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On January 6, 2026, the California Court of Appeal (First Appellate District, Division Five) issued a published decision in Spilman v. The Salvation Army (A169279) that adopts a new framework for distinguishing volunteers from employees in the nonprofit context. The decision reshapes the way nonprofits should evaluate their volunteer programs, particularly where volunteers perform substantial work tied to revenue-generating operations.
The court confirmed that nonprofits may, in appropriate circumstances, rely on unpaid volunteers without triggering California minimum wage and overtime requirements. But it rejected the trial court's narrow focus on whether there was an agreement to pay compensation. Instead, the court introduced a structured, two-part test for determining when a nonprofit worker is a ‘bona fide volunteer' versus an employee under California wage orders.
Case Facts and Trial Court Holding
The plaintiffs participated in the Salvation Army's six-month residential substance abuse rehabilitation program. Program participants received room and board, meals, clothing, small gratuities, and social services such as counseling and religious programming. In exchange, participants were required to perform “work therapy,” generally full-time, performing typical retail/warehouse tasks (e.g., unloading trucks, sorting donations, stocking, and assisting customers) to support the Salvation Army's thrift-store and warehouse operations. Participants were prohibited from outside employment while in the program, and the Salvation Army controlled scheduling and work conditions.
The plaintiffs alleged they were effectively employees under California law and sought unpaid minimum wages, overtime, and related remedies on behalf of themselves and other rehabilitation center participants. The Salvation Army argued participants were volunteers engaged in rehabilitative programming, not employees.
The trial court granted summary judgment for the Salvation Army, reasoning that a threshold requirement for employee status was an express or implied agreement for compensation. Because program participants signed documents acknowledging they were not employees and would not be paid wages, California minimum wage and overtime requirements were not applicable. The plaintiffs appealed.
Court of Appeal: Volunteers May Fall Outside Wage Laws—But the Trial Court Applied the Wrong Test
The Court of Appeal agreed with the general principle that nonprofit volunteers are not automatically employees under California wage orders, despite the broad “suffer or permit to work” standard. Echoing the concern expressed in prior authority, the court observed that treating all volunteers as employees could severely disrupt charitable and community operations that depend on volunteer labor.
But the court held the trial court's analysis was too narrow: the absence of a pay agreement is relevant, but not controlling under California wage and hour law, which can apply even where a traditional, contract-based employment relationship is not present.
The New Two-Part Test: Volunteer vs. Employee in the Nonprofit Context
To determine whether a nonprofit properly classified a worker as an unpaid volunteer (and therefore outside the wage orders), the Court of Appeal held the nonprofit must establish both of the following:
1) The worker freely agreed to work for a personal or charitable benefit, not for compensation.
This prong focuses on the worker's purpose and expectations, looking beyond official labels and paperwork. Relevant considerations may include:
- Whether there was any express or implied promise of compensation (including non-cash benefits that function like wages);
- Whether in-kind benefits (housing, food, stipends/gratuities) are tied to work performance or attendance in a way that suggests a wage substitute;
- Whether the individual's participation was truly voluntary (i.e., free of coercion by the nonprofit); and
- The duration of the arrangement and the degree of the worker's dependence on the nonprofit.
2) The nonprofit's use of unpaid labor is not a “subterfuge” to evade wage laws.
Even if the worker had a legitimate volunteer motive, the nonprofit must also show its use of unpaid labor is not effectively a strategy to obtain substandard labor and avoid wage and hour obligations. Factors may include:
- Whether “work therapy” (or the unpaid work component) is reasonably aimed at rehabilitation (rather than primarily serving operational needs);
- Whether unpaid workers replace paid employees or perform substantially the same work as paid employees; and
- Whether the program structure creates downward pressure on wages or yields an unfair competitive advantage, especially in commercial operations.
The inquiry is intended to prevent worker misclassification and exploitation, but the fact-intensive nature of the inquiry means that for some nonprofits, analysis of their classification compliance will be more onerous.
Ultimately, the Court of Appeal in Spilman reversed and remanded for the trial court to apply the new standard and to evaluate disputed evidence that the trial court previously considered immaterial.
Why This Matters for Nonprofits
Increased litigation exposure and higher stakes classification decisions: This decision is likely to become a roadmap for plaintiffs attempting to recharacterize volunteer roles as employee positions, especially where volunteers perform regular, scheduled, productivity-driven work that resembles paid employment. For nonprofits, the risk is not limited to individual claims; it may include class actions and PAGA exposure, depending on the underlying theories asserted.
Paperwork helps—but it won't control the outcome: The court signaled that signed acknowledgments and handbook language stating “not an employee” are not dispositive. Courts will evaluate economic reality and program design, including whether benefits function as pay and whether the nonprofit's structure suggests wage-law evasion. Rehabilitation programs and other “benefit-based” volunteer models face added scrutiny. Programs where individuals work to receive a benefit (rehabilitation services, housing, training, community service credit) may be particularly vulnerable to challenge if the work component dominates the program, becomes highly employer-like, or appears untethered from the stated rehabilitative or charitable purpose.
Commercial activity is not automatically disqualifying, but can raise red flags: The court rejected a blanket rule that volunteers become employees merely because they work in a nonprofit's commercial operations (such as thrift stores). At the same time, the decision invites closer examination of whether volunteer labor in revenue-generating functions is being used to displace paid work or drive profitability in a way that could be characterized as substandard labor.
Practical Takeaways: Steps Nonprofits Should Consider Now
Nonprofits that rely on unpaid labor (particularly in structured programs or revenue-generating settings) should consider a proactive review that addresses:
Role design: Are volunteers performing tasks indistinguishable from paid staff? Are there productivity quotas, shift requirements, or disciplinary procedures tied to performance? There should be a clear differentiation between the duties of volunteer roles and paid roles.
Benefit structure: Are housing, meals, stipends, or other benefits conditioned on work or used as leverage? If provided, benefits should be based on program participation, not “earned” by work.
Program purpose alignment: For programs framed as rehabilitative or educational, is there a clear, documented connection between the work performed and the program's mission or therapeutic/training objectives? Be able to explain how the work supports and centers the mission.
Operational staffing model: Could the volunteer program be characterized as replacing paid positions or reducing labor costs in a way that affects competition or wages? Confirm volunteers are not filling positions you would otherwise pay for; if the role is essential and ongoing, staff it with employees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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