Your Arbitration Agreement Just Got Narrower in California
By Ryan Danz, Founding Attorney, Employer Guidance Group PC
Disclaimer: This article is general information about California law — not legal advice, and not a substitute for having counsel review your specific policies. Reading it does not create an attorney-client relationship. Employment law changes frequently; consult a licensed California employment attorney about your situation before acting.
Ten weeks from now, part of what you thought you'd locked down in your employee arbitration agreement stops working. Starting January 1, 2027, Assembly Bill 2155 writes a new line into the California Arbitration Act: a written arbitration agreement is "not enforceable under this section to the extent the agreement is not enforceable under the Federal Arbitration Act." In plain terms: wherever federal law already carves an exception out of arbitration, California now writes that same exception into state law — closing a gap some employers have used to compel arbitration anyway.
This isn't a bill stuck in committee. Governor Newsom signed it on June 30, 2026 (Chapter 46, Statutes of 2026), amending Code of Civil Procedure § 1281. It takes effect automatically on January 1, 2027, because it carries no urgency clause. If your current agreement, handbook, or onboarding packet leans on language like "enforceable to the fullest extent permitted by law," you need to know what that phrase is about to exclude.
What AB 2155 Actually Excludes
The Legislature's own committee analysis points to two federal carve-outs it is importing wholesale into state law, and calls these examples rather than an exhaustive list.
Transportation workers engaged in interstate commerce. The Federal Arbitration Act has exempted seamen, railroad employees, and similarly situated transportation workers for nearly 80 years. California's own Arbitration Act never had that carve-out, so some employers have compelled arbitration under state law even where federal law wouldn't allow it for these workers. That gap closes January 1.
Sexual harassment and sexual assault claims. The federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 already lets an employee elect to litigate instead of arbitrate a harassment or assault claim, regardless of what their agreement says. AB 2155 makes sure California's own arbitration statute can't be read as a workaround to that election.
| Before AB 2155 (through 12/31/2026) | After AB 2155 (from 1/1/2027) | |
|---|---|---|
| Transportation workers in interstate commerce | Some employers compelled arbitration under the CAA even where the FAA's exemption would have barred it | The CAA now excludes these workers too — arbitration can't be compelled under state law either |
| Sexual harassment / sexual assault claims | An employee's federal EFAA election to litigate could be argued around under state law | State law now defers to the same election; no state-law workaround |
| Everything else | CAA enforces arbitration agreements as written, subject to ordinary contract defenses | No change |
Lawmakers cited two recent published decisions — Casey v. D.R. Horton, Inc. (2025) 108 Cal.App.5th 575, and Doe v. Los Alamitos Medical Center, Inc. (Cal. Ct. App., 4th Dist., No. G063959, 2025) — as proof that courts were already reaching inconsistent results under the CAA versus the FAA. AB 2155 closes that inconsistency by statute instead of waiting for more litigation.
The Trap That Already Exists: The 30-Day Fee Deadline
AB 2155 is getting the press coverage, but it isn't the only way employers lose their right to arbitrate. If you drafted the arbitration agreement — and as the employer, you did — Code of Civil Procedure §§ 1281.97–1281.99 already require you to pay your share of the arbitration provider's fees within 30 days of the invoice due date. Miss it, and you're deemed in material breach and in default of the arbitration agreement as a matter of law. The employee can then pull the case out of arbitration entirely and litigate in court, with you paying their attorney's fees for the switch.
Gallo v. Wood Ranch USA, Inc. (Cal. Ct. App., 2d Dist., Div. 2, No. B311067, 2022) held the FAA does not preempt this rule — a payment made 36 days late was enough to trigger it. But Hernandez v. Sohnen Enterprises (Cal. Ct. App., 2d Dist., Div. 5, No. B323303, 2024) went the other way where the agreement expressly selected the FAA's own procedures, finding the automatic waiver preempted in that narrower case. The two are in real tension, and which one applies may turn on your agreement's wording. Either way: pay arbitration fees the moment they're due, and don't assume an FAA reference is a free pass if you're late.
If your company is headquartered outside California, this change layers on top of the separate venue and choice-of-law restrictions in Labor Code § 925, which we covered here — arbitration doesn't get you around § 925 either.
The steps below are general information, not legal advice. Have counsel tailor them to your workforce and practices before you act.
Action Checklist
- Pull your current arbitration agreement and identify any employees who could fall within the transportation-worker exemption — drivers crossing state lines, warehouse or logistics staff moving goods in interstate commerce, and similar roles deserve a specific look before January 1, 2027.
- Confirm your agreement doesn't attempt to compel arbitration of a sexual harassment or sexual assault claim over an employee's objection. It couldn't under federal law already, and it definitely can't under state law after January 1.
- Calendar arbitration fee due dates the moment any arbitration is initiated, and route the invoice to whoever actually controls payment — not to whoever happens to open the mail.
- Decide, with counsel, whether your agreement should expressly select the FAA's procedures or the California Arbitration Act's. That choice affects which waiver rule applies if a payment is ever late.
- Remember an arbitration agreement never reaches a PAGA representative claim the same way it reaches an individual one. Build that into your dispute-resolution strategy — see our PAGA guide — not just your arbitration clause.
AB 2155 doesn't ban arbitration agreements, and it doesn't require you to rewrite every contract on the books. It narrows two specific carve-outs and puts a fixed date on when the narrowing starts. Treat January 1, 2027 like any other compliance deadline: put it on the calendar now, and have counsel review your agreement language before the Legislature's fix replaces the version you're currently relying on.
If your arbitration agreements, handbook language, or dispute-resolution process haven't had a legal review in the last year, now is the moment — before this change takes effect, not after an employee's lawyer makes the same list you just read. Employer Guidance Group PC helps California employers audit their policies before a change in the law turns into a demand letter, and defends employers in PAGA actions where arbitration strategy and representative claims intersect. If you want a second set of eyes on your arbitration agreement before January 1, contact our office.
Disclaimer
This article is general information about California law. It is not legal advice, and reading it does not create an attorney-client relationship. Employer Guidance Group PC is not your attorney unless and until you have signed a written engagement agreement with the firm.
California employment law changes constantly. The information here may be incomplete, out of date, unverified, or incorrect, and it does not account for your specific facts — and outcomes turn on facts. Do not act, or refrain from acting, on the basis of this article. Consult a licensed attorney about your own situation before making any employment decision.
This communication may constitute attorney advertising. Prior results do not guarantee a similar outcome.