Quick Hits
- California enacted AB 2155, providing that a written arbitration agreement is unenforceable under state law to the extent it is unenforceable under the FAA.
- Arbitration agreements remain valid unless certain exemptions apply.
- The state law will take effect on January 1, 2027.
Under Assembly Bill (AB) 2155, employers cannot enforce arbitration agreements in California if the FAA would not enforce them. The law will take effect on January 1, 2027.
The FAA enforces arbitration agreements unless they are unconscionable. Separately, transportation workers engaged in interstate or international commerce are exempt from the FAA under Section 1 of the FAA. This exemption covers workers who transport goods or passengers across state lines. The exemption extends to seamen, railway workers, and similar workers who move goods across borders. Whether a workforce qualifies is fact-specific and often disputed.
An FAA exemption does not make an arbitration agreement unenforceable by itself. It means only that the FAA does not govern the agreement. State law then controls enforceability.
AB 2155 amends California Code of Civil Procedure section 1281. That section has long recognized arbitration agreements as “valid, enforceable and irrevocable,” subject to generally applicable contract defenses such as unconscionability or duress. Effective January 1, 2027, the statute adds a new subdivision. It stipulates that a “written agreement to submit to arbitration is not enforceable under this section to the extent the agreement is not enforceable under the Federal Arbitration Act.” The state legislature’s analyses describe the bill’s purpose as incorporating into the California Arbitration Act “any and all exclusions under the [FAA].” The analyses point specifically to the Section 1 transportation-worker exemption and the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA).
AB 2155’s restriction applies “to the extent” an agreement “is not enforceable under” the FAA. A court cannot find that an agreement entirely outside the FAA’s scope is unenforceable under the FAA because the FAA has no occasion to rule on such agreements at all. This new state law is triggered by a determination that an agreement fails under the FAA, not by the FAA’s mere inapplicability. Enforceability of an FAA-exempt agreement continues under the California Arbitration Act and existing California case law. No court has yet addressed how this interacts with the transportation-worker exemption.
Where the FAA does not govern an arbitration agreement, California courts assess class-action waiver enforceability under the multifactor test from Gentry v. Superior Court. The Supreme Court of California held in Iskanian v. CLS Transportation Los Angeles, LLC, that the FAA preempts Gentry only where the FAA applies. Gentry’s test does not automatically invalidate class-action waivers. The party opposing arbitration bears the burden to show that each Gentry factor favors class treatment. Employers can and regularly do defeat that showing, even for workers outside FAA coverage.
The second exclusion the state legislature identified is the EFAA. Under 9 U.S.C. § 402(a), when a person brings a sexual harassment or sexual assault case, a pre-dispute arbitration agreement is not valid or enforceable. The claimant may proceed in litigation instead.
Next Steps
Employers in California may want to review their arbitration agreements to identify any jobs subject to FAA exemptions, particularly the transportation-worker exemption. They may also want to consider whether to make arbitration agreements voluntary, rather than mandatory.
Labor Code section 432.6 prohibits conditioning employment on waiving legal forums for Labor Code violations. The FAA preempts section 432.6 for most employers. But the preemption does not apply to any transportation workers exempt from the FAA. Voluntary arbitration programs eliminate this risk by giving employees a genuine choice.
Employers may want to ensure agreements clearly identify governing law, the scope of arbitrable claims, and any limitations on representative proceedings. They also may want to monitor how courts construe AB 2155 going forward. An FAA exemption does not automatically defeat an otherwise enforceable class-action waiver. The Gentry framework remains available where applicable.
Ogletree Deakins’ Arbitration and Alternative Dispute Resolution Practice Group will continue to monitor developments and will post updates on the Arbitration and Alternative Dispute Resolution, California, and Trucking & Logistics blogs as additional information becomes available.
Spencer C. Skeen is a shareholder in Ogletree Deakins’ San Diego office.
Katie M. Greenbaum is an associate in Ogletree Deakins’ San Diego office.
This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.
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