What Employers Should Know About Changes to Employment Arbitration Agreements in California in 2027

08.18.2026

An arbitration agreement is a powerful tool utilized by employers to resolve disputes outside of court to minimize exposure and legal fees. It has become a common agreement in the hiring process across many industries. However, whether an arbitration agreement is enforceable under state and federal law is often a hot point of contention. California Assembly Bill 2155 aims to clarify one area of uncertainty in this regard.

California AB 2155

Earlier this summer, California Governor Gavin Newsom signed Assembly Bill 2155 (AB 2155), which declares that any arbitration agreement that is not enforceable under the Federal Arbitration Act (FAA) is likewise unenforceable under the California Arbitration Act (CAA). The new law takes effect January 1, 2027.

The FAA deems arbitration agreements valid, irrevocable, and enforceable, except for certain specified types of agreements. For example, the FAA specifically states that transportation workers, such as those “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” cannot be subject to arbitration.

Also, since 2021, federal law, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA), prohibits employers from enforcing mandatory arbitration for disputes involving sexual harassment or sexual assault. The EFAA allows plaintiffs who have filed sexual assault or sexual harassment claims to opt out of arbitration agreements with regard to such claims.

The CAA also provides that written agreements to submit controversies to arbitration are valid and enforceable under State law, but the CAA does not currently include the same carve outs as the FAA. Accordingly, California employers argued in the past that even if the FAA did not apply, the CAA still supports the enforcement of an arbitration agreement invalidated under the FAA. Now that argument is eliminated as AB 2155 expressly states that “agreements to submit to arbitration [are] unenforceable where the agreement would not be enforceable under the Federal Arbitration Act.”

AB 2155’s stated purpose is to ensure that California’s arbitration statute is in line with the federal law and parties who fall outside the FAA’s reach or whose claims are otherwise excluded from mandatory arbitration under federal law cannot be compelled to arbitrate under the CAA as an alternative pathway. Rather than specifying categories of claims that cannot be forced into arbitration, AB 2155 incorporates existing federal limitations, likely will incorporate any future federal limitations into the CAA, so that the two laws may operate in harmony.

Key Takeaways

This development should serve as a reminder for employers to review their current arbitration agreements before the new year to ensure they are consistent with AB 2155 and other changes to the law that have taken place recently. Arbitration agreements remain a highly effective dispute resolution tool, but only if they are carefully drafted to ensure they are enforceable. As arbitration law continues to evolve, employers should regularly review their agreements with counsel to evaluate the language to be certain that it will be upheld should it be challenged.