Socialism: say where labor law leaves worker-owners out and how the co-op fills the gaps

Co-Authored-By: Claude Opus 5.5 <[email protected]>
Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx

JoshHeaps.Net/Content/Socialism/labor-law.md

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+---
+title: Owners Are Still Workers
+section: The Co-op
+order: 24
+summary: Labor laws were written for workers with a boss, so a co-op member can fall through the gaps, and the model closes the ones it can with the co-op's own rules and names the ones that need a change in the law.
+---
+
+# Owners Are Still Workers
+
+A co-op member is two things at once: an owner of the business and someone who works there for pay. America's labor laws were mostly written for people who are one or the other. Most of them ask some version of "does this person have a boss?" In a co-op, the answer is "yes, and they also help elect the boss."
+
+The model puts members on the payroll as employees ([Who can borrow](pilot-spec.md#who-can-borrow)). That gets them most of the protections any other worker has, but not all, and not in every state. This page goes law by law.
+
+## Wages: members are employees
+
+**Federal wage law covers members.** In 1961 the Supreme Court looked at a Maine co-op of women who knitted at home and were paid by the piece. It held that they were the co-op's employees, entitled to the minimum wage, even though they owned it. "There is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship," the Court wrote. What mattered was the reality: the co-op's managers set the rates and could expel members for bad work ([*Goldberg v. Whitaker House Cooperative*, 366 U.S. 28](https://www.law.cornell.edu/supremecourt/text/366/28)). Three justices dissented, saying a genuine co-op doesn't employ its own members, but that's not the law.
+
+So members are owed at least the minimum wage and overtime pay for every hour, like anyone else. **A profit share doesn't count toward the minimum wage.** It's paid once a year, after the books close ([How a Locked Co-op Is Taxed](taxes.md)), and a wage has to be paid when it's earned.
+
+### Founders' unpaid work
+
+This catches one part of the model. Founders can put in their stake partly as unpaid work, recorded as back pay the co-op owes ([Help Before the First Loan](before-launch.md#should-founders-put-in-money-of-their-own), [The Founder Problem](founder-problem.md#the-tools)). Once the co-op exists and founders are its employees, working below the minimum wage breaks the law, even by agreement. Workers can't sign away the minimum wage.
+
+There is an exception in federal law for an owner of at least 20% of a business who actively manages it ([29 CFR 541.101](https://www.law.cornell.edu/cfr/text/29/541.101)). The model doesn't rely on it. A locked share can't be sold, so it may not count as a real ownership stake. The exception doesn't reach teams of six or more. And it's federal only, so state wage laws may still apply. So the rule is:
+
+- **Before the co-op is formed, work can be unpaid.** Founders who are working on their own venture don't yet have an employer. They sign the bank's short standard founding agreement as equal partners, so it's clear nobody is working for anyone else. Their logged hours are turned into back pay when the co-op forms.
+- **Once the co-op is formed, everyone is paid at least the minimum wage for every hour,** founders included, at the state or local minimum where that's higher. Only the difference between the minimum wage and the local median pay for the job can be recorded as back pay and counted toward the stake. The first loan can pay those wages.
+- **Nobody works for free who isn't a founder.** Anyone who works on the venture after the application goes in is either a named founder or paid.
+- **The bank asks the Department of Labor for an opinion letter** on this setup before lending starts, and follows state law where it's stricter.
+
+That makes the stake a bit harder to earn in work, since hours after the co-op forms count for less. It's still much easier than a cash buy-in.
+
+### Overtime and the profit share
+
+Overtime is paid at one and a half times a worker's "regular rate," and a bonus that workers are promised in advance usually has to be added into that rate ([29 CFR 778.211](https://www.law.cornell.edu/cfr/text/29/778.211)). Both the profit share and the [team bonuses](free-riding.md#team-bonuses-the-members-design) are promised in advance.
+
+There's a way out for the profit share. A written profit-sharing plan that pays out of the whole business's profits, by a set formula such as hours worked, isn't added into the regular rate. But the plan has to be open at least to every worker covered by the wage law, not just members, though it can require a minimum length of service ([29 CFR 549.1](https://www.law.cornell.edu/cfr/text/29/549.1)). So:
+
+- **The standard profit share is written to meet that rule**, or the co-op recalculates each worker's overtime at the end of the year.
+- **Team bonuses are always added into the overtime rate.** The standard payroll service does the math.
+
+### Meetings are work
+
+Time at a required meeting counts as working time under federal law ([29 CFR 785.27](https://www.law.cornell.edu/cfr/text/29/785.27)). So members are paid for general meetings they're expected to attend and for time on the board and committees, as [When People Don't Stay Long](high-turnover.md#unions-stay) already requires. That also keeps governance from costing low-paid members a shift.
+
+## Unemployment insurance: covered in most states, not all
+
+Federal unemployment tax treats a corporation's officers as employees. But each state runs its own unemployment insurance, and several write owners or officers out of it ([US Department of Labor, *Comparison of State Unemployment Laws*, 2021, table 1-7](https://oui.doleta.gov/unemploy/pdf/uilawcompar/2021/coverage.pdf)). Examples:
+
+- **New Jersey** excludes corporate officers and anyone who owns at least 5% of the business. In a co-op with fewer than 20 members, every member owns more than 5%.
+- **Minnesota and Wisconsin** limit benefits for someone who owns 25% or more. In a co-op of three or four founders, every founder does.
+- **Washington and South Carolina** leave corporate officers out unless the corporation chooses to cover them. Members often serve as officers.
+
+For a member who loses their job when the co-op fails, that's the worst time to find out they're not covered.
+
+**Washington has partly fixed it.** Since 2024, officers of worker co-ops there no longer lose benefits for owning 10% or more of the company, and serving only as an officer doesn't count as working ([Laws of 2023, chapter 92](https://lawfilesext.leg.wa.gov/biennium/2023-24/Pdf/Bills/Session%20Laws/Senate/5176-S.SL.pdf)). The co-op still has to choose to cover its officers ([RCW 50.04.165](https://app.leg.wa.gov/RCW/default.aspx?cite=50.04.165)).
+
+**The model's rules:**
+
+- **Always cover members.** Where a state lets a co-op choose whether to cover its officers or owners, a locked co-op chooses to cover them. That's a condition of the bank's loan and part of the charter.
+- **Members are told in writing** before they join if their state leaves them out, the same notice Washington already requires for officers who aren't covered.
+- **A model state law copies Washington and goes further.** It's a separate short law a state can adopt on its own, apart from [the lock's state law](durability.md#federal-test-state-copies): members of a locked co-op are covered like any other worker, and their membership share doesn't count as ownership when they claim.
+- **Owners can't lay themselves off in turns.** The worry behind the state exclusions is real: owners can arrange their own layoffs. So under the model law, a member laid off in a rotation isn't counted as unemployed, except through the state's work-sharing program where it has one. Layoffs follow the co-op's written layoff order, and like any employer, a co-op whose members claim benefits pays a higher tax rate.
+- **Where a state still excludes members,** co-ops in that state can band together through the [federation](federation.md) for their own unemployment cover. Mondragon did this. When Spain excluded co-op members from its social security system in 1958, the co-ops built their own mutual insurer, Lagun Aro, and later added an unemployment benefit ([MONDRAGON, *History*](https://www.mondragon-corporation.com/en/history/)). In America, a shared fund like that is insurance, so it has to be licensed by the state or set up as a special trust the tax law allows for unemployment pay. It's optional.
+- **The pilot counts the gap.** It publishes how many members, by state, had no unemployment cover, and what happened to them when they lost their jobs.
+
+## Workers' compensation: covered, unless someone opts out
+
+Injury insurance usually covers corporate officers and directors who work for pay, but many states let owners opt out. California, for example, covers officers and board members "while rendering actual service for the corporations for pay" ([Cal. Labor Code § 3351(c)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=3351)). But an officer or director who owns at least 10% of the company and has health insurance can sign a waiver ([§ 3352(a)(16)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=3352)). In a co-op of ten or fewer members, every member owns that much, and the board is made of members.
+
+**The model's rule: nobody opts out.** Every member, officer and board member who works for the co-op is covered, as a condition of the loan. Opting out saves a little on premiums and leaves an injured worker with far less.
+
+The same goes for state paid sick leave and paid family leave where a state lets owners or officers opt out. The charter's own leave protections ([Does Sharing the Profit Mean Less Effort?](free-riding.md#when-a-member-wont-do-the-work)) cover small co-ops that federal family leave law, which starts at 50 workers, doesn't reach.
+
+## Anti-discrimination law: probably covered, and the charter covers the rest
+
+Federal anti-discrimination laws protect employees, not owners. In 2003 the Supreme Court said the question is control: does the person "act independently and participate in managing the organization," or are they "subject to the organization's control"? It listed six factors, including whether the organization can fire them, whether they report to someone, and whether the parties intended them to be an employee. It also said a job title or a written agreement doesn't settle it ([*Clackamas Gastroenterology Associates v. Wells*, 538 U.S. 440](https://www.law.cornell.edu/supct/html/01-1435.ZO.html)).
+
+A co-op member who reports to a manager and can be dismissed looks like an employee on most of those factors. **The standard membership agreement says in writing that members are employees of the co-op for every employment law.** That's one factor, not a guarantee, but it's the one the co-op controls.
+
+The main federal laws don't apply to employers with fewer than 15 workers (20 for age discrimination), and many co-ops will be that small. Many state laws reach smaller employers. California's, for example, starts at five ([Cal. Gov. Code § 12926(d)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV&sectionNum=12926)). Below that, the charter does the work. The dismissal process bars discrimination and retaliation for every member, whatever the co-op's size ([Does Sharing the Profit Mean Less Effort?](free-riding.md#when-a-member-wont-do-the-work)). The charter extends the same ban to every job decision: hiring onto probation, pay, schedules and harassment. None of it replaces a worker's right to go to a government agency or a court. The charter says so, and it bars any agreement that would make a worker give that up.
+
+## Union rights: the biggest gap
+
+**The federal labor relations law (the NLRA) probably doesn't protect members' own union activity.** It protects employees, and the labor board has long excluded worker-owners who, as a group, control the company. In a 2002 case about a taxi company owned by its drivers, the board found the drivers weren't protected employees, because together they could elect and remove the board, officers and committees, repeal work rules, and change the company's constitution (*Citywide Corporate Transportation*, 338 NLRB 444). They also worked alongside employees who weren't owners, whose interests could differ. That's a close description of a locked co-op.
+
+The board has gone the other way when *everyone* who works there is an owner and the owners' interest as workers is "at least as great" as their interest as owners, as in a 1953 case about a plywood co-op (*Everett Plywood & Door*, 105 NLRB 17). But the model allows up to a quarter of hours to be worked by people who aren't members yet. So members of a locked co-op would most likely fall on the unprotected side. The cases are collected in [Levinson, "Union Co-ops and the Revival of Labor Law," *Cardozo Journal of Conflict Resolution* vol. 19, 2018](https://static1.squarespace.com/static/60a5863870f56068b0f097cd/t/60a5e69e188d6e641ff01621/1621485214238/Union-Co-ops-and-the-Revival-of-Labor-Law.pdf).
+
+**What that means in practice:**
+
+- **Workers who aren't members are fully protected.** People on probation, and anyone else who isn't a member, can organize, and the co-op can't punish them for it. Members wouldn't be in their bargaining unit.
+- **A co-op can still recognize a union voluntarily.** Nothing stops a co-op from signing a contract with a union that covers everyone, members included, as Cooperative Home Care Associates in the Bronx has done with 1199SEIU ([When People Don't Stay Long](high-turnover.md#unions-stay)). The difference is that if a co-op fired a member for union activity, the labor board probably couldn't step in.
+
+**The model's rules:**
+
+- **The charter protects members who organize,** and members can't vote it away. It already bars dismissing a member within 12 months of organizing unless the co-op proves the reason was something else ([Does Sharing the Profit Mean Less Effort?](free-riding.md#when-a-member-wont-do-the-work)). When a member says they were dismissed for organizing, the case goes straight to an outside arbitrator from the federation's list, paid for by the bank, not to a hearing of the same members they were organizing against. If the dismissal is overturned, the member gets their job back with back pay.
+- **Recognition sticks.** Once a co-op recognizes a union, it can withdraw recognition only if a majority of the workers the union covers, members and non-members together, vote for that.
+- **A short change in federal law, as its own bill.** It amends the NLRA's definition of "employee" to say that membership in a worker co-op, and the powers members hold together, don't by themselves take a worker outside the law. Members who actually supervise others are still excluded, like supervisors anywhere. It's kept out of the bank's law, so a fight over labor law can't sink the pilot.
+
+**The change needs one more piece.** The NLRA forbids an employer from dominating or funding any "employee representation committee or plan" that deals with it over pay or working conditions ([29 U.S.C. 152(5)](https://www.law.cornell.edu/uscode/text/29/152), [158(a)(2)](https://www.law.cornell.edu/uscode/text/29/158)). That rule exists to stop company unions. But once members count as employees, a co-op's member meetings and elected committees, which deal with pay and working conditions all the time, could look like exactly that. So the same bill says a worker co-op's own governance isn't a company union, and it protects members only from being punished for organizing. It doesn't force a co-op to bargain with a union of members alone.
+
+## Other laws that apply
+
+- **Workplace safety law covers members,** including its protection against being punished for reporting a hazard. The charter's retaliation rule covers safety complaints too.
+- **Health insurance.** The federal rule requiring employers to offer health coverage starts at 50 full-time workers, so it won't reach most co-ops. Members can use the public marketplace, and the federation can arrange a group plan.
+- **The buy-in doesn't come out of pay** unless a member asks in writing. It comes out of profit shares ([When People Don't Stay Long](high-turnover.md)), which keeps co-ops clear of state laws that limit deductions from wages.
+- **Workers without work authorization can't be members,** as [How a Locked Co-op Is Taxed](taxes.md) explains. Every co-op still owes every worker the minimum wage and a safe job, and the charter bars threats about anyone's immigration status.
+
+## What this doesn't solve
+
+- **The charter is weaker than law.** A member fired for organizing gets an outside arbitrator, not the labor board. Until the NLRA is changed, that's the protection.
+- **The NLRA change is new federal law,** and it may never pass. Opponents will say it's odd for owners to organize against themselves. The answer is that a member has one vote among many, and the managers they elect can still treat them badly.
+- **State unemployment law changes slowly.** Until states adopt the model law, members in some states have no unemployment cover unless their co-ops set up their own. Making that cover required would raise costs only for co-ops in those states. The pilot leaves it optional and counts who went without.
+- **The founding setup hasn't been tested.** Whether unpaid work before the co-op is formed is really outside wage law, and whether the profit share meets the overtime rule, are questions for the Labor Department's opinion letter. Until it answers, the bank's lawyers decide, and they could be wrong.
+- **Workers without papers are still left out** of membership, and so out of the profit share.
+- **This is a map, not legal advice.** State rules differ and change, and the Department of Labor's table is from 2021. Instead of every co-op paying a lawyer, the bank keeps a checked set of rules for each state and runs a shared payroll service that handles minimum wage, overtime and insurance.