AB 816: Cooperatives come to California

The "worker cooperative" is an old corporate form that has never really taken root in California. Blending elements of corporate formation, employment, labor, taxation and securities laws, Assembly Bill 816 is an attempt to bring greater visibility and attractiveness to a corporate form touted as an answer to the nation's growing income inequality gap.

Even before AB 816, California maintained more than 50 worker cooperatives - approximately 15 percent of the share in the U.S. California is part of a group of 11 states that historically recognizes this unique corporate form that includes Delaware, New York, Colorado and Alabama. However, generally worker cooperatives have not taken hold in the U.S. like in other countries, the best example being Spain. There, MONDRAGON Corporation is the zenith of this model, maintaining 80,000 workers and far eclipsing any such model in the U.S.

The legal purpose of AB 816, in the words of Assemblymember Rob Bonta, is "to amend the Consumer Cooperative Corporation Law to clarify that the law applies to cooperatives in general ... and to create more visibility for worker cooperatives." However, the fundamental reasoning for this bill is the belief that worker cooperatives should be promoted and visible in California as an alternative corporate form whose primary purpose is "maintaining sustainable jobs and generating wealth in order to improve the quality of life of its worker-members, dignify human work, allow workers' democratic self-management, and promote community and local development in this state."

On paper, AB 816 attempts this ambitious goal by amending and adding provisions to the California Corporations Code at Sections 12200 et seq. It specifically defines the worker cooperative and its core class of worker-members as natural persons and whose patronage to the organization consists of labor. Further, the bill specifically states that a worker-member contributing labor to a worker cooperative is not presumed to be an employee of the worker cooperative, an important distinction in California from the perspective of labor and employment law.

However, perhaps of most immediate importance, the bill permits a worker cooperative to have non-worker "community investors" who can hold a share or contribute capital to the success of the worker cooperative. On the one hand, these non-worker-member-investors are strictly limited in the amount of control they have over the cooperative. The cooperative, after all, is defined by its devotion to and control by its worker-members, not its benefactors or shareholders. Knowing the practical realities of corporate finance, the proponents of the bill championed an increase in the exemption from California's Corporate Securities Law of 1968 from $300 to $1,000. Therefore, worker cooperatives can secure larger distributions of funding from community investors (i.e., crowdsourcing) without having to follow the strictures of California's Corporate Securities Law.

In many ways, the increased securities exemption is the primary impact that AB 816 will have on the existing cooperatives that backed the bill. Looking to the future, AB 816 hopes to pave the way for the formation of new workers cooperatives in California with the potential to unite the interests of business and labor and erase the income gap between them.

Jason Brown is an associate at Fisher & Phillips LLP.