What's Happening?
California has enacted Assembly Bill 2155, which incorporates exclusions from the Federal Arbitration Act (FAA) into the California Arbitration Act (CAA). Signed by Governor Gavin Newsom, the law will take effect on January 1, 2027. This legislation means
that arbitration agreements unenforceable under the FAA will also be unenforceable under the CAA. The bill specifically highlights the FAA's transportation-worker exemption and the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) as examples of exclusions now adopted into state law. This change marks a shift from California's previous attempts to challenge the FAA, instead aligning state law with federal exclusions.
Why It's Important?
The adoption of FAA exclusions into California law represents a significant shift in the legal landscape for employers. Previously, California employers could rely on the CAA to enforce arbitration agreements even when the FAA did not apply. With AB 2155, this fallback option is removed, potentially increasing litigation risks for employers, particularly in sectors like transportation and cases involving sexual harassment or assault. This change could lead to increased legal scrutiny and challenges for businesses operating in California, as they must now ensure compliance with both state and federal arbitration exclusions.
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. They should assess which worker roles might fall under FAA exclusions and adjust their legal strategies accordingly. Legal experts anticipate that courts will play a crucial role in interpreting the extent of these exclusions, which could lead to further legal challenges and clarifications in the future.
