Governor Gavin Newsom has signed Assembly Bill 2155 (AB 2155), aligning California’s Arbitration Act with the Federal Arbitration Act (FAA). Effective January 1, 2027, an arbitration agreement that would be unenforceable under the FAA will likewise be unenforceable under California law. 

What Does it Mean? 

AB 2155 does not prohibit employment arbitration agreements or change the rules for agreements that are enforceable under the FAA. Instead, beginning January 1, 2027, it eliminates the ability to enforce an arbitration agreement under the California Arbitration Act if that same agreement would be unenforceable under the FAA. In other words, California law will no longer provide an alternative path to compel arbitration when federal law would not. 

Most employment arbitration agreements are governed by the FAA because the threshold for FAA coverage is relatively easy to satisfy. The FAA applies to contracts involving interstate commerce, and courts have interpreted that requirement broadly. An employer does not need to conduct business in multiple states for the FAA to apply. Purchasing goods from out-of-state vendors, processing interstate payments, communicating across state lines, or otherwise engaging in interstate commerce is often enough to satisfy the FAA’s interstate commerce requirement. As a result, most California employers already rely on the FAA to enforce their employment arbitration agreements. 

Although the practical impact of AB 2155 will likely be limited for most employers, the new law serves as an important reminder to review existing arbitration agreements. Employers whose workers may fall outside the FAA’s coverage, such as certain transportation workers or other federally exempt workers, or whose agreements specifically rely on the California Arbitration Act, should work with counsel to confirm their arbitration program remains enforceable before the new law takes effect. 

Before AB 2155 takes effect January 1, 2027, employers should consider the following: 

• Review existing arbitration agreements to identify whether enforceability depends on the California Arbitration Act as opposed to the FAA. 

• Assess your workforce in consultation with legal counsel to determine whether any employee groups may fall within an FAA exemption or otherwise present enforceability concerns. 

• Update arbitration agreements and implementation practices as needed before the effective date to ensure they remain compliant with evolving federal and California law.