California Closes an Arbitration Loophole: What AB 2155 Means for Employer Agreements

For years, employers facing challenges to arbitration agreements under California law had a reliable fallback: even when a worker successfully argued that the Federal Arbitration Act (FAA) didn’t apply to their situation, employers could still turn to California’s own arbitration statute to enforce the agreement anyway. A new law signed this summer eliminates that option, and employers should understand the change before it takes effect.

If your business needs assistance reviewing or updating arbitration agreements in light of this new law, please contact ILS at contact@consultils.com. We provide practical guidance to help employers navigate California’s evolving arbitration landscape.

What the New Law Does

On June 30, 2026, Governor Newsom signed Assembly Bill 2155, which takes effect January 1, 2027. The bill makes a targeted but consequential change to California’s Code of Civil Procedure: arbitration agreements will now be unenforceable under the California Arbitration Act (CAA) to the same extent they would be unenforceable under the FAA.

In practical terms, California has decided that if federal law excludes a particular agreement from arbitration, state law will honor that same exclusion rather than providing an alternate path to compel arbitration.

Two Specific Exclusions Named by Lawmakers

The legislature identified two federal carve-outs it specifically intended to import into California law:

• Transportation workers engaged in interstate commerce. The FAA has long exempted certain transportation workers—including rideshare and delivery drivers, and other workers moving goods across state lines—from its coverage. Litigation over exactly who qualifies for this exemption has been ongoing for years.

• Sexual harassment and assault claims. Under the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, individuals with covered claims can already choose to litigate rather than arbitrate, regardless of any prior agreement. AB 2155 ensures state law won’t create a workaround to this federal protection.

  
  

Why This Represents a Strategic Shift

California and federal law have historically been at odds on arbitration, with the state repeatedly attempting to restrict arbitration agreements only to see those efforts blocked by federal preemption. AB 2155 takes a different approach entirely: rather than fighting the FAA, California is now adopting the FAA’s own limitations as state law.

For employers, this closes what had been a dependable secondary strategy. Previously, if a court found the FAA didn’t cover an agreement—say, because a worker qualified as an exempt transportation worker—the employer could still invoke the CAA, which contained no similar exclusion, and compel arbitration anyway. That backup option will no longer be available where a federal exclusion applies.

An Open Question: How Far Does This Reach?

While lawmakers specifically called out transportation workers and sexual harassment/assault claims, the actual statutory language is broader—it incorporates "any and all exclusions" under federal arbitration law. This suggests the two named categories may be examples rather than an exhaustive list.

Whether courts will interpret AB 2155 to reach other federal limitations on arbitration remains to be seen. Employers should treat the possibility of a broader application as a real risk rather than assuming the law is limited to the two scenarios legislators mentioned by name.

Steps Employers Should Take Now

With roughly six months before the law takes effect, employers have time to prepare:

• Identify vulnerable worker categories. Determine whether your workforce includes roles that could potentially qualify for the transportation-worker exemption or other FAA exclusions, and evaluate how losing the CAA fallback might affect your arbitration program for those employees.

• Audit existing arbitration agreements. Examine current agreements for choice-of-law provisions, severability clauses, and any language that relies on the CAA as a backstop. Consider whether revisions are needed given the new legal landscape.

• Consult with counsel on high-risk classifications. Given the ongoing uncertainty about transportation-worker status, employers in logistics, delivery, and rideshare-adjacent industries should pay particular attention to how this change affects their arbitration strategy.

AB 2155 doesn’t eliminate arbitration in California, and most employer agreements will remain enforceable. But it does remove a safety net that employers have relied on for years when facing FAA coverage disputes. Employers should use the months before January 1, 2027, to assess their exposure and update agreements accordingly, particularly if they employ workers in transportation-related roles.

If your business needs assistance reviewing or updating arbitration agreements in light of this new law, please contact ILS at contact@consultils.com. We provide practical guidance to help employers navigate California’s evolving arbitration landscape.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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As Managing Partner at ILS, Richard Liu ranks among the leading U.S. attorneys in corporate, employment, and regulatory law. He is known for crafting legal strategies aligned with clients’ business objectives and advising Fortune 500 companies, startups, and executives on corporate transactions, financing, privacy, and employment matters across the technology, healthcare, and financial sectors.

Before founding ILS, Richard practiced at top defense firms, where he developed a reputation for anticipating risks and designing strategies that balance protection with growth. He has secured favorable outcomes in contract and intellectual property disputes, represented clients in state and federal courts, and is recognized for combining large-firm expertise with boutique-firm agility. Richard is also a frequent speaker at industry and legal conferences.

Email: contact@consultils.com | Phone: 626-344-8949

As a litigation attorney at ILS, Grace has nearly a decade of experience practicing in both state and federal courts. She focuses on complex commercial, employment, and high-value civil disputes. Grace has secured favorable outcomes for clients in multimillion-dollar cases and is known for her ability to craft effective litigation strategies from case assessment through appeal.

Before joining ILS, Grace practiced in New York, New Jersey, and multiple federal district courts, and served as a law clerk to a Justice of the Alabama Supreme Court. This experience gave her deep insight into judicial decision-making, which continues to inform her strategic approach to litigation.

Email: contact@consultils.com | Phone: 626-344-8949