically exempted under the FAA. The bill aims to incorporate all FAA exclusions into state law, thereby removing a legal fallback that employers previously relied on when federal arbitration coverage was challenged.
Why It's Important?
The passage of AB 2155 represents a significant shift in how arbitration agreements are handled in California, particularly impacting employers who have relied on state law to enforce such agreements when federal law was not applicable. This change could lead to increased litigation costs and complexities for businesses, especially those employing transportation workers or dealing with sexual harassment claims. By aligning state law with federal exclusions, California is effectively narrowing the scope of enforceable arbitration agreements, which could influence employer strategies and potentially lead to more disputes being resolved in court rather than through arbitration.
What's Next?
Employers in California have until January 1, 2027, to review and potentially revise their arbitration agreements to comply with the new law. This includes assessing which worker roles might fall under FAA exclusions and adjusting legal strategies accordingly. The courts will play a crucial role in interpreting the extent of AB 2155's reach, particularly regarding other potential federal limitations on arbitration that may now apply under state law. Employers are advised to prepare for these changes to mitigate potential legal challenges and ensure compliance with the updated arbitration framework.
