Governor Newsom Signs Ground-Breaking Law Giving Workers a Chance to Become Owners

Legislation builds upon California’s leadership in supporting small businesses & workers

Worker-Owned Recovery California (WORC), Project Equity, and Ownership America applaud Governor Newsom for signing Senate Bill 1407 (Becker D-Menlo Park), the California Employee Ownership Act, into law. The Act equips  California’s small business owners with options for succession and employee engagement and gives workers across the state a chance to become co-owners of the companies where they work. 

The bipartisan-supported measure establishes 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. As California continues to recover from the economic impact of the COVID-19 pandemic, the State now has the invaluable tool of employee ownership in its recovery toolbox.

Broad-based employee ownership, primarily in worker cooperatives and Employee Stock Ownership Plans (ESOPs), is an effective strategy to build a more inclusive and resilient economy. In one study, employee-owners earned 33% more, stayed in their jobs 50% longer, and had 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.”

Approximately 359,000 businesses in California, employing 3.9 million people, have owners that are nearing retirement age. A majority of these owners have no formal succession plan, and most small business owners who try to sell their businesses will not find a buyer. These challenges are compounded by the continuing economic fallout of the pandemic, inflation, and the changing expectations of the workforce, as shown by the Great Resignation.

“Employee ownership enables working people to build wealth while sustaining businesses for the long haul in their communities,” said Senator Josh Becker. “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.”

With more than 100 worker-owned cooperatives  and close to 800 companies with Employee Stock Ownership Plans (ESOPs), California is already home to thriving worker-owned businesses covering every region of the state. Employee-owned companies were four times less likely to lay off workers during the pandemic and have weathered the storm successfully. With institutional support for worker ownership provided by the California Employee Ownership Act, bill sponsors hope to see worker-owned success stories like these multiply across our state. 

“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.”

Posted in WORC News.