A new California law promotes cooperatives and employee-owned businesses

One of the new laws going into effect in California this year is the California Employee Ownership Act, which encourages small business owners to hire their employees within the company. With unanimous support, the bill would establish an Employee Ownership Center in the governor’s office to provide support to companies that want to adopt this business model.

The state currently has only 100 employee-owned companies. But a survey by the nonprofit Project Equity found that nearly 350,000 business owners want to consider the idea when they reach retirement age.

And you can look at the bakery in Los Angeles for proof that the model works.

When Chef Na Yang Ma opened the bakery in 2010, she wanted it to be a place where employees felt invested in the business. “It definitely needs everyone there to make it work,” she said. “We all help each other.”

But it took more than a decade to make that dream public. In the year In late 2021, Ma sold the business to his two dozen or so employees as a leveraged buyout — a loan to be paid off with the company’s profits. The bakery is now a labor cooperative, and the workers control most of the board members.

“It’s an old model, but we don’t have many examples in the US,” Ma said. “So we definitely need help.”

They got help from Project Equality in collaborating on the California law. The firm helps businesses navigate legal requirements, secure financing and train employees for the transition of ownership. There are many misconceptions about the model, says co-founder Hilary Abel.

“People sometimes hear about worker ownership and think, ‘Oh, it’s something for hippies,’” she laughs. “Like, you think they’re all sitting in a circle trying to decide what kind of pencil to buy.”

But most companies with employee cooperatives or employee stock ownership plans — another form of employee ownership — keep the same management structure they had before and pay owners fair market value, she said.

“The main difference is that the fruits of labor are widely shared with all workers,” Abel said.

The model’s potential benefits have spurred increasing interest in the political arena, according to Joseph Blasey, J. Robert Beister Distinguished Professor and Director of the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University.

“Building wealth for the working middle class was very, very difficult,” Blasey said. “Employee co-ownership allows you to get to that part of the American dream where you own a piece of rock.”

It found that employees in the average employee stock ownership plan build more than $130,000 in equity. Those businesses are more efficient and have lower turnover. They’re a great option for the growing number of older business owners whose families don’t want to take over and often struggle to find an outside buyer, Blasey added.

“The issue here, really, in terms of barriers, is awareness,” he said.

Programs like California’s aim to address that. Colorado and Massachusetts have launched similar initiatives.

Since Prof Bakery transitioned to a worker cooperative a year ago, the business has grown, and so has the collaboration, according to baker Christian Garcia.

“The mindset took a turn where everyone was more focused on the success of the business, trying to pull ahead, trying to maintain our mission values.” Cookies – involves teamwork.