Worker co-ops welcome the California Employee Ownership Act

The act, which facilitates the worker buyout option for business succession, was signed into law by Democratic governor Gavin Newsom

New legislation gives California’s small business owners new options for succession while offering workers a chance to become co-owners of the enterprises where they work.

Signed into law by governor Gavin Newsom (Democrats) on 29 September, the California Employee Ownership Act was welcomed by the US Federation of Worker Cooperatives (USFWC), whose members and policy director Mo Manklang has been campaigning state laws to grow worker ownership.

Both houses approved the bill unanimously. The law was also backed by Worker-Owned Recovery California (WORC), whose members include worker co-operatives and USFWC, Project Equity, and Ownership America.

The legislation will apply to worker co-operatives, ESOPs, and employee ownership trusts. It will also establish an Employee Ownership Hub within the Governor’s Office for Business and Economic Development (GO-Biz) to provide business owners and workers with resources on employee ownership transitions, as well as support for existing worker-owned businesses.

Specifically, the bill instructs the Hub to “increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, and streamline and reduce barriers to employee ownership.” A provision to provide grant funding for up to US$50,000 for feasibility assessments, which formed part of the original bill was not included in the final version. However, the Bill sponsors intend to work to add that back in the next budget proposal from the governor.

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A 2017 report by the National Center for Employee Ownership found that employee-owners earn 33% more, stay in their jobs 50% longer, and have twice the household net worth of their peers in traditional businesses.

“With its proven track record, employee ownership will now have a bigger role in California’s economy,” said Hilary Abell, a co-founder of Project Equity and WORC. “This could not come at a better time for business owners and workers.”

The legislation is expected to help owners approaching retirement who do not yet a formal succession plan. Around 359,000 Californian businesses are owned by people approaching their retirement – part of the ‘silver tsunami’ which has caused much concern to business experts.

“Employee ownership enables working people to build wealth while sustaining businesses for the long haul in their communities,” said senator Josh Becker, who introduced the bill in March 2022.

“Data shows that employee-owned businesses outperform their peers in profitability, productivity and resilience. Unfortunately, how to make these transitions and seize these opportunities is not widely understood. The new hub within GO-Biz will address that.”

“The California Employee Ownership Act is a momentous step toward expanding employee ownership in our state and creating a resilient economy that works for working people,” said Bernadette King Fitzsimons, WORC’s coordinator. “Clearly, employee ownership is a true win-win.”

California is home to more than 100 worker-owned co-operatives and close to 800 companies with Employee Stock Ownership Plans (ESOPs).

Esteban Kelly

“For decades we have seen worker co-ops thrive in California,” said Esteban Kelly, executive director of the USFWC. Businesses like Rainbow Grocery, Cheeseboard Collective, Courage Home Care and Echo Adventures illustrate the diversity of industries in which workers can succeed, build wealth, and centre their needs using cooperative models.

“The California Employee Ownership Act creates dynamic support for worker ownership within Go-Biz by establishing an office that provides strategic resources toward the expansion of worker co-ops and ESOPs. The Employee Ownership Hub is the first step in fostering the growth of durable businesses that build worker power in California.”