California Court of Appeal Establishes Two-Factor Test to Classify Unpaid Volunteers and Employees of Non-Profit Organizations

Starting the new year off with a pivotal decision, a California Court of Appeal established a new, two-factor test to determine whether workers at non-profit organizations can be classified as unpaid volunteers.

Background

In Spilman v. Salvation Army, Plaintiff Justin Spilman worked without wages as part of a six-month, residential substance abuse rehabilitation program at the Salvation Army, a non-profit religious organization. Program participants were required to work full time in the Salvation Army warehouse and thrift store but did not receive wages. They were classified as unpaid volunteers and received non-cash benefits including dormitory housing, three meals per day, clothing, gratuities, and rehabilitation services.

Spilman filed a class and PAGA representative action complaint, alleging the rehabilitation program participants were employees, not volunteers, and the Salvation Army failed to pay the required minimum and overtime wages under California law.

The trial court ruled the rehabilitation program participants were unpaid volunteers, not employees, because they voluntarily participated without an express or implied agreement for compensation. Spilman appealed.

New Test for Volunteer Status

Neither the Labor Code nor the wage orders expressly address the status of unpaid volunteers for non-profit organizations, and there is limited case law on the subject. In Spilman, the Court of Appeal adopted a new two-part test for distinguishing between employees and volunteers of non-profit organizations. This new test is different from the federal test and from prior DLSE guidance regarding volunteer status.

According to this new test, a non-profit organization that wants to classify a worker as an unpaid volunteer must establish that:

• the worker freely agreed to work for the non-profit to obtain a personal or charitable benefit, rather than for compensation; and
• overall, the non-profit organization’s use of volunteer labor is not a subterfuge to evade the wage laws.

Although the court stated its purpose was to adopt a simple test, application of this test depends on the facts, and satisfaction of each factor may not be obvious. The court laid out numerous examples of factors that could be relevant which we summarize here, but non-profits should consult counsel to carefully analyze the details of their volunteer programs in light of this new case.

Test Factor One: Working for Personal or Charitable Benefit

First, to classify a person as a volunteer, the employer must establish the volunteer agreed to work for a personal or charitable reason or benefit (such as advancing the cause of the non-profit or to obtain a benefit, like drug rehabilitation), rather than to earn compensation. Courts will look for evidence of an express or implied promise of compensation. Of course, compensation can include things like meals, lodging, and transportation, but provision of these types of benefits alone is not enough to make the worker an employee. Instead, the Court of Appeal suggested that courts should consider whether the non-profit makes these benefits contingent on the worker’s labor or performance, which would tend to indicate the benefits are compensation and weigh in favor of finding an employment relationship.

Moreover, the non-profit should demonstrate that the individual chose to volunteer their services freely and without coercion.

The duration of a volunteer relationship may also be relevant. For example, in the context of a rehabilitation program, the provision of in-kind benefits over a long period suggests the program is more like an ordinary job than a legitimate effort to treat a drug or alcohol addiction.

If the non-profit fails to establish that the worker has freely agreed to work for personal benefit rather than for compensation, the inquiry ends and the worker must be deemed an employee. If the non-profit satisfies the first factor, however, then a court must proceed to the second factor.

Test Factor Two: No Misclassification to Evade Wage Laws

Second, the non-profit must demonstrate that classifying the worker as a volunteer is not a subterfuge to get around the wage laws. The court gave a few non-exhaustive examples of factors that might be relevant:

• In the context of a rehabilitation program, the non-profit should show that the promised “work therapy,” together with other relevant aspects of the program, is reasonably calculated to serve a rehabilitative purpose, rather than being a ploy for sidestepping wage laws. The court indicated that, in most cases, it should suffice for the non-profit to show it has an actual and reasonable belief that the work therapy, along with other elements of the program, contributes to rehabilitation.
• Courts should also consider whether the organization is using volunteers to replace and perform the same functions as pre-existing paid employees, which may indicate a scheme to avoid compliance with the wage laws and place downward pressure on wages. If unpaid volunteers and paid employees perform identical work in a commercial venture, it may suggest the non-profit is attempting to gain a competitive advantage at the expense of its employees.

The Court of Appeal noted that these are only examples, and courts are instructed to consider any other evidence as to whether the nature of the working relationship is exploitative. The court did not decide whether the workers at issue satisfied the test to be unpaid volunteers but instead remanded the case to the trial court.

Tips For Non-Profit Organizations

This is a single Court of Appeal decision, and it is possible that other courts may disagree with this newly-announced test for volunteer status. However, this decision now represents the clearest statement of a California test for distinguishing between employees and volunteers at non-profit organizations. Non-profits in California should audit their volunteer programs to determine whether they satisfy the new test and contact counsel if they have any questions or concerns about compliance.

DIR Publishes New Mandatory Notice of Worker Rights

Last year, the Legislature passed a new law requiring employers to provide a stand-alone written notice of worker rights to employees. The Labor Commissioner has published the template notice, and you can access the notice in various languages here.

Employers are required to provide the notice to each current employee on or before February 1, 2026, and annually thereafter. The notice can be provided in a manner the employer normally uses to communicate employment-related information, which may include personal service, email, or text message, if it can reasonably be anticipated to be received by the employee within one business day of sending. Employers are also required to provide the notice to new employees upon hire. Employers must keep records of compliance for three years, including the date each notice is provided.

CRD Publishes Draft Guidance for 2025 Pay Data Reporting

California employers with 100 or more employees (or 100 or more labor contractor employees) are required to submit annual pay data reports to the Civil Rights Division (CRD), including mean and median hourly rates for employees with each combination of race, ethnicity, and sex within each job category at each establishment. Reports for 2025 are due May 13, 2026. The CRD recently published preliminary FAQs and a preliminary reporting template for the 2025 reporting year, which you can access here. These indicate that employers will be required to provide several new types of information about California employees, including:

• Exemption status – exempt or non-exempt from overtime and the minimum wage
• Employee type – full-time, part-time, or intermittent
• Number of weeks worked during the reporting year

These are preliminary documents and are intended for planning purposes only. The final versions will be published in February.

If you have questions about how these developments may impact your organization or need advice relating to unpaid volunteers, the Notice of Worker Rights, or Pay Data Reporting, please contact us.

• Michael R. Minguet (mminguet@wilsonturnerkosmo.com)
• Katie M. McCray (kmccray@wilsonturnerkosmo.com)

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant employment law developments as they occur. This should not be considered legal advice.