Landmark ruling tightens when nonprofits can treat workers as unpaid volunteers
A California appeals court just rewrote the rules on who counts as a volunteer, creating headaches for HR teams across the nonprofit sector.
The decision, handed down January 6, 2025, establishes a new framework that could force organizations to rethink how they classify unpaid workers.
The case centers on the Salvation Army's substance abuse rehabilitation programs in San Francisco, Stockton, and Chico. Three former participants claimed they were actually employees who worked full-time in the nonprofit's thrift stores without getting paid minimum wage or overtime.
Justin Spilman, Teresa Chase, and Jacob Tyler had enrolled in six-month residential programs between 2015 and 2020. Spilman and Chase entered to satisfy probation requirements instead of going to jail. All three worked what they say were full-time hours sorting donations, unloading trucks, assisting customers, and handling various warehouse and store operations.
In exchange, they received room and board, meals, small amounts of cash, and rehabilitation services including counseling and classes. The Salvation Army called it work therapy, designed to help participants build job skills and stay focused during recovery.
The participants saw it differently. They argued they were doing the same jobs as paid employees, just without paychecks, and filed a class action lawsuit seeking back wages.
A trial court sided with the Salvation Army, ruling that without an agreement to pay wages, there was no employment relationship. Case closed.
Not so fast, said the Court of Appeal, which threw out that reasoning and sent the case back for reconsideration.
The problem, according to the three-judge panel, was that the lower court made compensation agreements the be-all-end-all test for employment status. California law is actually broader than that. The court pointed out that the state's wage laws extend beyond traditional employment contracts to protect workers even when no formal agreement exists.
Instead of a single threshold test, the court created a two-part framework. First, did the worker truly volunteer for personal or charitable reasons, or were they actually working for pay in some form? Second, is the organization using volunteers as a workaround to avoid paying wages?
The first question gets tricky when you dig into the details. The court said in-kind benefits like housing and meals can count as compensation if they are tied to work performance. If you miss a shift and lose access to the cafeteria, that looks more like wages than charity. On the other hand, if room and board are standard parts of a legitimate treatment program, that weighs toward volunteer status. Context matters.
The second question focuses on whether the arrangement serves a genuine purpose or amounts to exploitation. Organizations need to show their volunteer programs serve legitimate charitable or rehabilitative goals beyond getting free labor. Are rehabilitation participants actually learning job skills, or just stocking shelves to save payroll costs?
HR teams should pay particular attention if volunteers are doing the same work as paid staff, especially in revenue-generating operations like thrift stores or fundraising events. That overlap could signal an attempt to dodge wage requirements.
The decision also pushes back against guidance from California's labor enforcement agency, which had suggested nonprofits cannot use volunteers in any commercial activities. The court disagreed, noting that plenty of charitable organizations raise money through sales and events where volunteers naturally want to help. A blanket ban on volunteers in commercial functions would be unworkable.
Still, the line between acceptable volunteer work and disguised employment just got more complicated to navigate.
Going forward, organizations need to document that volunteers chose to participate freely and are getting personal benefits beyond a paycheck substitute. They also need to show their programs serve legitimate purposes, not just cheap labor needs. The burden falls on employers to prove workers should be classified as volunteers, not the other way around.
For the Salvation Army, the fight continues. The trial court will now reconsider whether there are disputed facts that should go to a jury, applying the new two-part test.
For HR professionals everywhere, the message is clear. Review your volunteer programs now. Make sure the classification holds up under closer scrutiny. Because if California courts are willing to second-guess arrangements at one of the country's most recognized charities, no organization should assume it is safe.
