Worker cooperatives face particular challenges in Illinois


Maria Sandoval took a chance along with four other women from her East Side community.

Sandoval and the others long labored in low wage jobs: Sandoval as a hotel housekeeper, the others as restaurant cooks. So when their local immigrant worker center proposed starting a worker cooperative as a means to independence and self-sufficiency, they jumped at the chance.

“I have worked at different places,” said Sandoval who immigrated from Mexico in 1994. “But wherever I go I noticed that I do all the work and make my employer rich, but I am still poor. So when I heard about this project I thought it was a good [thing] to begin a different kind of business.”

With the help of Centro de Trabajadores Unidos, a worker and immigrant rights center on the city’s far Southeast Side, Sandoval and the women formed Las Visionarias (The Visionaries) Cooperativa two years ago. The female-led catering company specializing in Mexican dishes became CTU’s first worker cooperative. In a worker co-op, workers are also the owners and share profits among themselves.

But starting a worker co-op faces particular challenges in Illinois: state law regulating cooperatives is ill-suited to creating worker-owned businesses. The women had difficulties getting licensing from the city, obtaining a bank account and insurance for a company with more than one owner. They even struggled to find a consultant to help write a business plan and navigate issues associated with opening a cooperative in Chicago.

“They went through hell trying to get a food license from the city because our own city departments don’t recognize co-ops,” said CTU’s Executive Director Ana Guajardo Carrillo.  

Worker co-ops are businesses that are cooperatively-owned and cooperatively-controlled by workers. Sandoval and Las Visionarias are part of a larger movement taking shape in Chicago aimed at growing worker co-ops. Jobs created by these entities have the potential  to pay better wages, provide better working conditions, even build community wealth. Chicago co-op developers and business advocates want to tap this potential by revamping state law to make it easier to establish worker co-ops and build a network of support organizations for them.

Cooperative economics

Worker cooperatives are a growing sector in the U.S. Nearly a third of U.S.  worker cooperatives operating today have been established since 2010, according to Democracy at Work Institute. The Institute has identified 357 worker cooperatives nationwide employing about 6800 workers, with average pay of $15 an hour. Federal minimum wage is $7.25. This, advocates say, presents economic opportunities for workers of color and communities suffering from high unemployment.

“The worker cooperative [model] has been around a long time,” says professor Stacey Sutton of the University of Illinois at Chicago’s College of Urban Planning and Public Affairs, “but it is growing and picking up momentum because there is a belief that through worker ownership you are creating … a more democratic and a greater equitable distribution of economic resources.”

Part of what is fueling the worker co-op movement is jobs paying a living wage remain scarce, even with the nation’s economic recovery, Sutton said.

“You saw worker cooperatives grow after the Depression,” she added. “You saw worker cooperatives grow in the 1960s during the Civil Rights Movement and labor movements. These alternative structures offered economic opportunities when the mainstream economy fails to work for people.”

The majority of new worker co-ops are launched by women and people of color, says Renee Hatcher, director of the Business Enterprise Law Clinic at John Marshall Law School. Traditionally, business start-ups are dominated by white men, but more than half of the 18 worker cooperatives in Cook County are based in or started by communities of color.

“It is a way for them to take their destiny into their own hands,” Hatcher said. “More importantly, it’s an opportunity for them to collectively create jobs for themselves and decide how they want to set up their working conditions [because] worker exploitation … primarily happens in Black, Latinx and immigrant communities.”

Photo by April Alonso

Renee Hatcher is the director of the Business Enterprise Law Clinic at John Marshall Law School.

In August, Hatcher and the Illinois Worker Cooperative Alliance released a policy paper with recommendations to support and grow the worker cooperative movement in the Chicago area.

“There’s a lot of energy around the worker cooperative movement … [but] the law hasn’t kept up…,” Hatcher said. “We’re proposing a new law that would…recognize the kind of innovation that’s happening and the direction that these kinds of businesses are going in.

Originally the state’s 100-year-old Illinois Co-operative Corporation Act focused primarily on manufacturing, agriculture or consumer co-ops like grocery stores. Until it was changed in 2016, worker cooperatives were excluded. Now any business can form as a cooperative. The change, advocates say, isn’t ideal. It requires strict employment regulations for worker co-ops just starting and it lacks specific language on worker co-ops, but doesn’t exclude them either.  

And for people starting worker co-ops, the law classifies these worker-owners as employees. That, advocates say, triggers certain labor and IRS rules which can exclude immigrant communities from starting worker co-ops and make it cost prohibitive for others. Under state and federal regulations worker co-ops are considered employers and must pay certain payroll taxes, workers compensation and unemployment insurance. Most startup worker co-ops are self-funded and do not have capital to meet those financial regulations, Hatcher said.

The law, she added, doesn’t make a distinction between the dual role of a worker who is also the owner and the different responsibilities both have. To get around that, worker co-ops in Illinois form as limited liability companies, but internally structure their business as a worker co-op.

“It’s certainly a barrier for entrepreneurs that don’t have work authorization or don’t have legal status,” Hatcher said. “And worker cooperative members play a dual role in their business, both worker and owner. This is fundamentally different than other types of businesses. Consequently, current state law does not adequately support these type of businesses.”

A policy fix for Illinois would be to pass a limited cooperative association statute, which blends concepts of a traditional co-op and a limited liability company. That law, advocates say, would not replace the current statute but it would be more flexible for worker co-ops. It would remove barriers to worker-ownership for immigrants and allow worker co-ops access to funding from outside investors. Additionally, the law would include specific language regarding worker co-ops including one member one vote and patronage earnings for worker owners. The current state law does not include such language. Similar statutes exist in Wisconsin, Iowa, Tennessee and elsewhere.

Photo by April Alonso

Las Visionarias, or The Visionaries, an all-female food catering cooperative on the East Side of Chicago, prepares and serves food at Centro de Trabajordes Unidos’ annual event on Aug. 29th, 2018. at Our Lady of Guadalupe Church in South Chicago.

Creating an enabling environment

Co-op advocates also propose creating an entity called the Chicagoland Cooperative Ecosystem Coalition (CCEC). Envisioned as a three-year pilot, this coalition would be a network of nonprofits, existing worker co-ops, advocacy groups and co-op developers. It would provide funding, training, technical assistance, research and legal services — all institutional resources needed to address challenges worker co-ops face. It would also raise public awareness about these businesses in communities and within municipal departments.

“Many small business support agencies and lenders don’t fully understand the concept of collective ownership or how to underwrite cooperative enterprises,” Sutton said. “lf you are not familiar with that model then you don’t really know how to consult these organizations.”

Worker co-ops can thrive when they have municipal muscle behind them. Madison, Wisconsin, Sutton noted, invested $5 million to grant seed money to new worker co-ops through its Madison Cooperative Development Coalition. And New York City allocated $3.2 million for technical assistance to support worker co-ops. One way Chicago and Cook County can further assist worker co-ops is to provide contracting and procurement opportunities and make business permit and licensing easier, advocates say.

The coalition recently got a boost: Cook County’s Social Innovation Commission approved a resolution in September to use community development block grants or other funding sources to support and develop worker co-ops. The resolution passed the county’s Business and Economic Development committee and the full Cook County Board of Commissioner today. A similar resolution is proposed for the Chicago City Council.

“If we can get that support and resources we could funnel that down to our co-ops and give them the support that they need,” said CTU’s Guajardo Carrillo, who recalled the struggle she had incubating Las Visionarias. CTU lacked the capacity, the funding and the legal know-how to start a worker co-op. She had to wing it.

“We didn’t know what it would take,” she said.

Challenges remain for Las Visionarias, which originally started with seven members. Two members left because of family and financial obligations. The rest still hold down regular jobs to help support the business. But since they have not accumulated enough money to rent an industrial kitchen, for now, they can only fill small orders, which slows their growth.

“Making a business like this is really hard, but it is not impossible. That’s what we want people to know, especially women,” Sandoval said.