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Recently, a California judge ordered Uber and Lyft to reclassify their workers from independent contractors to employees with benefits. Lyft planned to discontinue services in California as soon as this order was put into effect. Although it remains to be seen whether or not this decision will survive the appeals process, the decision has highlighted major problems within the modern gig economy. Workers under these ride hailing companies, as well as workers within similar food-delivery services, do not receive the benefits generally associated with employment such as health insurance, workers’ compensation, and paid sick and family leave. These companies also do not contribute to the state’s unemployment insurance fund on behalf of drivers. Ride-hailing companies even argue that because they’re technology companies, drivers are not a core part of their business. Indeed, attempts by workers to unionize or to receive better treatment are often disregarded by the huge corporations that own the platforms. On the other hand, these companies insist their independent contractors are given much more flexibility, allowing for more independence. Because of the way these companies are structured, their extremely convenient services are offered at the cost of underpaid workers, which in turn harms and creates an unsustainable model for the business that employ them. And yet, at the same time, the app companies are not even turning a profit.  A solution to this prevalent issue in the gig economy may come from structuring future businesses using a different model: one where stores, such as restaurants, cooperate amongst one another to efficiently distribute their goods.


In California, one or more persons may form a cooperative corporation. A cooperative is an organization comprised of individuals or businesses, referred to as the “members,” that provide services the members need. Cooperatives may be organized as corporations, LLCs, or may remain unregistered. There are two categories of cooperatives: consumer and producer. In consumer cooperatives, the members are the consumers and the cooperative provides products for those members. In a producer cooperative, the members are producers and the cooperative processes and markets their products. The members by default all have equal voting rights (“one member, one vote”), but the Corporations Code requires only that each member have at least one vote and that the voting power of members having voting rights shall be equal. Therefore, voting rights can be distributed unequally among subgroups based on patronage or other factors. Membership is not transferable unless the cooperative’s articles of incorporation or bylaws permit it. To maintain membership status, restrictions may require a holder to stay engaged in a specific activity, remain in a line of business, or meet some other qualification.


If the cooperative chooses to be incorporated, the incorporator need not be a natural person but can be any association, company, corporation, estate, partnership, or government agency. The articles of incorporation must include the cooperative’s name, which must not be misleading, must include the word “cooperative,” and must include some word indicating the entity’s corporate status. Memberships are permitted to be exchanged for various consideration, including capital. In this way an organization may obtain their initial capital. The decision to become a cooperative corporation is also not permanent. Cooperatives may change their entity type further down the line.


If similar businesses, in terms of type (e.g. all restaurants) or other factors (e.g. all business within a small geographic area), organized as cooperatives, the delivery services provided would work exactly the same from the consumer’s perspective. Consumers would be able to download an application and order a ride, food, or any other convenient service. The difference is that instead of the app being owned by a third-party company trying to turn its own profit, the businesses themselves would be the owners and be responsible for the platform. This model allows the companies to pay higher wages and have a say in how things are run and any potential changes. This model also differs from the current one in that the goal is not to profit from the delivery; instead, it’s focused on sustainability of the business and its workers.

Structuring new businesses (or joining forces with existing business to provide a particular service needed by all) as cooperatives may address many of the problems gig economy apps are now facing. This option allows businesses to be self-reliant, control their operations, be in tune with their consumers’ demands and needs, and prioritize higher wages for their workers at the same time.

Authors: Kristina Iliopoulos and Brandon Anand

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