Cooperative Ownership and the Fair Labor Standards Act

In some urban communities, people are coming together to fight food insecurity by opening cooperatively-owned groceries in neighborhoods where traditional grocery stores have closed. Historically some cooperatives require owners to work without pay for a few hours a week, a month, or a year as a way to foster solidarity and keep down labor costs. These owner-work programs raise legal issues, however, because generally the Fair Labor Standards Act (FLSA) requires for-profit cooperatives to pay their workers. Of course, every requirement has exceptions, and one potential exception that would allow cooperative owners to work at their grocery is classification as an owner rather than an employee covered by the FLSA. But the issue of whether a worker is an owner is much less often addressed than the issue of whether a worker is an independent contractor, and the Department of Labor (DOL) and courts have not yet formulated a consistent test to govern the determination. In this Article, we propose a test, drawing upon those traditional factors used to determine the economic reality of a workers’ situation in the independent contractor setting and on other factors proposed by the DOL and courts. Each cooperative will be different, and the multi-factored test provides room to structure a co-op in a manner that enables owners to work without pay. Generally, the thousands of consumer owners of a large grocery cooperative with a board of directors and professional management will be employees who must be paid. On the other hand, a small grocery cooperative run directly by the owners, who make financial and operations decisions, and work relatively independently of each other could decide not to pay any wages. Ultimately after considering all the factors, to work without pay the cooperative owners must be in business for themselves and choose to pay themselves nothing, like a sole proprietor, majority stakeholder in a closely held corporation, or true partner could