BILL ANALYSIS Ó AB 816 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 816 (Bonta) As Amended July 6, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | | (May 22, |SENATE: |39-0 | (July 13, 2015) | | |55-17 |2015) | | | | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: B. & F. SUMMARY: Renames the Consumer Cooperative Corporation Law to the Cooperative Corporation Law. Specifically, this bill: 1)Defines "worker cooperative" or "employment cooperative" as a corporation formed that includes a class of worker-members who are natural persons whose patronage consists of labor contributed to or other work performed for the corporation. Election to be organized as a worker cooperative or an employment cooperative does not create a presumption that workers are employees of the corporation for any purposes. 2)Requires at least 51% of the workers shall be worker-members or candidates. 3)Authorizes a worker cooperative to apportion and distribute its net earnings and losses at the time and in the manner specified in the articles of incorporation or bylaws. AB 816 Page 2 4)Requires a worker cooperative to only make patronage distributions to the worker-member class. 5)Defines the patrons of a worker cooperative as worker-members and authorizes their patronage to be measured by work performed including wages earned, number of hours worked, number of jobs created, or some combinations of these measures. 6)Allows a worker cooperative to call a special meeting in a worker cooperative: a) With more than four worker-members, a special meeting may only be called by the greater of three worker-members or 5% of the worker-members. b) In a worker cooperative with fewer than four worker-members, special meetings may be called by one worker-member. 7)Defines a "capital account cooperative" as a worker cooperative in which the entire net book value is reflected in member capital accounts, one for each member and an unallocated capital account, if any. 8)Defines a "collective board worker cooperative" as a worker cooperative in which there is only one class of members consisting of worker-members, all of whom are members of the board. a) The collective board worker cooperative is not required to hold an annual meeting of the members. 9)Defines "worker-member" as a member of a worker cooperative who is a natural person and also a patron of a worker cooperative. 10)Defines "community investor" who is not a worker-member and who holds a share or other proprietary interest in a worker AB 816 Page 3 cooperative. 11)Defines "candidate" as a worker who is being considered for membership in a worker cooperative, as defined in the corporation's articles or bylaws. 12)Defines "worker" as a natural person contributing labor or services to a worker cooperative. 13)Provides community investor voting power in a worker cooperative shall be provided in the articles or bylaws and is limited to approval rights only over a merger, sale of major assets, reorganization, or dissolution. Approval rights shall not include the right to propose any action. 14)Allows a worker cooperative to create an indivisible reserves account that shall not be distributed to members. Funds in the indivisible reserves account shall only derive from non-patronage-sourced income, in a manner provided in the articles or bylaws, or by the board, be used as capital for the cooperative. 15)Provides that a worker cooperative that has not revoked its election to be governed as a worker cooperative shall not consolidate or merge with another corporation other than another worker cooperative. Two or more worker cooperatives may merge or consolidate in a manner consistent with this chapter. 16)Requires a worker cooperative to provide notice of a meeting not less than 48 hours before the meeting if the meeting involves only worker-members and provided that the notice is delivered personally to every worker-member. 17)Increases the investment limitation for Consumer Cooperatives AB 816 Page 4 under California's Corporate Securities Law of 1968 exemption from qualification from $300 to $1,000. 18)Makes finding and declarations. The Senate amendments: 1)Make clarifying changes to the definition of worker, worker-member and patronage. 2)Provide a work cooperative membership shall not be divided into partial memberships. 3)Clarify that funds in the indivisible reserves account shall only derive from non-patronage-sourced income. 4)Specify that in a worker cooperative with fewer than four worker-members special meetings may be called by one worker-member rather than 5% of the worker-members. 5)Make other technical and clarifying changes. EXISTING LAW: 1)Establishes the Consumer Cooperative Cooperation Law which allows corporations to form as a cooperative corporation. (Corporations Code Section 12200 et seq.) 2)Provides that it is unlawful for any person to offer or sell AB 816 Page 5 any security in this state, unless such offering or sale has been qualified by the commissioner, as specified, or unless the offering or sale is covered by an express exemption. Caps the maximum aggregate investment that may be made by a shareholder in shares or by a member in memberships in a consumer cooperative corporation. As long as this cap is not exceeded, sales of those shares or memberships are exempt from state securities permitting laws. The cap of $300 was placed in California law, effective January 1, 1984. (Corporations Code Section 25110) FISCAL EFFECT: According to the Assembly Appropriations Committee, minor and absorbable costs to the Secretary of State, though these costs could increase if the number of cooperative corporations increases significantly; minor and absorbable costs to the Department of Business Oversight. COMMENTS: The findings and declarations in this bill states: "A worker cooperative has the purpose of creating and 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. "The purpose of this act is to amend the Consumer Cooperative Corporation Law to clarify that the law applies to cooperatives in general, not just consumer cooperatives, and to create more visibility for worker cooperatives. This act is intended to provide a definition of worker cooperative for purposes of this act, and not for purposes of other laws." Cooperatives: This bill makes substantive and historical changes to the California Consumer Cooperative Corporation Law. The AB 816 Page 6 Legislature, in 1982 created the Consumer Cooperative Law which provides a framework for establishing and operating cooperatives. California cooperatives can trace their history back to 1844, when a group of cotton mill weavers in England organized, called themselves the Rochdale Society. The Rochdale Society adopted several principles that have become the basis of most cooperatives. These principles include: open membership; one member, one vote; cash-only trading at market prices; patronage refunds proportional to each member's use of the cooperative's services; and limited return of interest on contributed capital. Cooperatives are enterprises in which individuals or businesses organize to furnish themselves services that the members need. They seek to provide services more efficiently and at lower cost compared to paying third parties or to each member's performing the service individually. Unlike corporations, in cooperatives, ownership and control are equal among members. Cooperatives operate according to the democratic principle of one member, one vote. Unlike business corporations, cooperatives do not seek to generate profit but rather seek to save money for their members. Similarly, members do not seek or obtain increased capital value but rather cost savings and efficiency. In contrast to stock in a corporation, membership in a cooperative is not a saleable commodity. Cooperatives exist in many forms such as agricultural, financial institutions, housing, utility, consumer to name a few. Cooperatives generally share the following principles: 1)Democratic Governance - Cooperatives generally have a one member, one vote rule. This is different from traditional business models, which often weight each owner's vote by the amount of that person's stake in the business. However, some cooperatives have an elected board of directors to oversee the day-to-day operations of the business, leaving strategic decisions to members as a whole. 2)Consensus Building - While each member has one vote, cooperatives encourage members to work with one another in their decision-making progress. If members want the cooperative to take a certain action, they must collaborate AB 816 Page 7 and gather most, if not, all members to agree. 3)Community-Centric - Most cooperatives have members from the same area. Because members live where they work, they are more likely to invest there. As cooperatives become a significant part of a community, they have less incentive to leave. 4)Member Satisfaction Superior to Capital - Cooperatives must earn a profit in order to survive as a business. However, member wellbeing is valued above earning more money. Many cooperatives have rules that keep the workplace fair, and preserve the workers' due process rights and safety. 5)Self-Determination - Members are more likely to invest their time and energy in the cooperative because they have input in its decisions and would share any wealth that comes from it. While traditional business models limit decision-making to its senior leadership, cooperatives give each member a stake in its future. 6)Training - Cooperatives usually have an apprenticeship program or other training that prepares new members to participate in the business. For cooperatives to survive, they must recruit, train, and continually develop their members. 7)Open Membership - Cooperatives generally allow any person to join regardless of gender, race, religion, political, or social status. To become a member, many cooperatives require an entry-level training program, an initial capital investment, and final approval by the membership. Although worker cooperatives are currently regulated and created under the Consumer Cooperative Corporation Law, this bill attempts to create a new framework specific to worker cooperatives within the existing Consumer Cooperative AB 816 Page 8 Corporation Law. Need for this bill: According to the author, "California's existing cooperative law is the Consumer Cooperative Corporations statute. Although worker cooperatives may form under that statute, it contains no provisions specific to the formation and governance of worker cooperatives. The existing statute does not include labor in its definition of patronage, it does not provide for member capital accounts, and its lengthy notice requirement for member meetings does not suit worker cooperatives. Further, the current $300 securities exemption for members is too small to allow worker cooperatives to raise capital for their business." Background: A worker cooperative is a business democratically owned and governed by its worker-owners. A worker cooperative is distinct from other kinds of cooperatives (consumer, producer, housing, financial, etc.) in that its members are its workers. Worker cooperatives are well established throughout Europe and Latin America but they are less common in the United States. The United States Federation of Worker Cooperatives estimates that there are currently about 350 worker cooperatives in the United States, employing over 5,000 people and account for $500 million in annual revenue. According to the United States Federation of Worker Cooperatives, California has approximately 50 established worker cooperatives. The United States Federation of Worker Cooperatives determines whether a cooperative is a worker cooperative based on 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 Organization of Industrial, Artisanal and Service Producers' Cooperatives (CICOPA). Almost any business can be organized as a worker cooperative. AB 816 Page 9 Examples include restaurants, bakeries and retail stores. Some well-known worker cooperatives are Equal Exchange headquartered in Massachusetts, a fair trade importer of chocolate and coffee and MONDRAGON Corporation located in Spain, one of the world's largest worker cooperatives that employs over 80,000 workers. Other States: Eleven other states have enacted worker cooperative specific statutes. These states include: Alabama, Connecticut, Delaware, Maine, Massachusetts, Oregon, Vermont, New York, Washington, Pennsylvania and Colorado. Analysis Prepared by: Kathleen OMalley / B. & F. / (916) 319-3081 FN: 0001205