Frequently Asked Questions About Worker Cooperatives
One of the best-kept secrets in this country is the growing economy of worker cooperatives and democratic workplaces. Thousands of people work in them; hundreds of thousands more patronize them. They are a growing and hopeful part of a movement to go not just against but beyond the corporate model of exploitation and abandonment, to create a real economic alternative for people who need good jobs the most. But what are they, exactly?
What is a cooperative?
A cooperative is an entity that is owned by its members: it operates for the benefit of its members and it is controlled by these members. Worker cooperatives are part of a much broader cooperative landscape in the United States and around the world, including agricultural and producer cooperatives, consumer cooperatives, housing cooperatives, and rural electric cooperatives, to name a few other types. The entire cooperative sector in the United States is represented by the National Cooperative Business Association, online at www.ncba.coop.
What is a worker cooperative?
A worker cooperative is a business that is owned and controlled by the people who work in it, the members of the cooperative. The two central characteristics of worker cooperatives are:
(1) workers own the business, and they share the profits.
(2) decision-making is democratic, generally adhering to the principle of one worker, one vote.
What does Worker-Owned mean?
Workers own the business together. They usually invest with a buy-in amount of money when they begin working. At the end of each year, worker-owners are paid a portion of the money the business makes after expenses. In conventional businesses this money is called profit, in co-ops it is called surplus, and it can be distributed based on hours worked, seniority, or other criteria.
What does Worker-Controlled mean? Does everyone decide about everything?
In a worker cooperative, decisions are made democratically, by the people who do the work (usually following the principle of "one worker, one vote") instead of by one person or group people that holds all the power. But that doesn’t mean everyone decides about everything.
There are as many ways to make decisions democratically as there are businesses in the world; each worker-owned business creates the structure that is best suited to it. In fact, worker cooperatives have come up with some very sophisticated decision-making models that can be useful to other business and organizations.
Worker control can take many forms depending on the size and type of the business. Some ways to make decisions democratically include:
* an elected board of directors
* elected managers
* management job roles
* no management at all
* delegation of some decision-making to smaller groups or people
* decisions made by consensus (everyone agrees)
* decisions made by majority vote
* any combination of the above
How are worker cooperatives different from "regular" businesses?
In many ways, worker co-ops operate just like conventional businesses: they develop a product or service and offer it for sale to the public, with the goal of making enough money to support the business and its owners. They incorporate with the state, get a business license, pay state and federal taxes, have payroll and benefits, and do all the things that businesses do.
But there are some very important differences in how they do all this. Worker cooperatives tend to create long term stable jobs, have sustainable business practices, and be connected and accountable to their community. In a worker cooperative, workers own their jobs and they have a direct stake in the local environment and the power to decide to do business in a way that creates community benefit rather than destroying it. Not everyone who works in a worker cooperative is an experienced businessperson, but not everyone needs to be; the power of the group comes from each individual’s contribution, skills, passions, and expertise.
Some worker cooperatives have what’s called a “multiple bottom line” - that is, they evaluate their success by looking not just at the money they make, but at things like their sustainability as a business, their contribution to the community, and the happiness and longevity of their workers.
Walk into any worker co-op and you'll immediately sense the difference: the workers look happy to be working there, they are committed to the business as owners, and the business itself is often connected to the local community in a significant way.
What’s the benefit of a worker cooperative?
In addition to providing meaningful jobs and asset-building opportunities for workers of all income levels, and supporting their communities, worker cooperatives can play an important role in building movements for economic justice and social change: as institutions where real democracy is practiced on a day to day basis, they are a model for the empowerment we will need to create the change we envision.
What kinds of businesses are worker co-ops?
Any business can be a worker-owned and -controlled business. Worker co-ops have been successful in many different sectors and industries. Some examples are:
Service - housecleaning, day labor, restaurants, taxis, childcare
Retail - grocery stores, bakeries, bookstores, bike shops
Health care - nursing, home health care, clinics, bodywork
Skilled trades - printing, plumbing, woodworking, contracting
Manufacturing and engineering - machine parts, fabricating
Technology - web hosting, networking, voice and data systems
Education - charter schools, teacher/student/parent-run schools
Media and the arts - designers, galleries, performers, publishers
How many worker cooperatives are there in the US?
Though we don’t have comprehensive data on the nature and scope of worker cooperatives in the U.S. yet, researchers and practitioners conservatively estimate that there are over 300 democratic workplaces in the United States, employing over 3,500 people and generating over $400 million in annual revenues. The number of workers cooperatives has grown steadily over the past 20 years, and is made up of both well-established businesses and new, growing ones, including some businesses that have been sold to their employees by their owners.
The University of Wisconsin has released a study on the economic impact of the entire cooperative sector, which shows how vital cooperatives are to all sectors of the US economy. You can find the study online at http://www.uwcc.wisc.edu/impact.html.
Where are worker cooperatives in the United States? Which regions and industries?
Worker cooperatives thrive in many industries and regions. They exist across the country, with the greatest concentrations in the Northeast, the West Coast and the Upper Midwest. The majority of worker cooperatives in the United States are small businesses, with between 5 and 50 workers, but there are a few notable larger enterprises. Many are concentrated in the retail and service sectors. There are also well-established worker cooperatives in manufacturing and the skilled trades. Traditionally there has been a strong cooperative presence in natural foods grocery stores and bakeries. In the past ten years, we have seen the growth of worker cooperatives in the technology sector, home health care, and housekeeping.
Is a worker cooperative a corporation? How do I incorporate a worker cooperative?
Technically a cooperative is a corporate form. But there is no uniform cooperative code in the United States; definitions and incorporation guidelines vary from state to state. Incorporation takes place at the state level, not the federal level. Check your state to see if they have a cooperative statute, or you can incorporate your business in a state that does have one. In states where there are cooperative incorporation codes, businesses can incorporate as worker cooperatives. In states where there are no such laws, democratic workplaces and/or worker-owned businesses, which often call themselves worker cooperatives, can take a variety of forms: S corporations, LLCs, etc. Choosing the proper incorporation type for your business is a major decision, and should be made only after studying all the available options. Check our Document Library for the Choice of Entity Chart that lays out the various options.
What do all these different terms mean?
There are many businesses and workplaces that are controlled by - and/or share profits among - their workers, that are not formally worker cooperatives. In general these are called democratic workplaces. Whatever its incorporation status, a democratic workplace must create, in policy and practice, mechanisms for workers to make the decisions that affect the functioning and governance of the business.
Here’s a quick look at some different forms of worker-ownership and workplace democracy. The one feature all these structures have in common is that decisions are made together by the workers.
Cooperative: A specific legal definition in which the workers are defined as members and owners of the cooperative. These member-owners are entitled to a vote, and to a share of the profits of the business (called patronage).
Collective: General term for groups with democratic decision-making. Collectives can be anything from businesses incorporated as regular corporations on paper but with democracy in practice, to all or partly volunteer-run groups. Often they do not have ownership buy-in or profit-sharing.
LLC: Partnerships between a group of individuals who share ownership and management of a business, and are protected from debt as if they were a corporation.
Democratic ESOP (Employee Stock Ownership Plan): Usually for larger businesses, employees hold ownership stock and share profits, and there is some form of democratic decision-making.
Staff-controlled nonprofits: Nonprofit groups that are not owned by anyone, but the people who work in them agree to make decisions democratically.
Community-controlled enterprises: Can be anything from a volunteer community group to a business that exists for the benefit of the community. The people who work in the group make the decisions.
So how do you decide what’s a worker cooperative?
The US Federation of Worker Cooperatives uses basic standards for worker cooperatives established in the World Declaration on Cooperative Worker Ownership (also known as the Oslo Declaration) at a meeting in Oslo, Norway in 2003 of the international worker cooperative federation CICOPA. We evaluate whether a workplace meets certain principles rather than applying a strict legal definition.
Aren’t cooperatives just a European (or Latin American? Or African?) thing?
It is true that the cooperative economy is strong and in some cases better developed in other parts of the world, and that worker cooperatives have grown to be influential actors in the economies of Spain and Italy, in particular. But cooperatives also have a long history here in the United States, from farmers coming together in agricultural cooperatives to the rural electrics wiring the countryside to the earliest worker cooperatives that emerged from artisans’ guilds and labor unions. Cooperatives happen anywhere people come together to meet their needs – the cooperative form is international, flexible, and suited to the conditions in which it emerges.
Are worker cooperatives part of the solidarity economy?
Many worker cooperatives, particularly in other parts of the world, consider themselves part of the solidarity or social economy. With their emphasis on people before profit, creating community, and equitable compensation and participation, worker cooperatives are a concrete example of people relating to each other in a spirit of solidarity within an institution that is also a formal actor in our market economy. Cooperatives, and worker cooperatives in particular, are a powerful model for how to build a real, practical working alternative to the current economic system. In a bleak economic landscape, worker cooperatives offer a vision that makes sense, something to say “yes” to. In the United States, several parts of the cooperative sector have joined the Solidarity Economy Network, online at www.ussen.org.
How can I start or join a worker cooperative?
To find out more about existing co-ops, or to get resources on how to start a co-op or convert an existing conventional business to a worker-owned or democratic workplace, contact the US Federation of Worker Cooperatives. We have resources and information available for the public. Another great way to get information is to contact co-op businesses in your area and talk to them about how they work.