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by Michelle Galbraith, J.D.; Employment Law Expert, CalChamber
Nonprofit organizations of all sizes rely heavily on volunteer contributions; by some estimates, about 70 percent of nonprofits in the United States are entirely staffed by volunteers . Even in nonprofits with paid employees, volunteer labor is still crucial to achieving their charitable missions in an affordable manner, helping to ensure that donations go primarily toward services, rather than to employee compensation.
However, the distinction between a volunteer and an employee is often blurry. In a recent decision evaluating a drug rehabilitation work therapy program, a California court of appeal established a two-part standard that nonprofits should use to determine whether a worker may be appropriately classified as a volunteer. Spilman, et al. v. The Salvation Army, (2026) A169279.
In this case, the employeris a religious nonprofit organization, widely known for its thrift stores selling donated goods to fund its many charitable missions. In several California cities, it also operates six-month residential drug and alcohol rehabilitation treatment programs. Participants in these programs receive housing, three meals per day, and clothing, as well as rehabilitation services such as classes, Bible study, and counseling sessions. Participants may also receive gratuities in the form of “canteen cards” redeemable only at the rehabilitation center, or in small amounts of cash. The employer asserts that these benefits support rehabilitation and allow participants to focus on recovery.
In addition to attending the mandatory classes and meetings, program participants are also required to engage in what the employer refers to as work therapy. Work therapy consists of various tasks performed in support of the employer’s thrift stores; jobs may include unloading trucks, sorting donated items, assisting customers, and cleaning bathrooms.
The employer states that work therapy teaches participants life skills, encourages good habits, and assists them in re-entering the workforce after they graduate from the program. Individuals are not eligible to take advantage of the employer’s residential treatment program if they do not participate in work therapy (or any other aspect of the prescribed rehabilitation program).
Justin Spilman, Teresa Chase, and Jacob Tyler (“plaintiffs”) voluntarily entered the employer’s rehabilitation program; two of them chose treatment to resolve criminal proceedings against them.
Plaintiffs, like all participants in the residential treatment program, signed documents stating that they understood that they were not employees, but instead were volunteers. They also acknowledged that any gratuities they might receive constitute a gift or an allowance and are not considered a salary.
Nevertheless, plaintiffs filed a class action lawsuit alleging that they were employees, not volunteers, and that the employer had failed to pay them minimum wage and overtime. The employer moved to dismiss the case, asserting that plaintiffs were volunteers, and were therefore not entitled to any compensation. The trial court agreed with the employer and dismissed the case.
The trial court based its decision primarily on the fact that there was no “express or implied agreement for compensation” between the plaintiffs and the employer, a key tenet in finding an employment relationship. The plaintiffs appealed the decision, and the appellate court agreed to review whether the trial court applied the correct legal standard — although not whether the plaintiffs could demonstrate that they met it.
The appellate court ultimately held that the trial court applied the wrong standard when it found that plaintiffs were not employees. Instead of focusing on the lack of an agreement for compensation, the appellate court said that the trial court should evaluate a volunteer’s motivation and ensure that nonprofits are not unfairly exploiting volunteer labor.
It then administered a two-part test for courts to use to determine whether these factors are met. First, a nonprofit must demonstrate that the worker freely agreed to work for a personal or charitable benefit, not for compensation. Second, it must demonstrate that its use of volunteer labor is not an effort to avoid having to comply with wage and hour laws.
Turning to the facts of this case, the court initially noted that although two of the plaintiffs chose the employer’s rehabilitation program as an alternative to incarceration, that did not mean that they did not “freely agree” to work. The employer had no involvement in the workers’ criminal proceedings, and simply offering a rehabilitation program doesn’t constitute coercion.
The court then dissected the more complicated question of how to determine if an individual works for personal or charitable benefit. Often, volunteers are motivated by a desire to further the charitable cause of their nonprofit and receive the personal benefit of seeing the mission advanced. In the case of the plaintiffs, the court noted, the program provided them with the benefit of drug rehabilitation, with two of them receiving the further benefit of avoiding incarceration. It will be up to the trial court to determine whether those factors constitute a personal benefit sufficient to classify the plaintiffs as volunteers.
Finally, the court clarified that even when an individual volunteers their labor, they could still be found to be an employee if the nonprofit abuses the volunteer status to circumvent wage and hour laws.
Wage and hour laws exist primarily to protect employees from exploitation, and individuals who volunteer their time in support of a nonprofit are not typically subject to that risk. If a true volunteer believes that a nonprofit is exploiting them, they could simply stop volunteering. However, if an employee is misclassified as a volunteer, the possibility exists that the nonprofit could unfairly exploit them.
To determine whether the employer’s work therapy program meets this standard, the appellate court stated that the trial court should consider whether the rehabilitation program volunteers displaced paid employees, and whether the work therapy program is reasonably calculated to serve a rehabilitative purpose.
The appellate court then sent the case back to the trial court to apply this updated standard to the specific facts.
Lessons for Employers:
Misclassification of employees as volunteers could be very costly: damages might include unpaid wages and overtime, penalties for missed meal and rest breaks, and fines for other Labor Code violations. Nonprofits with questions about the classification of any workers should consult with counsel to ensure they meet the new two-part test established by the court of appeal.