Nonprofit News
Cindy Allen
Associate | San Francisco
Jordan Carman
Associate | San Francisco
Hannah Dodge
Associate | San Francisco
Christopher Fallon
Partner | Los Angeles
Alison R. Kalinski
Senior Counsel | Los Angeles
Stephanie J. Lowe Senior Counsel | Los Angeles
Cynthia O'Neill
Partner Emeritus | San Francisco
Nicole A. Powell
Associate | Los Angeles
Casey Williams Partner | San Francisco
Volunteers
California Court Of Appeal Clarifies Test For When Nonprofit Volunteers May Be Considered Employees.
Justin Spilman and two other plaintiffs participated in the Salvation Army’s six-month residential drug and alcohol rehabilitation program, which operates in facilities that include living quarters, warehouses, and retail thrift stores. Participants voluntarily entered the program, some instead of incarceration, and received housing, meals, clothing, limited gratuities, and rehabilitation services such as counseling, group meetings, and religious programming. As a required component of the program, participants performed full-time “work therapy” in Salvation Army warehouses and thrift stores, completing tasks such as sorting and processing donations, unloading trucks, stocking shelves, assisting customers, and operating equipment. The Salvation Army controlled participants’ work schedules, assignments, and conditions, prohibited them from obtaining outside employment, and required make-up work if shifts were missed.
After leaving the program, Spilman and the other plaintiffs filed a class and representative action alleging that they were misclassified as volunteers and should have been treated as employees under California law. They claimed the work they performed was indistinguishable from that of paid employees, that the Salvation Army used unpaid program participants to operate its commercial thrift store business, and that the room, board, and gratuities functioned as compensation tied to work performance. The Salvation Army denied these allegations, emphasizing that participants signed acknowledgments stating they were not employees, that the work therapy was designed to support rehabilitation and personal growth, and that any benefits provided were intended to meet participants’ basic needs during recovery rather than to compensate them for labor.
The trial court granted summary adjudication for the Salvation Army, concluding that the plaintiffs were volunteers rather than employees. The trial court reasoned that an express or implied agreement for compensation was a threshold requirement for employee status under California wage law, and that because the plaintiffs voluntarily participated in the rehabilitation program without an expectation of wages, they were not employees. Based on that conclusion, the trial court declined to resolve many factual disputes about the nature of the work, the degree of control exercised by the Salvation Army, or whether the unpaid labor displaced paid employees.
The California Court of Appeal reversed and remanded. While agreeing that genuine nonprofit volunteers may fall outside California’s wage laws, the Court of Appeal held that the trial court applied an overly narrow legal test. The appellate court explained that California wage orders define “employ” broadly to include work an entity “suffers or permits,” and that wage protections may apply even in the absence of a traditional contractual employment relationship. Relying on California Supreme Court precedent and federal cases involving rehabilitation and nonprofit programs, the Court emphasized that the purpose of the wage laws is to prevent exploitation and circumvention, particularly where unpaid labor could place downward pressure on wages or replace paid workers.
To clarify the analysis, the Court adopted a two-part framework for determining whether a nonprofit has properly classified a worker as a volunteer. Under this approach, the nonprofit must show that the individual freely agreed to perform the work primarily for a personal or charitable benefit rather than compensation, and that the overall use of unpaid labor is not a subterfuge to evade wage-and-hour laws. Relevant factors include whether in-kind benefits function as wages, whether benefits are contingent on work performance, the duration and intensity of the work, whether participants perform the same tasks as paid employees, and whether the work primarily advances rehabilitation goals or instead serves the nonprofit’s commercial operations.
Because the trial court treated the absence of an agreement for compensation as dispositive and did not evaluate these broader considerations, the Court of Appeal vacated the judgment and remanded the case for further proceedings. On remand, the trial court must apply the correct legal standard and determine whether disputed facts preclude summary judgment.
Spilman v. Salvation Army (Cal. Ct. App. Jan. 6, 2026) No. A169279, 2026 Cal. App. LEXIS 4.
Note:
This decision provides important guidance for nonprofits that rely on volunteers or program participants who perform work connected to the organization’s operations. Courts will look beyond labels and written acknowledgments to examine the reality of the working relationship, including whether unpaid labor displaces paid positions or functions as compensation in another form.
Governance
California Department Of Justice Proposes Regulations Clarifying Nonprofit Dissolution Requirements.
Introduction
During these difficult times, some nonprofit organizations may find themselves engaged in conversations about whether and how to wind up operations in a responsible manner. We have prepared this article to highlight recent developments affecting nonprofit voluntary dissolutions in California and to help organizations understand the evolving regulatory framework governing this process.
Existing Law
The California Department of Justice (DOJ) has issued proposed regulations regarding the process for nonprofit organizations to obtain approval from the California Attorney General (AG) for a voluntary dissolution.
Currently, state law requires the final distribution of the assets of a nonprofit corporation to be conducted under the supervision and with the approval of either the AG or a court; this allows the state to confirm that the nonprofit’s assets are being distributed to other nonprofits and in accordance with the dissolving nonprofit’s founding documents. To obtain the AG’s approval for a dissolution, a nonprofit must request a written waiver of objections to its plan to distribute its remaining assets.
Existing regulations provide that any request that a nonprofit submits to the AG, whether related to a dissolution or not, must include all “material facts,” meaning the facts that a reasonable person would find important to their decision on the proposed action, including anticipated opposition. There are also specific regulations that list what information a nonprofit must provide for certain kinds of requests to the AG, such as a request to approve a self-dealing transaction. However, with respect to requesting a written waiver of objections to a voluntary dissolution, the AG has provided guidance through various publications, rather than formal regulatory prescriptions.
For example, the AG maintains a website with information about the voluntary dissolution process. This website provides that, to obtain a waiver of objections from the AG, a nonprofit corporation must send a letter requesting the waiver to the AG’s Registry of Charities and Fundraisers (Registry). It further provides that the letter should be signed by one of the nonprofit’s directors or an attorney for the nonprofit and should generally be accompanied by certain additional information, such as a signed copy of the Certificate of Dissolution and a copy of the Articles of Incorporation. The website also includes an informative video, responses to frequently asked questions, and other information about the dissolution process that any nonprofit considering voluntary dissolution should review.
The “Attorney General’s Guide for Charities” (Guide) also includes more detailed information about what documents and information a nonprofit should provide when seeking a waiver of objection. Specifically, the Guide provides that the letter should include all of the following for each of the recipients to whom the nonprofit will be distributing assets:
• Full legal name, address, telephone number, corporate number, and Federal Employer Identification Number (FEIN);
• Itemized listing of assets to be distributed, by type and value;
• Proposed date of distribution; and
• Any restrictions on the use of the assets to be distributed.
• The Guide further provides that the following records should be attached to the letter:
• A copy of each recipient’s articles of incorporation;
• An endorsed filed copy of the dissolving corporation’s articles of incorporation, including any amendments;
• A signed copy of the Certificate of Dissolution; and
• Copies of the dissolving corporation’s last three annual information returns with the Internal Revenue Service (IRS), or financial statements showing receipts and disbursements and balance sheets for the three most recent accounting periods, if the dissolving corporation does not have any informational returns.
Notice of Proposed Rulemaking
In December 2024, the DOJ announced that it was proposing to adopt new regulations governing the voluntary dissolution of nonprofit corporations, as well as the termination of charitable trusts, and the withdrawal of foreign charitable organizations from California. The proposed regulations would add sections 332 and 333 to Title 11 of the California Code of Regulations.
With respect to voluntary dissolutions, the proposed regulations generally formalize the existing informal procedures described above, but they also provide additional clarity about what information and documentation to provide. In particular, and as detailed further below, the proposed regulations specify what kinds of information and documentation a nonprofit must provide with a request for a waiver of objection, depending on whether it is a public benefit corporation, a mutual benefit corporation, or a religious corporation and whether it has any remaining charitable assets.
The proposed regulations provide that, for nonprofit public benefit, mutual benefit, and religious corporations, the information and documents required to accompany a request for a waiver of objections must be submitted through the AG’s online filing system. The proposed regulations also provide that the AG may request additional information or waive certain requirements when it is evaluating a request for a waiver of objections, depending on the particular facts and circumstances involved. Finally, the proposed regulations provide that a waiver of objections is valid for one year, unless the AG withdraws it sooner, though the AG may also extend the validity of the waiver for an additional ninety days for good cause.
Proposed Requirements for Nonprofit Public Benefit Corporations
The proposed regulations provide that a nonprofit public benefit corporation that holds assets subject to a charitable trust and is seeking to dissolve must submit a letter signed by an authorized director or attorney that includes the following information:
• The corporation’s legal name;
• The corporation’s Registration number with the Registry, FEIN, and Corporation or Organization number;
• A statement requesting a waiver of objection to the distribution of charitable assets;
• A statement identifying the proposed recipient(s) of the corporation’s charitable assets, the amount to be distributed to each recipient, an explanation as to how each recipient has the same or similar charitable purposes as the corporation, and whether the assets are restricted in use or purpose; and
• If the corporation’s registration with the Registry is not current or it is not registered with the Registry, an explanation as to why.
Along with the letter, a nonprofit public benefit corporation must also provide the following documentation:
• Financial statements, consisting of a balance sheet and an income and expense statement for the last three years of operation;
• A copy of the founding documents, including the Articles of Incorporation and any amendments;
• A copy of the resolution or meeting minutes of the board of directors showing its approval to voluntarily dissolve the corporation; and
• All documents showing restrictions on the assets to be distributed to the recipient(s).
The requirements for a nonprofit public benefit corporation that does not have any assets subject to a charitable trust are similar, but rather than providing information about the recipient(s) of the assets, the letter must either explain that the corporation never had any assets or what kind of assets it had in the past and how they were used. The financial statements for a nonprofit public benefit corporation that does not have any assets subject to a charitable trust must also show how the corporation ended up with zero net assets on its balance sheet.1
Finally, the proposed regulations provide that a nonprofit public benefit corporation must file its final form RRF-1 and Internal Revenue Service Form 990 with the Registry within four months and fifteen days of the AG issuing a waiver of objections.
Proposed Requirements for Nonprofit Religious Corporations
The proposed regulations provide that a nonprofit religious corporation that is seeking to dissolve and has assets subject to a charitable trust must submit a letter signed by an authorized director or attorney that includes the following information:
• The corporation’s legal name;
• The corporation’s Registration number with the Registry, FEIN, and Corporation or Organization number;
• A statement requesting a waiver of objection to the distribution of charitable assets; and
• A statement identifying the proposed recipient(s) of the corporation’s charitable assets, the amount to be distributed to each recipient, an explanation as to how each recipient has the same or similar charitable purposes as the corporation, and whether the assets are restricted in use or purpose.
• If a nonprofit religious corporation does not have any charitable assets, then, instead of a statement identifying the proposed recipient(s), it would simply include a statement that it does not have charitable assets.
• Along with the letter, a nonprofit religious corporation (with or without charitable assets) needs only provide a copy of its founding documents, including the Articles of Incorporation and any amendments.
Rulemaking Status
The DOJ took public comments on the Notice of Proposed Rulemaking for forty-five days. After reviewing the comments received, the DOJ released modified regulations for an additional fifteen-day public comment period in October 2025. Final adoption is expected following completion of the rulemaking process.
We are closely monitoring developments related to the proposed regulations. If your nonprofit has questions about these issues, please contact Liebert Cassidy Whitmore’s Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.
1 The requirements for a nonprofit mutual benefit corporation that holds assets subject to a charitable trust are the same as those for a nonprofit public benefit corporation that holds assets subject to a charitable trust. The requirements for a nonprofit mutual benefit corporation that has had assets subject to a charitable trust but does not at the time of the proposed dissolution are also the same as those for a nonprofit public benefit corporation that does not have any assets subject to a charitable trust, except that a nonprofit mutual benefit corporation with no remaining assets subject to a charitable trust must also explain why it is proposing to dissolve in its letter to the AG.
Pregnancy
Court Finds Performance Problems, Not Pregnancy, Motivated Custodial Employee’s Termination.
Amber Payne worked as a probationary custodial employee at Western Michigan University (WMU) for five months before her employment was terminated in August 2023. Payne learned she was pregnant the same week she began working and later alleged that WMU fired her because of her pregnancy. She sued the University for pregnancy discrimination under Title VII and for failure to accommodate her pregnancy under the federal Pregnant Workers Fairness Act (PWFA). Both parties moved for summary judgment.
The record reflected that Payne struggled with performance issues almost immediately after she started. Supervisors testified that she did not follow instructions, delivered inconsistent results, and had to redo cleaning tasks. At her 30-day evaluation, she received unsatisfactory ratings for the quality of her work, acceptance of direction, and attendance. At 60 days, she showed some improvement, but supervisors testified that her performance declined again soon afterward. Multiple custodial staff reported concerns, including that Payne frequently used her phone during shifts, left work areas without informing coworkers, and at times “disappeared” during work hours. Shortly before her final probationary evaluation, a supervisor found her lying or sitting in a dark room during work time; Payne said she felt dizzy from pregnancy but acknowledged she did not tell the supervisor she was unwell. That supervisor, along with others, recommended she fail probation.
Payne asserted that certain remarks by her trainer, Juanita Snell, revealed discriminatory animus. According to Payne, Snell said her pregnancy was “terrible timing,” told her not to treat it as a disability, and questioned how she planned to manage her symptoms. Payne admitted she did not report the comments, and Snell denied making them. Payne also conceded she did not request any accommodations or tell supervisors that her pregnancy was affecting her work. The individual who decided to terminate her employment was the director of labor relations, Kurt Graham, who testified that he relied on input from several supervisors and did not base his decision on pregnancy-related attendance issues.
The Court rejected Payne’s argument that Snell’s alleged comments constituted direct evidence of discrimination, explaining that Snell was not the decision-maker and that Payne offered no evidence tying her comments to the termination decision. Payne therefore proceeded under the McDonnell Douglas burden-shifting framework. For a plaintiff alleging discrimination based on pregnancy, she must show she was (1) pregnant, (2) qualified for the job, (3) subjected to an adverse employment action, and (4) that there is a nexus between the pregnancy and the adverse employment decision. If the plaintiff establishes a prima facie case, the burden shifts to the defendant to provide evidence of a legitimate nondiscriminatory reason, and then the burden shifts back to the plaintiff to show that the real reason was a pretext for an unlawful action.
On the prima facie case, the Court held that Payne could not establish a causal nexus between her pregnancy and termination. Although the University knew of her pregnancy by late May, she was not fired until late August, and the Court found the three-month gap insufficient to raise an inference of discrimination absent additional evidence. Payne also failed to identify any similarly situated employee who performed as poorly during probation yet was retained, and the evidence showed multiple pregnant custodial workers, including Payne’s sister, completed probation without adverse action.
Even assuming Payne established a prima facie case, WMU articulated a legitimate, nondiscriminatory reason for termination: consistently poor performance. The University offered extensive supervisor testimony and written evaluations detailing deficiencies in her work quality, reliability, adherence to directions, and attitude. Payne offered no evidence demonstrating that these reasons were pretextual. She did not dispute many of the documented performance problems, provided no evidence that WMU overlooked similar deficiencies in non-pregnant employees,
and failed to show that the decision-maker relied on inaccurate or fabricated information.
The Court also rejected Payne’s claim under the Pregnant Workers Fairness Act. While she argued that WMU failed to accommodate her pregnancy symptoms, the Court found that she never informed supervisors that she needed any accommodation apart from excused absences, which WMU granted. The doctor’s notes she provided requested only that she be excused from specific days of work, and nothing in the notes or the record notified WMU of limitations requiring workplace modifications. Payne testified she never asked for help or communicated that her pregnancy interfered with performing essential job duties. Because the University lacked notice of any requested accommodation beyond excusal from work, her PWFA claim failed as a matter of law.
The Court granted WMU’s motion for summary judgment and denied Payne’s.
Payne v. W. Mich. Univ. (W.D. Mich. Nov. 13, 2025) 2025 LX 575070.
Note:
This decision underscores the importance for employers— including nonprofit organizations—to document performance concerns and ensure decisions are grounded in well-supported, nondiscriminatory reasons. For PWFA compliance, the case highlights that employers must respond to communicated limitations, but employees must first make their limitations and needed accommodations known.
Discrimination
Age Claim Was Viable Despite That The Employees Had Not Applied For The Promotion.
Three Dealer Business Managers (DBMs) were long-term employees at Circle K: Brian Caldrone (54), Joseph Celusta (56), and Kathleen Staats (57). Each had a history of strong performance evaluations, awards, and wanted to advance to regional leadership roles.
In 2020, Circle K’s West Coast Regional Director position became vacant. In the past, Circle K had posted position openings internally or circulated announcements by email or intranet to encourage qualified employees to apply. This time, the company did not post or open the position for applications. Instead, Circle K’s senior management handpicked a younger employee (Angeles), aged 45, to fill the position. Angeles had previously served as the Southeast Regional Director, though he had a mixed performance record in that role.
When the three DBMs learned of the promotion, they believed that the company had bypassed its normal process to promote a younger employee. They sued Circle K in California state court for age discrimination under both the ADEA and FEHA.
The trial court granted summary judgment for Circle K, holding that the DBMs could not establish age discrimination because they had not applied for the position. The trial court also found that, even if they could establish age discrimination, Circle K had provided a legitimate, nondiscriminatory reason for its decision, and the DBMs had not shown that this reason was pretextual.
The U.S. Court of Appeals for the Ninth Circuit reversed. The Ninth Circuit held that, when an employer does not announce a vacancy or solicit applications, employees are not required to show that they applied for the position to establish age discrimination. The Court also clarified that, although a ten-year age difference is the usual threshold for a “substantial” age gap, the DBMs could overcome a smaller gap by providing evidence that age was a significant factor in the employer’s decision. The Court found that the DBMs had presented sufficient evidence to create a triable issue of pretext and remanded the case for further proceedings.
Caldrone, et al. v. Circle K Stores, 156 F.4th 952 (9th Circuit 2025).
Artificial Intelligence
The Risk Of Using Artificial Intelligence In Workplace Investigations.
Artificial intelligence (AI) tools are increasingly being marketed as a way to streamline workplace investigations: summarizing evidence, generating interview outlines, comparing witness statements, or even “detecting inconsistencies” in testimony. While these tools may appear to help investigators move faster, public employers should approach AI-assisted investigations with caution. California employers have unique obligations to ensure their investigations are thorough, impartial, accurate, and defensible under case law and statutory requirements.
AI tools can support certain administrative tasks, but improper reliance on them can jeopardize the validity of the investigation, expose the employer to claims of bias or inadequate fact-finding, and create confidentiality concerns. This article outlines the emerging legal and practical risks and guides to help employers evaluate whether, and how, AI should (or should not) be used.
AI in Workplace Investigations: What These Tools Claim to Do
AI tools can:
• Summarize large volumes of documents
• Generate interview questions based on allegations or policies
• Analyze transcripts for “inconsistencies.”
• Suggest credibility assessments
• Identify potential timelines or patterns in evidence
Although these tools may seem efficient, they introduce significant legal and practical risks.
Risk 1: Hallucinations, Inaccuracies, and Missing Nuance
AI tools are known to produce “hallucinations,” which occur when the system generates statements that appear authoritative but are factually incorrect or fabricated.
In an investigation, even a minor factual distortion can:
• Undermine the credibility of the investigatory report
• Lead to incorrect findings
• Create inconsistencies that opposing counsel may highlight
• Damage trust between the employer and employees
AI also frequently misses context, tone, or nuance, all critical to credibility determinations. AI cannot evaluate demeanor, motive, or subtle shifts in a witness’s explanation. It may summarize statements in a way that oversimplifies or distorts them.
Risk 2: Embedded Bias in AI Outputs
AI tools reflect the datasets they are trained on. Accordingly, AI-generated conclusions may inadvertently introduce bias into:
• Witness credibility assessments
• Evaluations of employee conduct
• Interpretation of language or cultural communication styles
• Discipline recommendations
Because California employers must demonstrate impartiality in investigations, any bias reflected in AI outputs can compromise the investigation and expose the employer to legal challenge.
Risk 3: Confidentiality and Data Storage
Workplace investigations often involve:
• Confidential personnel information
• Medical data (subject to CMIA and HIPAA)
• Student information (for educational organizations under FERPA)
Uploading this information into a third-party AI platform may violate confidentiality rules or trigger disclosure obligations. Many AI tools store prompts, inputs, or outputs on remote servers, and some use data to further train their models.
Risk 4: Ethical Concerns for Workplace Investigators
Over-reliance on AI risks blurring the line between the investigator’s independent judgment and the machinegenerated suggestion.
Additionally, investigators must ensure that all work product is their own, that sources are verifiable, and that findings are based on actual evidence—not AI extrapolation.
AI tools that fabricate facts or produce misleading summaries can put investigators at risk of failing these obligations if not carefully controlled and independently verified.
Key Takeaways for Employers
• AI should never replace human judgment in workplace investigations.
• Any AI-generated summary or analysis must be independently verified.
• Investigators should avoid uploading confidential personnel data into AI platforms unless the employer has vetted the tool’s security, privacy, and data-use policies.
• AI-generated conclusions regarding credibility or intent pose high legal risks.
• Employers should develop internal policies on whether, and how, AI may be used in investigations.
Because AI tools are rapidly evolving while legal standards for investigations remain constant, nonprofit employers should:
• Review or update their workplace investigation policies
• Evaluate whether AI use should be restricted or prohibited in investigative processes
• Provide training to HR teams and investigators on the risks and obligations
• Consult legal counsel before adopting or integrating AI tools into investigative workflows
If your nonprofit is considering the use of AI tools or needs guidance on investigation best practices, please reach out to trusted legal counsel.
Category:
• Workplace Policies
• Artificial Intelligence
• Investigation
• Ethics
Benefits Corner
New Mandatory Roth Requirement For 457(b) Catch-Up Contributions.
Beginning January 1, 2026, the Secure 2.0 Act adds a new mandatory Roth requirement for catch-up contributions to employer-sponsored retirement plans that permit salary-deferral catch-up contributions. This includes 401(k), 403(b), and non-governmental 457(b) plans. Catch-up contributions are an option for allowing participants to contribute more than the typical annual limit in the years leading up to normal retirement age.
If an employer’s plan allows catch-up contributions, employees age 50 or older who earned more than $145,000 in Social Security wages in the prior year (referred to as “high earners”) must make any catch-up contributions on a Roth (after-tax) basis, and not as pretax contributions. The FICA wage threshold will be indexed annually. Payroll systems will need to be able
to identify which employees are high earners and route their catch-up contributions to Roth. Employers should communicate with employees to explain why their catchup contributions are now treated as Roth.
High earners can elect a regular deferred amount that remains pretax and then their catch-up contributions will be treated as Roth. For 401(k) and 403(b) plans, the IRS regulations provide an option allowing employers to use “deemed elections.” Deemed elections automatically treat the catch-up contributions as Roth once the high earner reaches the annual elective deferral limit. This provision in the IRS regulations, however, does not extend to 457(b) plans.
Please note that the requirement does not force employer-sponsored retirement plans to offer Roth contributions for regular deferrals. It only requires Roth treatment for catch-up contributions for employees who are high earners.
new to the Firm!
Andrew Dorado joins LCW as Senior Counsel, bringing extensive experience in employee benefits, fiduciary compliance, and advising public and nonprofit organizations on complex regulatory and employment-related issues.
Corrigan Lewis is a new Associate whose practice focuses on complex litigation, civil rights, and disability law. She brings experience in state and federal courts, advising and litigating on behalf of individuals with disabilities, and supporting compliance with state and federal civil rights laws.
Brittany Roberts joins us as an Associate with experience as a federal law clerk and a strong background in employment law, making her a fantastic addition to our team and well-equipped to help clients navigate compliance and workplace challenges with practical, proactive solutions.
Business & Facilities
Enforcing Arbitration Agreements: Court Declines To Enforce Sign-In Wrap Arbitration Agreement That Was Visually Overshadowed By Other Elements On Checkout Page.
Leslie Cruz purchased merchandise through the Kate Spade Outlet website, which was operated by Kate Spade LLC and Coach Services, Inc., both subsidiaries of Tapestry, Inc. On February 2, 2024, she placed an online order for in-store pickup for a $79.00 pair of shoes. On March 4, 2024, she placed another order for home delivery of approximately $150.00 of merchandise.
On April 12, 2024, Cruz sued Tapestry, Kate Spade, and Coach in Los Angeles County Superior Court, claiming they engaged in false advertising and unfair competition under California Business and Professions Code sections 17200 et seq. and 17500 et seq. She alleged that the companies advertised “falsely inflated” discounts, displaying markdowns from prices at which the merchandise was never or rarely offered for sale. She alleged that her February 2, 2024, and March 4, 2024, purchases fell under this “false advertising scheme.” Cruz sought restitution and disgorgement of all unjust enrichment.
Tapestry and its affiliates responded by filing a motion to compel arbitration, arguing that Cruz had agreed to arbitrate her claims when she made her online purchases. They relied on an arbitration provision embedded in the website’s Terms of Use. During checkout, there was a large pink button that either said “PLACE MY ORDER” if a customer chose a pickup order, or “FINAL: PLACE ORDER” if they chose delivery. The trial court referred to these collectively as the “action button.” Underneath the action button, a sentence in smaller gray font read, “BY CLICKING SUBMIT YOUR ORDER, YOU ARE AGREEING TO OUR TERMS OF USE AND PRIVACY POLICY.” The words “Terms of Use” and “Privacy Policy” were underlined hyperlinks, but they were not a separate color. Customers were not required to click the links or
check a box indicating that they had reviewed the Terms of Use or Privacy Policy.
The trial court denied Tapestry’s motion to compel arbitration. The trial court found that Cruz had not assented to the arbitration clause because the notice was too inconspicuous and overshadowed by more prominent elements on the checkout page, such as the large pink action button, advertisements, and payment fields. The trial court concluded that Cruz had no reason to expect that a one-time retail purchase would subject her to an ongoing contractual relationship governed by extensive terms. Tapestry appealed, contending that the trial court erred and that Cruz had implicitly agreed to arbitration by completing her purchases.
On appeal, the Second District Court of Appeal reviewed the order de novo. The appellate court explained that a party seeking to compel arbitration must show that the other party consented to the arbitration agreement. In an online setting, whether a consumer is bound by an arbitration agreement depends on notice. The business must show that its website presented the terms of the agreement in a way that would make a reasonably prudent user aware that they were agreeing to the terms.
The appellate court agreed with the trial court that Tapestry’s checkout process used what is known as a “signin wrap” agreement. Sign-in wrap agreements include a textual notice indicating that the user will be bound by terms, but they do not require that the consumer review the terms or expressly manifest their assent by checking a box or clicking an “I agree” button. Instead, they are purportedly bound by the agreement when they click some other button that is needed to complete the transaction, such as a sign-in button or, in this case, a purchase button.
Because this type of assent is largely passive, the validity of the agreement turned on whether the website gave users reasonably conspicuous notice. The appellate court explained that in the context of online purchases, consumers would not typically expect that they are entering into an ongoing contractual relationship bound by extensive terms and conditions. The appellate court
rejected Tapestry’s argument that the high dollar value of the goods should have alerted Cruz to look for contractual terms.
The appellate court conducted a detailed examination of the website’s checkout pages and concluded that Tapestry failed to provide reasonably conspicuous notice that submitting an order would bind a customer to its Terms of Use, which contained the arbitration clause. The checkout pages had a two-column layout with multiple visual elements. The appellate court found that the notice text was small, gray, and difficult to read against an off-white background. The notice text was in the left column and sat beneath a bright pink action button that drew the user’s focus. Meanwhile, the right column contained promotional messages and colorful graphics advertising gift wrap options, shipping details, and customer support. The appellate court concluded that the combination of these design features drew
the user’s attention away from the notice text. It noted that Tapestry could easily have required customers to affirmatively acknowledge the Terms of Use, such as by clicking a checkbox, but chose not to do so.
The appellate court affirmed the trial court’s denial of the motion to compel arbitration, concluding that Cruz never agreed to arbitrate her claims.
Cruz v. Tapestry, Inc. (2025) 113 Cal.App.5th 943.
Note:
Nonprofit organizations increasingly use online systems for volunteers, memberships, or merchandise that support the organization. Cruz v. Tapestry reinforces California’s strict approach to requiring mutual assent in online transactions. Arbitration clauses or waivers must be presented clearly and require active agreement. If key terms are buried in small text or passive “terms of use,” they may be unenforceable.
Cases We're Watching
• The Eighth Circuit Court of Appeals recently vacated a National Labor Relations Board decision finding that Home Depot unlawfully disciplined a Minnesota employee who refused to remove “BLM” lettering from their work apron. The Eighth Circuit held that the Board failed to properly consider Home Depot’s “special circumstances” defense, noting that the store, located near the site of George Floyd’s murder, faced real safety and customer-relations concerns amid civil unrest. The Court found the company’s dress code, which barred political or social messages unrelated to work and was applied consistently to similar displays, was a reasonable business measure. The decision emphasized that, in this context, Home Depot’s actions were justified under the National Labor Relations Act’s narrow exception allowing restrictions on employee expression when legitimate safety or operational interests are at stake. LCW covered this case previously.
Did You Know?
Whether you are looking to impress your colleagues or just want to learn more about the law, LCW has your back! Use and share these fun legal facts about various topics in labor and employment law.
• The EEOC released new and updated educational resources to help workers and employers understand and prevent national origin discrimination, including a new one-page technical assistance sheet titled Discrimination Against American Workers Is Against the Law and an expanded national origin discrimination webpage with guidance. These materials, grounded in Title VII and existing EEOC policy, explain what unlawful national origin discrimination can look like in hiring, job assignments, harassment, and retaliation, and offer guidance to workers on how to file a charge if they believe their rights have been violated. The updates focus on protections against “anti-American” national origin bias.
• Earlier this month, the U.S. Department of Labor’s Wage and Hour Division (WHD) issued several new opinion letters, including one relevant to nonprofit organizations, interpreting the Family and Medical Leave Act (FMLA) and the Fair Labor Standards Act (FLSA). While opinion letters are fact-specific, they offer valuable insight into how the WHD currently interprets and enforces federal wage-and-hour laws, particularly in situations that commonly arise in nonprofit settings. In FMLA2026-2: Travel Time to Medical Appointments Counts as FMLA Leave, WHD larified that employees may use FMLA leave not only for the time spent attending medical appointments for a serious health condition, but also for reasonable travel time to and from those appointments. WHD further explained that a medical certification does not need to specify travel time for the leave to be valid, because travel time is considered a necessary part of obtaining treatment. However, WHD emphasized that FMLA protection does not extend to unrelated activities or errands before or after an appointment.
Featured Consortium Call
Members of Liebert Cassidy Whitmore’s consortiums are able to speak directly to an LCW attorney free of charge to answer direct questions not requiring in-depth research, document review, written opinions or ongoing legal matters. Consortium calls run the full gamut of topics, from leaves of absence to employment applications, student concerns to disability accommodations, construction and facilities issues and more. Each month, we will feature a Consortium Call of the Month in our newsletter, describing an interesting call and how the issue was resolved. All identifiable details will be changed or omitted.
Question:
A nonprofit human resources leader reached out to LCW about an employee who is out on medical leave. The HR leader asked whether there would be any issue with this employee attending an optional, fundraising gala. The HR leader asked whether the answer would be different if the leave were due to a work-related injury.
Answer:
The LCW attorney advised that, generally, there is no legal issue with allowing an employee on medical leave to attend a voluntary, employer-sponsored event, as long as:
• Attendance is truly optional. The attorney advised that the employer make clear that the gala is not mandatory and that skipping it will not affect employment or benefits.
• Medical restrictions are respected. The attorney advised that it is the employee’s responsibility to ensure that attending does not conflict with any medical restrictions or doctor’s orders, and the employer should not request new medical information or clearance just for this purpose.
• Treatment is consistent. The attorney advised that the employer should handle this the same way it would for any other employee. The employer should avoid singling the person out or excluding them solely because they are on leave.
The attorney also advised that the reason for the leave, whether a work-related injury or another medical condition, does not change the basic analysis. Attendance at a social event is not “returning to work” or “performing work duties” under the law. Therefore, the key is to avoid any perception that the employer is retaliating, discriminating, or interfering with protected leave, whether under FMLA, CFRA, FEHA, or workers’ compensation.
Liebert Cassidy Whitmore
Train the Trainer Program
Become a Certified Harassment Prevention Trainer for your Organization!
LCW Train the Trainer sessions will provide you with the necessary training tools to conduct the mandatory AB 1825, SB 1343, AB 2053, and AB 1661 training at your organization.
California Law requires employers to provide harassment prevention training to all employees. Every two years, supervisors must participate in a 2-hour course, and non-supervisors must participate in a 1-hour course.
QUICK FACTS:
Trainers will become certified to train both supervisors and non-supervisors at/for their organization.
Attendees receive updated training materials for 2 years.
Pricing: $2,000 per person. ($1,800 for ERC members).
February 25, 2026 9:00 AM - 4:00 PM
To learn more about our program, please visit our website below or contact Anna Sanzone-Ortiz 310.981.2051 or asanzone-ortiz@lcwlegal.com.
Dan Cassidy, pre-eminent public sector labor relations attorney and founding member of Liebert Cassidy Whitmore passed away on December 19, 2025. He was 88 years old.
Dan Cassidy was among the most experienced and accomplished practitioners in the fields of public sector labor relations and employment law. Over the course of his career, Dan effectively advocated on behalf of counties, cities, special districts, community colleges and school districts in negotiations, arbitrations and civil service commission and other administrative hearings. Dan negotiated hundreds of labor agreements for public agency clients, including various public safety, general, professional, and supervisory units. He also represented public agencies as a presenter and panel member in numerous interest arbitrations and fact-finding proceedings.
During his career, Dan became a well-established and widely respected authority on labor relations. He lectured and trained on labor relations – at the National College of District Attorneys at the University of Houston School of Law, University of Southern California School of Public Administration, California State University at Long Beach and before numerous other professional and educational organizations.
Dan began his legal career at Los Angeles County, eventually serving as Chief of the Labor Relations Division of the Los Angeles County Counsel’s office. He left the County to join Patterson & Taggert, where he met John Liebert. Together the pair, along with 4 other attorneys, formed our firm in 1980 and grew the firm’s practice to become California’s leading public sector, education and nonprofit management law firm which now has more than 120 attorneys in five offices.
Dan was a USC Trojan through and through. He was a longtime university volunteer and served on the Half Century Trojans Board of Directors (including as President) and was honored with the Alumni Service Award in 2017.
Dan also remained active in the firm, providing mentoring to our attorneys as well as serving as a faculty member of our Leadership Academy.
Dan is survived by his beloved wife Terri, sons Tim (Chris), Stephen (Janelle) and Danny (Denise); daughters Kathy (Mike) and Jeanine (Joe), along with 14 grandchildren and 14 great grandchildren (with number 15 on the way).
He is also survived by hundreds of colleagues, friends and mentees whose lives have been changed due to his vision, leadership and presence. Regardless of school affiliation, in his memory we collectively strive to honor his legacy and FIGHT ON.
Liebert Cassidy Whitmore