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California’s Proposed Worker Co-Op Model for the Gig Economy | King & Spalding

Series 2, 10 in 10: Issue 2

In response to the surge in app-based gig economy work and the passage of California’s Proposition 22, California’s General Assembly is considering the Cooperative Economy Act, which aims to introduce a model of workers’ cooperative into the gig economy. This model would allow workers to join together in joint organizations or workers’ co-operatives that provide personnel services to gig companies. Workers’ cooperatives would be referred to as W-2 employees of the cooperative.

Under the proposed bill, the California Labor Commissioner would be required to establish and maintain a mutual not-for-profit company known as the Federation of California Worker Cooperatives (Federation). After the Governor of California appoints the Federation’s original board of directors, the current intent is for the state to no longer participate in the governance of the Federation.

Federation membership would be limited to workers’ cooperatives that:

  • Uniform selection criteria for employment and ownership;
  • At least 51% of employees (natural persons who contribute to a workers’ cooperative) are workers’ owners (an employee who has an ownership interest in a workers’ cooperative);
  • The majority of the voting ownership interests are held by employee-owners;
  • The majority of the voting rights are held by worker-owners; and
  • Most of the income is distributed according to the amount or value of work done rather than the percentage of ownership.

The Federation would be obliged to:

  • Establish work guidelines for its members, including recruitment, dismissal, promotion, discipline, compensation and assignment of work; and
  • Make all management available to members.

Under federal law, the federal government would be viewed as the employer of the executives (a federal employee who provides management services to the members of the federal government) and the employees and employee owners of each cooperative. According to state law, workers and workers’ owners would be employees of the federal government and the respective cooperative. A cooperative would be prohibited from employing its own managers directly.

If passed, AB 1319 could fundamentally change the relationship between workers and gig companies. Although the text of the proposed bill does not currently include precise interactions, the association would essentially act as an intermediary or recruiter between gig companies and workers. It is currently unclear whether the draft law will be approved by the committee this year, but we will continue to monitor and discuss all developments. Ultimately, companies that are dependent on a staff contingent should keep a close eye on AB 1319, as its adoption could have immediate and lasting effects on business models outside the gig economy.

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