Socialism: say plainly when co-op members and officers can personally owe unpaid wages (federal law, New York, Massachusetts, California), stop ordinary work after a missed payroll, and narrow the model state law's shield so workers who aren't members keep their claims

Co-Authored-By: Claude Opus 5.5 <[email protected]> Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx
2026-09-27 09:22:41 -06:00
parent a983b7b6a8
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@@ -74,7 +74,9 @@ People laid off from a co-op claim unemployment insurance like anyone else, wher

 ## When cutting isn't enough

-Sharing the cut buys time. It doesn't save a business nobody wants to buy from. Help from the federation's fund comes with a recovery plan and a limit agreed before any crisis ([Investing for the Long Run](the-long-run.md#when-members-stop-investing-or-invest-badly)). Help for the workers, like finding them places in other co-ops, has no such limit. If the co-op fails, [the insurance pool](savings-guarantee.md) covers workers' last paychecks and part of their savings, and [When a Co-op Goes Bankrupt](bankruptcy.md) covers what happens to the business.
+Sharing the cut buys time. It doesn't save a business nobody wants to buy from. Help from the federation's fund comes with a recovery plan and a limit agreed before any crisis ([Investing for the Long Run](the-long-run.md#when-members-stop-investing-or-invest-badly)). Help for the workers, like finding them places in other co-ops, has no such limit. **No working on credit.** Once a co-op misses a payroll by more than five business days, it can't schedule more ordinary work until everyone is paid up, unless it files for bankruptcy protection or the federation's fund lends it the payroll. Safety, care and wind-down work goes on, paid by the pool. Federal law, and some states, can make officers and even members pay wages the co-op doesn't ([Owners Are Still Workers](labor-law.md#when-wages-go-unpaid-members-can-owe-them)), so this protects them as well as the people owed.
+
+If the co-op fails, [the insurance pool](savings-guarantee.md) covers workers' last paychecks and part of their savings, and [When a Co-op Goes Bankrupt](bankruptcy.md) covers what happens to the business.

 ## Measuring it

@@ -13,7 +13,7 @@ summary: A working model for building an economy where the people who do the wor

 This model doesn't buy, seize or convert anyone's company. Instead it builds new worker-owned companies alongside existing ones, then lets customers and workers choose between them.

- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally, per hour worked, which is how federal tax law lets co-ops pay tax on it only once. Salaries still exist, and hard jobs still pay more. Part of each year's profit goes into a personal account that pays it back a few years later on a fixed schedule, whether or not you've left, which is designed to keep it outside federal pension law, though courts haven't settled that; where most payouts would go to people who've left, as in high-turnover work, the share is paid in cash instead. Part goes into a permanent reserve that keeps the business investing. Members can't drain it through high pay or let the equipment quietly wear out, and big bets get an outside opinion first. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. A fair, fast process deals with members who won't do the work, with protections so it can't be turned on the wrong people. When business falls off, everyone shares the cut before anyone is laid off, and layoffs follow an order set in advance that treats members and non-members alike. Members are the co-op's employees, so they get the minimum wage, overtime and injury insurance like anyone else. Where the law leaves owners out, of unemployment insurance in some states or of union protection, the co-op's charter fills what it can. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Where Medicaid requires 80% of home care payments to go to care workers, co-ops meet it from wages alone. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. The checks behind all this are scaled to size, so small co-ops get a yearly review and random audits instead of a full audit every year, though honest checking still costs them real money. [Worker Ownership](worker-ownership.md), [Does Sharing the Profit Mean Less Effort?](free-riding.md), [When Work Runs Short](downturns.md), [When People Don't Stay Long](high-turnover.md), [Owners Are Still Workers](labor-law.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [How a Locked Co-op Is Taxed](taxes.md), [Protecting Members' Savings](savings-guarantee.md), [Investing for the Long Run](the-long-run.md) and [What the Rules Cost a Small Co-op](compliance.md)
+- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally, per hour worked, which is how federal tax law lets co-ops pay tax on it only once. Salaries still exist, and hard jobs still pay more. Part of each year's profit goes into a personal account that pays it back a few years later on a fixed schedule, whether or not you've left, which is designed to keep it outside federal pension law, though courts haven't settled that; where most payouts would go to people who've left, as in high-turnover work, the share is paid in cash instead. Part goes into a permanent reserve that keeps the business investing. Members can't drain it through high pay or let the equipment quietly wear out, and big bets get an outside opinion first. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. A fair, fast process deals with members who won't do the work, with protections so it can't be turned on the wrong people. When business falls off, everyone shares the cut before anyone is laid off, and layoffs follow an order set in advance that treats members and non-members alike. Members are the co-op's employees, so they get the minimum wage, overtime and injury insurance like anyone else. That also means members who run payroll, and in New York possibly every member, can personally owe wages the co-op fails to pay, so a co-op that misses a payroll stops ordinary work until it's paid up. Where the law leaves owners out, of unemployment insurance in some states or of union protection, the co-op's charter fills what it can. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Where Medicaid requires 80% of home care payments to go to care workers, co-ops meet it from wages alone. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. The checks behind all this are scaled to size, so small co-ops get a yearly review and random audits instead of a full audit every year, though honest checking still costs them real money. [Worker Ownership](worker-ownership.md), [Does Sharing the Profit Mean Less Effort?](free-riding.md), [When Work Runs Short](downturns.md), [When People Don't Stay Long](high-turnover.md), [Owners Are Still Workers](labor-law.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [How a Locked Co-op Is Taxed](taxes.md), [Protecting Members' Savings](savings-guarantee.md), [Investing for the Long Run](the-long-run.md) and [What the Rules Cost a Small Co-op](compliance.md)
 - **A small public bank lends to worker co-ops.** It charges market rates, so it only succeeds if co-ops can really compete. Its whole job is to be willing to lend to a kind of company other banks won't. Spain, Italy and the US have all tried versions of this, and the pilot is built around what went right and wrong. [The Bank](the-bank.md) and [Has This Been Tried?](precedents.md)
 - **Owners who want to sell to their workers can.** The bank lends for these sales on a separate track, with its own $100 million and its own test. Only healthy firms qualify, there's no new tax break, the price is capped at an independent appraisal, the seller shares the risk, and the whole workforce votes. It serves deals the SBA's rules shut out, which ask a co-op, unlike an ESOP, for cash up front and one worker's personal guarantee. Its results are compared with SBA-financed purchases and ESOP sales, and its pay test follows everyone who worked there at the sale. [When an Owner Wants to Sell to the Workers](buyouts.md)
 - **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. An independent lock-holder can veto any attempt, including selling the business off piece by piece. If a co-op goes bankrupt, only another co-op can buy it whole, and its workers get a real chance to be that buyer. That needs an amendment to federal bankruptcy law, drafted here, and a short model state law closes the ways out that state law leaves open. [The Lock](the-lock.md), [When a Locked Co-op Goes Bankrupt](bankruptcy.md), [The Lock in State Law](lock-state-law.md)
@@ -63,6 +63,24 @@ State co-op law supports the owner's-share reading, but it doesn't settle it. Ma

 **What members give up.** Calling the share an owner's share has costs. Unpaid wages get priority in a bankruptcy, up to $17,150 per worker ([11 U.S.C. § 507(a)(4)](https://www.law.cornell.edu/uscode/text/11/507)). Account credits don't, and they rank behind the co-op's lenders ([Member Capital Accounts](capital-accounts.md#protecting-the-co-op-and-the-people-who-stay)). Unemployment and injury benefits are figured from wages, so the share doesn't raise them. Federal limits on garnishment cover any "bonus" paid for work ([15 U.S.C. § 1672](https://www.law.cornell.edu/uscode/text/15/1672)), so a cash share probably gets that protection anyway. The [savings insurance pool](savings-guarantee.md) covers part of the bankruptcy gap for people who have left.

+### When wages go unpaid, members can owe them
+
+Some states make a company's owners or officers personally pay wages the company doesn't, and federal law does the same for people who run it. The laws were written for owners who pocket the profit and leave the workers unpaid. In a worker co-op, the owners and officers are workers too, so the bill can land on the co-op's own members, including its lowest-paid ones. The members owed wages and the members who owe them can be the same people.
+
+- **Federal law reaches people in charge, in every state.** The Fair Labor Standards Act counts as an employer "any person acting directly or indirectly in the interest of an employer" ([29 U.S.C. § 203(d)](https://www.law.cornell.edu/uscode/text/29/203)). Courts have read that to reach officers and managers who control the business's operations, and an unpaid minimum wage or overtime is owed again as damages, so twice over ([§ 216(b)](https://www.law.cornell.edu/uscode/text/29/216)). It covers only the minimum wage and overtime, not the rest of a worker's pay. No state law can take this away.
+- **New York appears to reach every member.** For an ordinary private corporation or LLC, only the ten largest owners are personally liable for unpaid wages ([Business Corporation Law § 630](https://newyork.public.law/laws/n.y._business_corporation_law_section_630); [LLC Law § 609(c)](https://newyork.public.law/laws/n.y._limited_liability_company_law_section_609)). For a co-op it's broader: every member and every director of a cooperative corporation is personally liable, each for the whole amount, for wages owed to its employees ([Cooperative Corporations Law § 47](https://newyork.public.law/laws/n.y._cooperative_corporations_law_section_47)), and the co-op can't opt out of that in its charter. The state's worker co-op article applies the co-op chapter except for listed sections, and § 47 isn't listed ([§ 85](https://newyork.public.law/laws/n.y._cooperative_corporations_law_section_85)). The same article says a worker co-op is governed by the corporation law ([§ 84](https://newyork.public.law/laws/n.y._cooperative_corporations_law_section_84)), so a court could read it the other way, but the ten-largest rule isn't among the corporation-law sections it brings back. I haven't found a court case either way. "Wages" includes severance, vacation pay, and benefit and pension contributions. A worker has to give written notice within 180 days after the work ends, and can sue a member only after a judgment against the co-op goes unpaid. A member who pays more than their share can recover the excess from the other members. Choosing another form doesn't escape it: in a co-op of ten or fewer equal members, the ten-largest rule reaches everyone anyway, and both rules apply to companies formed in other states when the work is done in New York.
+- **Massachusetts reaches officers and managers.** The president, treasurer and any officers or agents managing a corporation count as the employer under the state's wage law ([ch. 149, § 148](https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXI/Chapter149/Section148)), and unpaid wages are owed three times over, plus legal costs ([§ 150](https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXI/Chapter149/Section150)). Workers can't waive this. In a co-op, those officers are members the others elected, and they may be paid no more than anyone else.
+- **California reaches owners and managers who cause it.** An owner, director, officer or managing agent who violates certain wage rules, "or causes" them to be violated, can be held liable as the employer ([Labor Code § 558.1](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=558.1)). That includes the penalty for final pay not paid on time, which keeps running as a day's wages per day for up to 30 days ([§ 203](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=203)). "Causes" probably means some personal part in the decision, so officers who decided to keep people working are at risk, and a member who only voted probably isn't.
+
+So the model does four things:
+
+- **No working on credit.** A payroll counts as missed when wages are still unpaid five business days after the day state law says they're due. The board declares it and tells the pool the same day, and the pool can declare it if the board doesn't. From then on, the co-op can't schedule more ordinary work until everyone is paid up, unless it files for bankruptcy protection or the federation's fund lends it the payroll. The fund decides on a loan within two business days, and its loan is repaid after workers' wage claims, not before. Work to keep people safe, care for people or animals, save perishable goods and wind down in order goes on, and the pool pays for it first. This keeps a failing co-op from running up unpaid wages its own members might have to cover ([When Work Runs Short](downturns.md#when-cutting-isnt-enough)).
+- **Stopping and federal notice rules.** A sudden stop at a co-op with 100 or more workers can count as a plant closing that needed 60 days' notice ([29 U.S.C. § 2102](https://www.law.cornell.edu/uscode/text/29/2102)). The law shortens that when the business was seeking money that notice would have scared off, or when the cause wasn't foreseeable, but the employer must still give as much notice as it can. So a co-op whose quarterly accounts show the pool's warning signs ([Keeping Workers' Savings Safe](savings-guarantee.md#who-runs-it-and-how-claims-are-paid)) gives conditional notice early rather than waiting for the missed payroll.
+- **The insurance pool pays first.** The [pool](savings-guarantee.md#the-insurance-pool) covers up to eight weeks of each worker's unpaid wages. If the rule above is kept, that covers most of what's owed, but final pay, vacation and benefit contributions can go past it. The pool doesn't pursue ordinary members for what it pays, and the co-op's bylaws and officers' insurance cover elected officers who kept the rule and didn't hide losses. Federal and Massachusetts liability can't be waived, but it can be insured.
+- **The model state law narrows it.** In states that adopt it, a member of a locked co-op covered by the pool isn't personally liable just for being a member, for claims by other members or for anything the pool paid. Workers who aren't members keep their full claims for anything the pool didn't pay, since they had no vote. There's no shield for wages earned after a payroll was missed and the rule wasn't kept, or for anyone who ran payroll or kept people working ([The Lock in State Law](lock-state-law.md#what-the-model-law-does), point 10). It doesn't touch federal law.
+
+Until a state adopts that, members in states like New York take on a real personal risk. The risk follows where the work is done, not where the co-op was formed, and the bank's checked entry for each state says what it is. Every member is told in writing when they join, with the rules of the state where they work.
+
 ## 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:
@@ -51,6 +51,8 @@ A lender that follows these rules has sold in a "commercially reasonable" way un

 **9. A backstop if the lock breaks anyway.** If a court still lets a locked co-op convert or be sold, the value above creditors and members' own balances goes to the fund, not to the members. That's layer 4 of the lock, now written into state law. Nobody gets a windfall from breaking it. This part has real precedent. Italian co-ops that take the tax benefits for being mainly mutual must write into their bylaws that their whole net value, apart from members' paid-in capital, goes to the movement's funds when they close ([Italian Civil Code, art. 2514](https://www.brocardi.it/codice-civile/libro-quinto/titolo-vi/capo-i/sezione-i/art2514.html)), and the same happens if they become an ordinary company ([art. 2545-undecies](https://www.brocardi.it/codice-civile/libro-quinto/titolo-vi/capo-i/sezione-v/art2545undecies.html)). Italy has sent that value to the funds since 1992 ([Law 59/1992, art. 11](https://www.diritto.it/i-fondi-mutualistici-per-la-promozione-e-lo-sviluppo-della-cooperazione/)). But Italy lets a co-op change its form. It locks the value, not the co-op, and that's the softer alternative [The Lock](the-lock.md#what-the-lock-costs) leaves open.

+**10. Members aren't wage guarantors just for being members.** Some states make a company's owners personally liable for its unpaid wages, and New York makes every member of a co-op liable ([Owners Are Still Workers](labor-law.md#when-wages-go-unpaid-members-can-owe-them)). In a locked co-op, those owners are its workers. So a member of a locked co-op that's covered by the insurance pool isn't personally liable just for being a member, for claims by other members or for wages the pool paid. Workers who aren't members keep their full claims for the rest. People who ran payroll or kept others working, whatever their title and even if they stepped down in the 90 days before, stay liable as the state's law provides, and so does anyone paid in full, or paid anything else by the co-op, while others went unpaid. The shield doesn't cover wages earned after a missed payroll if the co-op kept working on credit. Federal law isn't affected.
+
 **What it leaves alone.** It changes no taxes, sets no rules for co-ops that didn't choose the lock, and doesn't require any co-op to lock. Everything else about running a co-op stays with the state's ordinary co-op or corporate law.

 ## Which state's law counts
@@ -86,6 +88,8 @@ A short version, written to be dropped into a state's co-op or corporate law. Se
 > **Sec. 8. Enforcement and remedies.** (a) The lock-holder, any member, any other locked cooperative, [the bank] and the Attorney General may bring an action to enforce this Act. A court shall award costs against a party whose action is frivolous. (b) The Secretary of State shall not accept a filing that would effect a transaction prohibited by Sec. 3 or 4. (c) A transfer in violation of Sec. 4 may be set aside against a transferee with notice. Against a transferee that gave fair value without notice, it stands, and the cooperative's proceeds from it, and any loss to the cooperative, are recoverable for the fund from the persons who caused it. (d) If any conversion or transfer is completed despite this Act, the value of the business in excess of its debts and its members' capital account balances, as found by the court, is held in trust for the fund named in its articles.
 >
 > **Sec. 9. Lock-holders.** The Attorney General shall approve as lock-holders the organizations on [the bank's] list of approved lock-holders, and any cooperative federation or nonprofit that meets published standards of independence, funding and succession equivalent to that list's.
+>
+> **Sec. 10. Members' liability for wages.** (a) Notwithstanding [the state's laws making shareholders or members of a corporation, cooperative or limited liability company personally liable for its wages], a member of a locked cooperative that is covered by [the insurance pool established under the bank's authorizing act] on the date the unpaid services were performed is not personally liable, by reason of being a member, (1) to another member, or (2) to anyone else, to the extent of wages the pool has paid. (b) Subsection (a) does not apply to wages for services performed more than five business days after the cooperative first failed to pay wages when due, unless it was then operating under a filing for relief under title 11 of the United States Code or a payroll loan from [the fund]. (c) This section does not limit the liability of any person (1) who, at any time from 90 days before the cooperative first failed to pay wages when due, served as a director, officer or managing agent, approved payroll, signed for its payment or directed employees to continue work after wages were unpaid; or (2) who received wages in full, or any distribution, allocation paid in cash, redemption or other payment from the cooperative, for a period in which other employees' wages were due and unpaid. (d) This section does not affect liability under federal law.

 ## What it costs, and who objects

@@ -37,7 +37,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.

 12. **Voluntary buyouts: in or out?** *(Answered.)* In, on a separate track: $100 million of its own, healthy firms only, a willing seller, no new tax break, a capped price the seller shares the risk on, a vote of the whole workforce, and its own test of money and pay, which counts the tax sellers put off under an old tax break ([The tax break that already exists](buyouts.md#the-tax-break-that-already-exists)), so it can't flatter the startup result ([When an Owner Wants to Sell to the Workers](buyouts.md)). Still open: whether a price set by the market is fair to workers who pay it out of their own future work, and whether about 60 deals can show more than that the loans get repaid. The comparisons are now set out: SBA-financed purchases, ESOP sales and deals that fell through, with a loss rate fixed by formula in advance ([Who buyouts are compared against](buyouts.md#who-buyouts-are-compared-against)). With so few deals, the loss test can catch a track that does much worse than SBA lending, but it can't show that buyouts do better. Why co-ops can't simply use the SBA is now spelled out: its rules ask a co-op, unlike an ESOP, for cash up front and one member's personal guarantee. The bank's deals do without both, so they rest on the seller's paid-last share and a coverage test on past cash flow ([Why not just use the SBA?](buyouts.md#why-not-just-use-the-sba)). Under the SBA's rules from October 2026, those two rules are nearly the whole gap, and both are SBA policy it could change itself. If it does, or a small fund covers the cash stake, much of the track may not be needed. Whether that's enough in place of cash and guarantees is something only the loss record will show. State programs paid for by Treasury and USDA's rural guarantees already allow co-op buyouts in pieces. The track uses them, but can't count them as private money or use them to hide losses ([Other public help](buyouts.md#other-public-help-that-already-exists)). How often private lenders will really take an equal share is unknown, so deals the bank makes alone are capped at a third of the money. The help each sale needs, the workers' adviser, checks on deals that fall through and help after the sale, costs the public roughly $110,000 to $240,000 per closed deal, about $12 million in all. That comes out of the same margin the money test measures, so the track passes only if losses stay low ([What the help costs](buyouts.md#what-the-help-costs)).

-13. **Work where people don't stay long.** *(Partly answered.)* In home care, most workers leave within a year or two. Membership is now automatic after a short probation, the buy-in comes out of profit shares rather than pay, and pushing people out before they'd join counts against the co-op ([When People Don't Stay Long](high-turnover.md)). Still open: with a five-to-ten-year profit share ramp, only a small minority of care workers ever reach a full share, so the people who stay collect much of the profit the others helped make. A much shorter ramp for low-margin, high-turnover co-ops would fix that, but it would go against the founding plan's range and weaken the ramp's protection against under-hiring. Also open: whether default members take part in governance, and whether Social Security counts a profit share as earned income for SSI, which decides whether members on SSI lose more by joining. SSI may also count an account credit as income when it's made. Until Social Security answers, members on SSI get their share all in cash and join only if they say yes ([How a Locked Co-op Is Taxed](taxes.md#benefits)), and workers who have only an IRS taxpayer number still can't be members. How labor law treats worker-owners now has its own page ([Owners Are Still Workers](labor-law.md)). Federal labor law probably doesn't protect members' own organizing, so the charter does, and fixing the law takes a separate bill that may never pass. Some states leave members out of unemployment insurance, and whether founders' unpaid work before the co-op forms is outside wage law still needs the Labor Department's answer. A federal rule due in 2030 requires 80% of certain Medicaid home care payments to go to care workers' pay. Co-ops meet it from wages alone and pay any shortfall as wages, but in that work it leaves little room for profit shares or a reserve, and whether the rule survives is unknown ([When Medicaid decides how much goes to pay](high-turnover.md#when-medicaid-decides-how-much-goes-to-pay)).
+13. **Work where people don't stay long.** *(Partly answered.)* In home care, most workers leave within a year or two. Membership is now automatic after a short probation, the buy-in comes out of profit shares rather than pay, and pushing people out before they'd join counts against the co-op ([When People Don't Stay Long](high-turnover.md)). Still open: with a five-to-ten-year profit share ramp, only a small minority of care workers ever reach a full share, so the people who stay collect much of the profit the others helped make. A much shorter ramp for low-margin, high-turnover co-ops would fix that, but it would go against the founding plan's range and weaken the ramp's protection against under-hiring. Also open: whether default members take part in governance, and whether Social Security counts a profit share as earned income for SSI, which decides whether members on SSI lose more by joining. SSI may also count an account credit as income when it's made. Until Social Security answers, members on SSI get their share all in cash and join only if they say yes ([How a Locked Co-op Is Taxed](taxes.md#benefits)), and workers who have only an IRS taxpayer number still can't be members. How labor law treats worker-owners now has its own page ([Owners Are Still Workers](labor-law.md)). Federal law makes the people who run payroll personally liable for unpaid minimum wages, and New York appears to make every co-op member liable for all unpaid wages, though no court has tested that. The model stops ordinary work after a missed payroll and asks states to narrow the rule ([When wages go unpaid](labor-law.md#when-wages-go-unpaid-members-can-owe-them)), but until a state does, members there carry the risk, and elected officers carry it everywhere unless insurance covers it. Federal labor law probably doesn't protect members' own organizing, so the charter does, and fixing the law takes a separate bill that may never pass. Some states leave members out of unemployment insurance, and whether founders' unpaid work before the co-op forms is outside wage law still needs the Labor Department's answer. A federal rule due in 2030 requires 80% of certain Medicaid home care payments to go to care workers' pay. Co-ops meet it from wages alone and pay any shortfall as wages, but in that work it leaves little room for profit shares or a reserve, and whether the rule survives is unknown ([When Medicaid decides how much goes to pay](high-turnover.md#when-medicaid-decides-how-much-goes-to-pay)).

 16. **What the rules cost a small co-op.** *(Partly answered.)* Every check the model adds costs a small co-op money. [What the Rules Cost a Small Co-op](compliance.md) scales checking to size: a yearly review and a fixed list of tests instead of an audit for small co-ops, audits by lot and on warning signs, and a lock-holder review every two years. Even so, the model's own estimate is 1% to 2.5% of a small co-op's sales, which could be a large part of the profit in cleaning or home care. Whether lighter checking lets more cheating through is something the audits by lot will show. Italy's "false co-ops" are the warning.

@@ -131,7 +131,7 @@ That's about 4% to 5% of the $600,000 annual profit in the [capital accounts exa
 - **Checked every year.** An outside actuary publishes an opinion on the pool's reserves, and federal auditors audit it. The pool and the bank are stress-tested together, since the same recession would hit the bank's loans and the pool's claims at once. If the reserve falls below its target, the board publishes a plan to restore it within 90 days, and limits stop rising until it does.
 - **One pool, one register.** Federations can run their own pools only once each meets the national pool's reserve ratio on its own, since pools of co-ops all lose in the same recession. There's one national register of everyone covered, so the per-person limits hold across pools.
 - **Automatic payment.** When a covered co-op fails, the pool pays from the co-op's own member register and payroll records. Nobody has to know to file a claim. Fagor's former workers lost their case partly because they filed too late. Disputes go to an independent adjudicator. Final-wage payments are wages, so the pool or the liquidator pays them through payroll, with the usual withholding.
- **The pool steps into the workers' shoes.** Once it pays wages, it takes over the workers' priority claims in bankruptcy ([When a Locked Co-op Goes Bankrupt](bankruptcy.md)) and under federal and state notice and wage laws, so it recovers what it can. Workers are never paid twice for the same weeks. Some states can make a company's largest owners personally liable for unpaid wages. In a co-op, those are workers, so the pool doesn't pursue ordinary members, only directors who hid losses.
+- **The pool steps into the workers' shoes.** Once it pays wages, it takes over the workers' priority claims in bankruptcy ([When a Locked Co-op Goes Bankrupt](bankruptcy.md)) and under federal and state notice and wage laws, so it recovers what it can. Workers are never paid twice for the same weeks. Federal law and some states can make a company's officers or owners personally liable for unpaid wages, and New York appears to make every co-op member liable ([Owners Are Still Workers](labor-law.md#when-wages-go-unpaid-members-can-owe-them)). In a co-op, those are workers, so the pool doesn't pursue ordinary members or officers who followed the rules, only people who hid losses or kept others working after a missed payroll.
 - **Stepping in early.** Every covered co-op sends the pool quarterly accounts. If warning signs appear, the pool can stop covering *new* additions to accounts until the co-op recovers, which stops members from piling up covered savings in a sinking firm. That freeze also applies to anyone who leaves after it starts, so members can't escape it by quitting.

 ## Closing the loopholes