Some district courts have previously taken the approach of compelling arbitration without first deciding whether the Federal Arbitration Act (“FAA”) or state law requires arbitration, reasoning that if arbitration is mandated under either state or federal law, the applicable statute is immaterial. The Ninth Circuit’s decision in In re Orr (“Orr”) takes away that option. Moreover, within weeks of Orr being decided, Governor Newsom signed Assembly Bill 2155 (“AB 2155”), which amends Code of Civil Procedure section 1281 to make an arbitration agreement unenforceable under the California Arbitration Act to the extent it is unenforceable under the FAA. Together, these two developments send the same message: the application of the FAA to a California arbitration agreement is fundamental to enforcement.

In Orr, Rebecca Orr worked as a Seasonal Support Driver for UPS and signed an arbitration agreement providing that it would be governed by the FAA “unless” the FAA “does not apply to a particular dispute or to one or both parties.” She later sued UPS in state court, on behalf of three putative classes for unpaid reporting time pay and UPS removed the case to federal court and moved to compel arbitration.

Rather than decide whether the FAA or the California Arbitration Act (“CAA”) governed, the district court reasoned that Orr would have to arbitrate her individual claims regardless of which statute applied, so it “need not decide” the question. Orr sought clarification and then petitioned the United States Court of Appeals for the Ninth Circuit for a writ of mandamus.

The Ninth Circuit concluded that the district court had erred. Under New Prime Inc. v. Oliveira, a court, not an arbitrator, must decide whether the FAA’s § 1 exclusion for certain transportation workers engaged in foreign or interstate commerce applies before compelling arbitration, because the court’s authority to enforce arbitration agreements under FAA §§ 3 and 4 depends on whether § 1’s exclusion from the FAA applies. The obligation remains even if state arbitration law might compel arbitration; the court found no precedent, in this circuit or elsewhere, excusing the § 1 inquiry on such a basis.

The terms of the arbitration agreement further reinforced the point. As addressed in Tuufuli v. West Coast Dental Administrative Services, LLC, a clear FAA election clause can bring an agreement within the FAA’s reach even where foreign or interstate commerce is debatable. Orr is the flip side of that same principle: because UPS’s arbitration agreement chose the FAA unless the FAA did not apply, the parties themselves made the application of FAA a threshold question, not a perfunctory formality.

Until now, parties to an arbitration agreement could still proceed under California law even if the FAA's transportation-worker exclusion applied, because the CAA did not include a comparable carve-out. AB 2155, which Governor Newsom signed on June 30, 2026, removes that possibility by tying the application of the CAA to the FAA. Specifically, the CAA will be amended to state, in relevant part, “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 amendment takes effect January 1, 2027.

California employers with drivers, delivery workers, seamen, railroad employees or other employees whose duties include foreign or interstate commerce should consider the lesson of Orr and the pending enactment of AB 2155 and review their existing arbitration agreements.  Once AB 2155 is in effect, an agreement that is excluded from the FAA under § 1 will fail under the CAA as well.

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