California has taken yet another major step in reshaping the landscape of consumer arbitration law with the passage of S.B. 82, a statute that directly targets the reach of “infinite” arbitration clauses in consumer agreements. Taking effect on January 1, 2026, this new legislation restricts what types of disputes may be compelled to arbitration, fundamentally altering how California businesses draft, enforce, and defend arbitration provisions.
While much of the public debate has focused on whether California’s S.B. 82 survives Federal Arbitration Act preemption, the more immediate issue is strategic compliance: How should businesses recalibrate their agreements now to withstand the coming wave of litigation and evolving regulatory scrutiny?
Below is a deeper look at what makes S.B. 82 unique, why this law marks a departure from traditional consumer arbitration frameworks, and what steps organizations should take today to protect themselves.
What S.B. 82 Actually Says and Why It Matters
Under S.B. 82, a “consumer use agreement” includes any contract that allows a consumer to “use, receive, or otherwise enjoy a good, service, money, or credit.” This broad definition captures a sweeping range of daily consumer interactions: from mobile apps and streaming services to banking, e-commerce, fitness memberships, and subscription software.
The statute’s central rule is simple but transformative: Arbitration is only permitted for disputes that arise out of or relate to the specific contract containing the arbitration clause.
In practical terms, this means:
- A tort claim unrelated to the original transaction is not arbitrable, even if the arbitration clause previously claimed to cover it.
- A later-occurring injury, data breach, or alleged misconduct unconnected to the original purchase or sign-up cannot be forced into arbitration simply because a user once clicked “I agree.”
The law goes further by declaring any violation “void and unenforceable,” and prohibiting contractual waivers. This is a rare statutory stance in arbitration law and signals the Legislature’s view that the broad arbitration provisions increasingly common in digital agreements have gone too far.
Why California Passed S.B. 82: The Push Against “Infinite Arbitration” Clauses
Supporters of S.B. 82 argue that consumers are routinely bound by arbitration agreements that extend far beyond the transaction at hand. Legislators highlighted high-profile examples, including Disney’s initial attempt to compel arbitration of a wrongful death claim based on a Disney+ trial sign-up.
Senator Thomas Umberg summarized the legislative intent: consumers should not be locked out of civil court for disputes “corporations can dream up” long after the original agreement was signed.
Whether one views this as needed protection or regulatory overreach, the message is clear: California wants arbitration clauses tethered tightly to the underlying transaction—not to future, unrelated conduct.
The FAA Preemption Battle: Why S.B. 82 May Face Constitutional Challenges
S.B. 82 is expected to face legal challenges, particularly under the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq. Courts have repeatedly held that state laws may not single out arbitration or impose burdens on arbitration agreements that do not apply to other contracts.
The U.S. Supreme Court has emphasized that the FAA preempts state rules that discriminate against arbitration or prohibit arbitration for particular types of claims (AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)).
Because S.B. 82 limits what types of disputes may be arbitrated—something some courts may interpret as disfavoring arbitration—it will likely be challenged on grounds that it intrudes on the FAA’s pro-arbitration mandate.
Multiple legal scholars have noted that restricting arbitrable claims, even without banning arbitration outright, is the type of “discrimination in effect” that has historically triggered FAA preemption. See: Christopher Drahozal, Federal Arbitration Act Preemption, 23 J. Disp. Resol. 367 (2023).
The Real Story: S.B. 82 Is About More Than Arbitration
It is about redefining risk allocation in consumer contracts.
For years, businesses have relied on arbitration clauses not only to streamline dispute resolution but also to limit exposure to jury trials, class actions, and unpredictable litigation costs. With S.B. 82, the Legislature is shifting that risk calculus by:
- Narrowing the disputes eligible for arbitration
- Increasing the likelihood of court litigation
- Incentivizing plaintiffs to characterize claims as outside the contract scope
For companies operating in or contracting with California consumers, this means existing agreements may soon be outdated, incomplete, or unenforceable.
Strategic Implications for Businesses
- Immediate Review of Arbitration Clauses Is Critical: If your current agreements contain broad “arising out of or relating to any relationship between the parties” language, they may violate S.B. 82 starting January 1, 2026.
- Expect Plaintiffs to Challenge Arbitrability Aggressively: Even before a preemption ruling, courts will begin scrutinizing arbitration clauses more narrowly.
- Delegation Clauses Become More Valuable: A properly drafted delegation clause allows arbitrators—not courts—to decide what is arbitrable. While not a cure-all, delegation clauses can help preserve strategic advantage in early litigation.
- “Choice of Law” and “Choice of Forum” Clauses Must Be Revisited: Companies that operate nationally should consider whether California-specific addenda are necessary to avoid unintended conflict-of-law battles.
- Increasing federal scrutiny of arbitration in financial services
- Renewed attention to consent in digital contracting
- Rising enforcement actions targeting consumer-rights transparency
- Conduct a legal audit of all arbitration clauses
- Narrow the scope to align with S.B. 82’s requirements
- Add or reaffirm delegation clauses
- Reevaluate multi-state contract templates
- Prepare for increased dispute-resolution costs if more claims proceed in court
- Evaluate existing consumer contracts
- Redesign arbitration provisions to withstand legal challenges
- Mitigate exposure under California’s evolving arbitration framework
- Strategically position your business for the January 2026 changes
A Practical, Business-Centered View: Preparing for the Regulatory Shift
Regardless of whether S.B. 82 ultimately survives court challenges, the law signals the direction of California policymaking—and possibly a national trend. We have already seen:
Businesses that proactively update their agreements now will be in the strongest position no matter how litigation unfolds.
Conclusion: What Businesses Should Do Next
California’s S.B. 82 is more than a statutory amendment: it is an inflection point in the ongoing tension between consumer protection and contractual arbitration.
Companies doing business with California residents should:
How Law Advocate Group, LLP Can Help
With over 80 years of combined experience representing businesses, consumers, and corporations across California, Law Advocate Group, LLP assists clients in drafting, revising, and defending arbitration agreements that comply with state and federal law.
Our attorneys can help you:
Contact us today to protect your agreements, reduce litigation risk, and stay ahead of California’s shifting regulatory landscape.
