Speaking of Laws: CA AB1161

In my last year on the board of the US Federation of Worker Coops, I pushed for a 10 year plan that would, among other things, attempt to enact laws specific to worker cooperatives in at least 5  more states than currently have them (I believe that Vermont and Illinois are the only ones that specifically mention worker cooperatives). Naturally, I was very excited to see that the folks in California were on the same wave length.

California Assembly Bill 1161 aims to create a legal entity of the worker cooperative. Currently, worker coops in CA have to organize under the Consumer Cooperative Act which can be a bit cumbersome. I am a bit loathe to comment on the bill, since I live in Wisconsin. However, it does effect the worker cooperative movement and will have an impact as other states consider similar legislation. The good people at NoBAWC have posted a page on the topic and encourage discussion. They have a link to a pdf on a summary of the bill and a link to a pdf version of the actual bill.

Overall, I think that this is a great effort. However, I do wonder at a few things.

Instead of using the definition of worker cooperatives from the CICOPA World Declaration on Worker Cooperatives, it waters that definition down to mean any multi-staker holder cooperative that has a membership class. CICOPA requires that workers comprise more than 50% of the membership and that more than 50% of the workers are members. Under 1161, the non-worker members could outnumber the workers (for instance, if Rainbow opened up a consumer member category).

AB 1161 the statute does provide protections and requires that the worker members have a majority of seats on the board of directors and that the worker membership class has veto power on membership votes within the following five areas:

  1. the dissolution, sale or merger of the cooperative
  2. the disposition of all or a substantial part of the cooperative’s assets not in the ordinary course of business
  3. the filing of a petition in bankruptcy or the entering into an an arrangement among creditors
  4. conversion to a structure other than a cooperative
  5. acquisition of any asset or assets that constitute greater than 25% of the pre-acquisition assets on the cooperative’s balance sheet not in the ordinary course of business.

I understand that this provides protections for the worker members; however, it ignores some basic problems in that workers have a tendency to vote against their interests (see Reagan, Bush, Clinton, Bush, Obama) and the power of capital has a history of corrupting the leaders of workers (see Lane Kirkland, SEIU, and the Teamsters).

Another troubling aspect is that this bill would erase the already generous limit of 15% return on investment. The workers might still have political control of the business, but it is clear that they may not have economic control. What happens with the capitalists funding the worker cooperative decide to tell the workers to jump? Their choice will be to democratically ask how high or dissolve. It reminds me a bit of James Connolly’s excellent essay, “Let Us Free, Ireland!” which I discussed last November on this blog.

I am worried about what this law would allow coop leaders to give up for the investor’s money. This proposal really seems like asking the foxes to help build and manage the hen house. Yes, I realize that this might help get money into economically depressed areas, but if we are only talking about creating decent jobs, we don’t need the cooperative movement to do that. Worker cooperatives need to be about more than a decent paycheck. I would rather see greater incentives for employers to sell to their workers.

I’m not against an investor class, however, I think that this proposal opens the doors way to far. I like Equal Exchange’s model which limits the ROI to 5% and 400 investor members (I think that it is technically 399). What is being proposed in 1161 seems too much like the New Generation coops of Wisconsin and Minnesota, there needs to be more control on capital. It should follow the principle of Mondragon that Capital must subordinate to labor.

AB 1161 is still a work in progress and I imagine that it has a way to go before enactment. I don’t know enough about California politics to comment on its chances. Also, I recognize that California is not Wisconsin and that the number of worker cooperatives far exceeds what exists in Wisconsin. Most worker cooperatives would likely be unitary (essentially a collective) and I imagine that the number of new generation worker coops produced by this bill would not be substantial. However, I would hope that the folks out west find a way to incorporate the CICOPA Declaration and definitions into the language and seriously think about the effect of capital in an organization especially where the ROI is limited by only what the board wants to pay out.

Nevertheless, I am glad to see people starting to think about what we need in terms of legislation to help build the worker cooperative movement. I think that this is a great discussion that we need to start having across the country–what, exactly, is a worker cooperative and when does it quit being one?



I know that I am probably stepping on some toes with this post, so I would like to remind everyone that you are free to sign up as a contributor (or just send a response).

About John McNamara

John spent 26 years with Union Cab of Madison Cooperative and currently helps develop co-ops in the Pacific Northwest. He holds a Ph.D. in Business Administration and Masters in Management: Co-operatives and Credit Unions from Saint Mary's University.
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2 Responses to Speaking of Laws: CA AB1161

  1. Gordon Edgar says:

    My basic question of the group writing this (I was actually writing a more detailed mail to them when I saw your post) is why do we need this? Clearly, pretty much by definition, established co-ops don’t need it. However, it may be possible to get people on board if there are good reasons obvious to people outside that room. Give some examples where this would help real groups, ways this would help create more co-ops. Are there plans afoot? Are there people rejecting a work co-op model because of the current code? What’s wrong with a model that starts as something other than a co-op and them becomes one?

    I am absolutely willing to be convinced. We all want more worker co-ops and if this is a needed step in that direction, I could get on board (some individual issues like the 15% dividend change aside).

    I attended a meeting where a number of things were explained in ways that make sense. For example, any investor would want a way to ensure that a co-op doesn’t de-mutualize and distribute the assets among the workers immediately after an investment is made. But, the common reaction after reading the proposed change is “What?” and “Why?”

  2. Good points. I have always thought that the main purpose would be to protect the worker cooperative model from being misused (for instance the “worker” coop cab company in Milwaukee is really three guys who each own 40 cabs and split the costs of the garage and dispatch system). I would also help to distinguish our sector and even begin a national discussion that would effect how the IRS writes rules with regards to our structure and how that effects patronage and income. At another level, as the Canadians are beginning to draft separate accounting rules for cooperatives, an understanding of the unique issues with equity, liability and assets within worker cooperatives could be supported by a law defining worker cooperatives in a way that unscrupulous business interests cannot duplicate us. I think that this is where the CICOPA Declaration really comes into play.

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