California is on the verge of becoming one of the first states to directly regulate how generative AI may be used by attorneys and arbitrators in legal practice. A bill that cleared the state legislature now awaits action by Gov. Gavin Newsom, putting the legal industry on notice that AI governance is moving beyond ethics opinions and court standing orders into statute.

While courts and bar regulators around the country have already warned lawyers about AI-related risks — including hallucinated citations, confidentiality concerns, and inadequate supervision of automated work product — this measure is significant because it would create a state-level framework specifically aimed at participants inside the legal system.

A federal appeals court has handed workers a notable win in the long-running fight over the reach of mandatory arbitration, ruling that Tesla’s California yard hostlers fall outside the Federal Arbitration Act. The decision allows their wage-and-hour claims to continue in state court rather than being diverted into private arbitration.

The key issue was whether these workers fit within the FAA’s transportation-worker exemption.

State lawmakers and regulators are continuing to fill the AI-policy vacuum, and the latest moves in Illinois and California could have immediate consequences for how lawyers, law departments, and neutrals use generative AI in practice.

Illinois recently enacted a broad AI framework, adding to the growing patchwork of state-level rules that can affect businesses well beyond state borders.