JoshHeaps.Net/Content/Socialism/downturns.md

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+---
+title: When Work Runs Short
+section: The Co-op
+order: 23
+summary: When a co-op's business falls off, the model has everyone share the cut before anyone loses their job, with profit shares first, then fewer hours across the board, and layoffs only last, by a vote and in an order written down in advance that treats members and non-members alike.
+---
+
+# When Work Runs Short
+
+Every business has bad years. A conventional company usually answers with layoffs: the owners decide, and the people let go have no say. A co-op's members decide for themselves, and that cuts both ways. They can choose to share the pain. Or a majority can vote to keep its own pay and let the newest people go.
+
+The founding plan says the federation's shared fund helps a co-op through a bad year ([The Federation](federation.md)). It doesn't say what the co-op itself does first. This page sets that order.
+
+## What co-ops actually do
+
+**They cut pay before jobs.** A study of Italian firms from 1982 to 1994, using records that match workers to their employers, found worker co-ops paid 14% less on average than conventional firms, and that their pay went up and down more while their employment went up and down less ([Pencavel, Pistaferri and Schivardi, 2006](https://econpapers.repec.org/RePEc:sae:ilrrev:v:60:y:2006:i:1:p:23-44)). A study of every co-op in Uruguay's social security records from 1996 to 2005 looked at the same question ([Burdín and Dean, 2009](https://ideas.repec.org/a/eee/jcecon/v37y2009i4p517-533.html)). Later researchers summarize it as finding the same pattern. I couldn't open the full paper to check.
+
+**Mondragon moved people instead of firing them.** When Fagor, its appliance maker, went bankrupt in 2013, other Mondragon co-ops had taken on 417 of its members within two months, and around 300 more could retire early ([CECOP, January 2014](https://www.cecop.coop/works/the-mondragon-corporation-has-already-relocated-417-worker-members-from-fagor-electrodomesticos)). Two sympathetic writers reported at the time that Mondragon's own insurer, Lagun Aro, would pay members 80% of their pay for two years while it looked for places for them. They also noted that Fagor had about 2,000 workers in the Basque Country and about 3,500 more in factories in France, China, Poland and Morocco who weren't members, and that what would happen to those workers was "unclear" ([Hanna and Alperovitz, 2013](https://geo.coop/story/mondragon-and-system-problem)). Protecting members can mean pushing the cut onto everyone else.
+
+**America already has a tool for sharing the cut.** Under work sharing, an employer cuts everyone's hours instead of laying some people off, and the state's unemployment insurance pays part of the lost wages. If your week goes from 40 hours to 32, you get 20% of the weekly benefit you'd have received if you'd been laid off. The Department of Labor lists 33 states with it in law, 30 of them running it ([fact sheet](https://oui.doleta.gov/unemploy/docs/factsheet/STC_FactSheet.pdf)). Under federal law it pays only for cuts in hours, not in the rate of pay, the cut has to be between 10% and 60% of the week, the state has to approve the employer's written plan first, and any health and retirement benefits the employer provides have to continue on the same terms as for everyone else ([26 U.S.C. § 3306(v)](https://www.law.cornell.edu/uscode/text/26/3306)).
+
+**What the evidence can't settle.** The studies are averages over many co-ops. They don't say whether pay cuts drove away the people with the best outside offers, or whether jobs kept in bad years were worth the lower pay in good ones. The 14% gap may partly be the price of that security.
+
+## The order
+
+Every locked co-op's charter sets this order. A co-op can go further, but it can't skip a step.
+
+1. **Profit shares fall first.** That happens on its own: when profit falls, so do the shares, and so do team bonuses that depend on results ([Does Sharing the Profit Mean Less Effort?](free-riding.md#team-bonuses-the-members-design)).
+2. **Then everyone shares the cut.** Before any layoff, the co-op cuts across the board.
+   - **Pay above the going rate goes first.** Every worker has to be paid at least the going rate for their job for the hours they work ([How a Locked Co-op Is Taxed](taxes.md#wages-first)). So a cut in the *rate* of pay can only come out of pay above the going rate. Everything beyond that is a cut in hours.
+   - **Hours cuts go through work sharing** where the state has it, so workers get part of their lost pay back from unemployment insurance, where the state covers them ([Owners Are Still Workers](labor-law.md#unemployment-insurance-covered-in-most-states-not-all)).
+   - **The bottom never takes the bigger cut.** Nobody's weekly earnings can fall by a larger percentage than those of anyone paid more.
+   - **Benefits stay.** Health cover and retirement contributions continue as before. That's the model's own rule, and it's also what work sharing requires.
+   - **Only where the work fell off.** Where a co-op has separate lines of business that report their own results ([Investing for the Long Run](the-long-run.md#when-members-stop-investing-or-invest-badly)), the cut can be limited to the line that lost the work. Closing a whole line still needs the vote below.
+3. **Then the voluntary routes.** Before laying anyone off, the co-op offers unpaid leave with the right to come back, shorter hours for those who want them, and moves to other locked co-ops through the [federation](federation.md).
+4. **Only then layoffs,** in the order the bylaws set in advance (below).
+
+**The co-op can run at a loss to keep people.** Losses are shared between the reserve and members' [capital accounts](capital-accounts.md), like profits. But pay above the going rate in a loss year is charged back to the people who got it ([Investing for the Long Run](the-long-run.md#the-rules), rule 5), so a loss can't protect high pay at the reserve's expense.
+
+## Who decides
+
+- **The board can act fast, once.** It can cut everyone's hours by 10% to 20% for up to 60 days without a vote, so the co-op isn't stuck waiting for a meeting while cash runs out. It can do that once in any 12 months. Anything after that needs the members. A board cut still counts in the test against [pushing people on probation out](high-turnover.md#no-pushing-people-out-before-theyd-join), whatever its size.
+- **Anything more goes to the members.** Cutting pay, cutting hours for longer or by more, and laying off anyone on the payroll, member or not, all need a vote of the members, by secret ballot, with at least 7 days' notice.
+- **A layoff always has an alternative on the ballot.** A plan that lays anyone off has to be voted on next to one that saves the same amount by cutting across everyone. The board costs both. The co-op's outside accountant checks the two costings, and the assumptions go out with the ballot.
+- **Choosing layoffs needs two majorities.** The layoff option passes only with a majority of all members and a majority of the lower-paid half, the same double vote [Who Sets the Pay](pay.md#two-majorities-not-one) uses. The lower-paid are the most likely to be let go, so they get a separate say. People on probation aren't members yet, so they don't vote, even though they're usually the first to go. Laying them off counts in the test against pushing people out before they'd join.
+- **If nothing passes, the shared cut happens.** If the board's 60 days run out with no option approved, the costed across-the-board cut takes effect. Doing nothing isn't an option when the money is running out.
+
+## The layoff order
+
+Every co-op's bylaws must include a written layoff order before it has anyone to lay off. The standard bylaws use seniority within each kind of job, among people who can do the work that's left. A co-op can choose other criteria by vote. The charter sets the limits.
+
+- **Written ahead of time.** A change to the layoff order, or to how jobs are grouped for it, takes effect 12 months after it's adopted. So nobody can rewrite it, or regroup people's jobs, during a downturn to reach particular people.
+- **Members and non-members alike.** The same criteria apply to everyone on the payroll, and to the workers of any company the co-op controls while it's being merged in or converted ([The Lock](the-lock.md#when-a-co-op-owns-another-company)). Time counts toward seniority whether it was spent as a member, on probation or as someone who chose not to join, and so does time on medical, family or military leave. A co-op can't keep a layer of non-members to lay off first, outside the protections members get, the way Fagor's workers abroad were.
+- **Accommodation counts.** Whether someone "can do the work that's left" is judged with any reasonable change for a disability, as the law already requires.
+- **Agency and contract work ends first.** Where agency workers or contractors do the same work as people on the payroll, those contracts end before anyone on the payroll is laid off. Their hours already count in [the lock's](the-lock.md) test of who does the work, and a co-op can't use them to dodge it.
+- **The dismissal protections apply.** A layoff that doesn't follow the order can go to the same hearing and outside arbitrator as a dismissal ([Does Sharing the Profit Mean Less Effort?](free-riding.md#when-a-member-wont-do-the-work)). The rules on retaliation, disability and leave apply too. If someone laid off had organized, filed a complaint or led opposition in a vote within the last 12 months, the co-op has to show it followed the order.
+- **Notice.** At least 30 days' notice, or pay instead, or 14 days in a co-op of fewer than 15 workers. The law often requires more. Under federal law, employers with 100 or more full-time workers give 60 days' notice of large layoffs and closings, and cutting someone's hours by more than half for six months counts as a layoff ([29 U.S.C. § 2101](https://www.law.cornell.edu/uscode/text/29/2101), [§ 2102](https://www.law.cornell.edu/uscode/text/29/2102)). A long, deep work-sharing cut can trigger it. Some states require 90 days, including New York for employers with 50 or more full-time workers there ([Cooley, 2023](https://www.cooley.com/news/insight/2023/2023-08-03-new-york-state-amends-its-warn-act-regulations)) and New Jersey, which also requires severance ([Jones Day, 2023](https://www.jonesday.com/en/insights/2023/04/new-jersey-warn-act-amendments)).
+- **Severance** follows the bylaws, and never less than state law requires. The standard bylaws pay one week per year worked, the same as New Jersey requires of larger employers. More than two weeks per year, or more than 26 weeks in all, counts as pay under [the pay rules](the-long-run.md#the-rules).
+- **Lopsided layoffs get checked.** Federal agencies treat a selection rate for any race, sex or ethnic group below four-fifths of the rate for the group doing best as a sign of possible discrimination ([29 C.F.R. § 1607.4(D)](https://www.law.cornell.edu/cfr/text/29/1607.4)). The model uses the same line for layoffs, and adds age. If the share of any gender, race or age group keeping their jobs falls below it, the co-op publishes a written explanation before the layoffs take effect, and anyone laid off can take it to the outside arbitrator.
+
+## Coming back
+
+- **A right to be recalled for 12 months,** in reverse order of the layoff, to the same job at the same hours or more. Until everyone laid off from a job has been offered it back, the co-op can't hire anyone new into that job, under any title, or hand the work to a contractor. Someone who doesn't accept within 14 days drops to the back of the list.
+- **Membership comes back with them.** A member who returns within 12 months doesn't start probation again, and goes back to the same step on the [profit share ramp](worker-ownership.md).
+- **So do their savings.** A laid-off member's capital account is fixed and paid on the normal schedule, like anyone who leaves ([Member Capital Accounts](capital-accounts.md)). If they come back, whatever hasn't been paid out yet becomes their account again and counts toward the buy-in.
+
+## Unemployment insurance
+
+People laid off from a co-op claim unemployment insurance like anyone else, where their state covers co-op members ([Owners Are Still Workers](labor-law.md#unemployment-insurance-covered-in-most-states-not-all)). Members can't lay themselves off in turns to collect it, except through the state's work-sharing program. That's the abuse some states cite for leaving co-op owners out, and the model gives it up to keep members covered. The outside accountant checks claims against the schedule. And like any employer, a co-op whose workers claim benefits pays a higher unemployment tax rate afterward.
+
+## 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.
+
+## Measuring it
+
+The pilot publishes, for each co-op's bad years compared with matched conventional firms: changes in hours, pay and headcount; layoffs by member status, gender, race and age; how many people were recalled; and how many laid-off members found work in other co-ops. If co-ops turn out to protect members by letting non-members go, that shows up in the figures.
+
+## What this doesn't solve
+
+- **Cuts drive some people away.** The people with the best outside offers leave first. Cuts to pay above the going rate fall on the better-paid, and in a loss year [rule 5](the-long-run.md#the-rules) charges them again, out of their accounts. A co-op can keep every job and still lose the skills it needs most.
+- **Sharing the cut can keep a dying business going.** Everyone taking less for years can put off a closing that should have happened, while the reserve and members' accounts run down.
+- **Work sharing isn't everywhere.** In the states without it, sharing the cut means lost pay with no insurance to make up part of it, and layoffs look better by comparison.
+- **The shock still lands on someone.** Ending agency and contract work first protects the co-op's own workers by pushing the cut onto people outside it. That's what every employer does, and it's close to what happened to Fagor's workers abroad.
+- **Hiring gets more cautious.** Recall rights, notice and the vote all make adding people in good years a bigger commitment. Co-ops will likely hire more slowly, which the evidence already suggests they do.
+- **Members can still choose layoffs.** Two majorities make it harder, not impossible. The newest members are the easiest to vote out of a job.

JoshHeaps.Net/Content/Socialism/index.md

@@ -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, and 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. 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 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, and 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)
 - **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)

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

@@ -80,7 +80,7 @@ For a member who loses their job when the co-op fails, that's the worst time to
 - **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](lock-state-law.md): 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.
+- **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](downturns.md#the-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.