A worker cooperative is a cooperative owned and democratically controlled by its worker-owners. This control may be exercised in a number of ways. In "pure" forms of worker co-operative, all shares are held by the workforce with no outside or consumer owners, and each member has one voting share. In practice, control by worker-owners may be exercised through individual, collective or majority ownership by the workforce, or the retention of individual, collective or majority voting rights (exercised on a one-member one-vote basis). A worker cooperative, therefore, has the characteristic that the majority of its workforce own shares, and the majority of shares are owned by the workforce.
There are many definitions as to what qualifies as a workers' cooperative. CICOPA, the International Organisation of Industrial, Artisanal and Service Producers’ Cooperatives, gives an 8-page definition in their World Declaration on Workers' Cooperatives, which was approved by the International Co-operative Alliance General Assembly in September 2005. Below is the section on the basic characteristics of workers' cooperatives:
Workers' cooperatives also follow the Rochdale Principles and values, which are a set of core principles for the operation of cooperatives. They were first set out by the Rochdale Society of Equitable Pioneers in Rochdale, England, in 1844 and have formed the basis for the principles on which co-operatives around the world operate to this day.
Even though there is no universally accepted definition of a workers' cooperative, they can be considered to be businesses that make a product, or offer a service, to sell for profit where the workers are members or worker-owners. Worker-owners work in the business, govern it and manage it. Unlike with conventional firms, ownership and decision-making power of a worker cooperative should be vested solely with the worker-owners and ultimate authority rests with the worker-owners as a whole. Worker-owners control the resources of the cooperative and the work process, such as wages or hours of work.
As mentioned above, the majority – if not all - of the workers in a given worker cooperative enterprise are worker-owners, although some casual or wage workers may be employed with whom profits and decision making are not necessarily shared equally. Workers also often undergo a trial or screening period (such as three or six months) before being allowed to have full voting rights.
Ideally, participation is based on one vote per worker-owner, regardless of the amount of shares or equity owned by each worker-owner. Voting rights are not tied to investment or patronage in the workers' co-operative, and only worker-owners can vote on decisions that affect them. In practice, worker co-operatives have to accommodate a range of interests to survive and have experimented with different voice and voting arrangements to accommodate the interests of trade unions, local authorities, those who have invested proportionately more labour, or through attempts to mix individual and collective forms of worker ownership and control.
As noted by theorists and practitioners alike, the importance of capital should be subordinated to labour in workers' cooperatives. Indeed, Adams et al. see workers' cooperatives as "labor-ist" rather than "capital-ist":
"Labor is the hiring factor, therefore the voting and property rights are assigned to the people who do the work and not to capital, even though the worker-members supply capital through membership fees and retained earnings...Any profit or loss after normal operating expenses is assigned to members on the basis of their labor contribution." 
Nevertheless, recent developments in the co-operative movement have started to shift thinking more clearly towards multi-stakeholder perspectives. This has resulted in repeated attempts to develop model rules that differentiate control rights from investment and profit-sharing rights. Workers' co-operatives have often been seen as an alternative or "third way" to the domination of labour by either capital or the state (see below for a comparison).
In short, workers' co-operatives are organised to serve the needs of worker-owners by generating benefits (which may or may not be profits) for the worker owners rather than external investors. This worker-driven orientation makes them fundamentally different from other corporations. Additional cooperative structural characteristics and guiding principles further distinguish them from other business models. For example, worker-owners may not believe that profit maximisation is the best, or only, goal for their co-operative or they may follow the Rochdale Principles.
Profits (or losses) earned by the worker's cooperative are shared by worker owners. Salaries generally have a low ratio difference which ideally should be "guided by principles of proportionality, external solidarity and internal solidarity"  (such as a two to one ratio between lowest and highest earner), and often are equal for all workers. Salaries can be calculated according to skill, seniority or time worked and can be raised or lowered in good times or bad to ensure job security.
Worker cooperatives have a wide variety of internal structures. Worker control can be exercised directly or indirectly by worker-owners. If exercised indirectly, members of representative decision-making bodies (e.g. a Board of Directors) must be elected by the worker-owners (who in turn hire the management) and be subject to removal by the worker-owners. This is a hierarchical structure similar to that of a conventional business, with a board of directors and various grades of manager, with the difference being that the board of directors is elected.
If exercised directly, all members meet regularly to make - and vote on - decisions on how the co-operative is run. Direct workers' cooperatives sometimes use consensus decision-making to make decisions. Direct worker control ensures a formally flat management structure instead of a hierarchical one. This structure is influenced by activist collectives and civic organizations, with all members allowed and expected to play a managerial role. Such structures may be associated with more radical political aims such as anarchism, libertarian socialism and participatory economics.
Some workers' cooperatives also practice job rotation or balanced job complexes to overcome inequalities of power as well as to give workers a wider range of experiences and exposure to the different jobs in a work place so that they are better able to make decisions about the whole workplace. The Mondragon Bookstore & Coffeehouse is a good example of a workplace that does this.
Historically, worker cooperatives rose to prominence during the industrial revolution as part of the labour movement. As employment moved to industrial areas and job sectors declined, workers began organizing and controlling businesses for themselves. Workers cooperative were originally sparked by "critical reaction to industrial capitalism and the excesses of the industrial revolution." (Adams et al. 1993: 11) The formation of some workers cooperatives, such as those of the Knights of Labour in 19th century America, were designed to "cope with the evils of unbridled capitalism and the insecurities of wage labor" .
Most early worker co-ops did not adhere to clear cooperative structures or ideologies. Starting in the 1830s, worker cooperatives were formed by hat makers, bakers, and garment workers.
In the United States there is no coherent legislation regarding worker cooperatives nationally, much less Federal laws, so most worker cooperatives make use of traditional consumer cooperative law and try to fine-tune it for their purposes. In some cases the members (workers) of the cooperative in fact "own" the enterprise by buying a share that represents a fraction of the market value of the cooperative.
When the current cooperative movement resurfaced in the 1960s it developed mostly on a new system of "collective ownership" where par value shares were issued as symbolic of egalitarian voting rights. Typically, a member may only own one share to maintain the egalitarian ethos. Once brought in as a member, after a period of time on probation usually so the new candidate can be evaluated, he or she was given power to manage the coop, without "ownership" in the traditional sense. In the UK this system is known as common ownership.
Some of these early cooperatives still exist and most new worker cooperatives follow their lead and develop a relationship to capital that is more radical than the previous system of equity share ownership.
In Britain this type of cooperative was traditionally known as a producer cooperative, and, while it was overshadowed by the consumer and agricultural types, made up a small section of its own within the national apex body, the Cooperative Union. The 'new wave' of worker cooperatives that took off in Britain in the mid-1970s joined the Industrial Common Ownership Movement (ICOM) as a separate federation. Buoyed up by the alternative and ecological movements and by the political drive to create jobs, the sector peaked at around 2,000 enterprises. However the growth rate slowed, the sector contracted, and in 2001 ICOM merged with the Co-operative Union (which was the federal body for consumer cooperatives) to create Co-operatives UK, thus reunifying the cooperative sector.
In 2008 Co-operatives UK launched The Worker Co-operative Code of Governance. An attempt to implement the ICA approved World Declaration.
The advocacy of workplace democracy, especially with the fullest expression of worker self-management, such as within workers' cooperatives, is rooted within several intellectual or political traditions:
Economists have modeled the worker cooperative as a firm in which labor hires capital, rather than capital hiring labor as in a conventional firm. The classic theoretical contributions of such a “labor managed firm” (LMF) model are due to Benjamin Ward and Jaroslav Vanek.
In the neoclassical version, the objective of the LMF is to maximize not total profit, but rather income per worker. But such a scenario implies “perverse” behavior, such as laying off workers when output price rises so as to divide increased profits among fewer members. Evidence supporting such behavior is lacking however; a review of the empirical economics literature is found in Bonin, Jones, and Putterman
But alternative behavioral models have been proposed. Peter Law examined LMFs that value employment as well as income. Nobel Laureate Amartya Sen examined pay according to work and according to need. Nobel Laureate James Meade examined behavior of an “inegalitarian” LMF. Economists have explained clustering of worker coops through leagues or “supporting structures” Regions where large clusters of worker cooperatives are found supported by leagues include Mondragón, in the Basque Region of Spain, home of Mondragón Cooperative Corporation and in Italy, particularly Emilia-Romagna. Leagues provide various kinds of scale economies to make coops viable. But as leagues need coops to start them the result is a chicken or egg problem that helps explain why few coops get started.
Worker co-operation is well established in most countries in Europe, with the largest movements being in Italy, Spain and France.
The European Cooperative Statute, which has been in force since 2006, permits worker cooperatives to be created by individuals or corporate bodies in different EU countries. It is a loose framework which devolves much detail to the national legislation of the country in which the European Cooperative Society (ECS) is registered. It permits a minority of shares to be held by 'investor members' which are not employees.
The cooperative movement in Emilia-Romagna, Italy successfully melds two divergent philosophical currents: Socialism and Catholicism. With more than a century of cooperative history, the region includes more than 8,000 cooperatives.
In the United Kingdom, the Labour Party's enthusiasm for worker cooperatives was at its highest in the 1970s and 1980s, with Tony Benn being a prominent advocate. A small number of such co-operatives were formed during the 1974 Labour Government as worker takeovers  following the bankruptcy of a private firm in a desperate attempt to save the jobs at risk. However the change in ownership structure was usually unable to resist the underlying commercial failure. This was true in particular of the best known, the Meriden motor-cycle cooperative in the West Midlands which took over the assets of the ailing Triumph company, although there were instances of successful employee buy-outs of nationalised industries in the period, notably National Express.. Meanwhile a much larger number of worker co-operatives was founded as start-up businesses, and by the late 1980s there were some 2,000 in existence. Since then the number has declined considerably.
Under UK law there is no special legal structure for a "co-operative". Co-operatives are registered under either the Company Acts or the Industrial & Provident Societies Acts (IPS) . A number of model rules have been devised to enable cooperatives to register under both acts; for workers' cooperatives, these rules restrict membership to those who are employed by the workplace. Most workers' co-operatives are incorporated bodies, which limits the liability if the co-operative fails and goes into liquidation.
In Israel worker cooperatives emerged in the early 20th century along side the Kibbutz, the collective farming movement. By the 1970’s, the Histadrut, Israel labour Federation, controlled a significant number of corporations, including Israel’s largest bank - Bank Hapoalim (literally the Worker’s Bank). By the 1990’s the Histadrut, lost its power and influence and many worker cooperative corporations were sold or became public companies. Israel’s biggest public transportation company, Egged - Israel Transport Cooperative Society, is still a workers cooperative.
The United States Federation of Worker Cooperatives is the only organization in the U.S. representing worker cooperative interests nationally. There are local networks and federations throughout the U.S. in the San Francisco Bay area, Minnesota, Oregon, the Boston, Massachusetts area, and western Massachusetts/southern Vermont.
See also List of Venezuelan Cooperatives.
In response to the economic crisis in Argentina, many Argentinian workers occupied the premises of bankrupt businesses and began to run them as worker-owned cooperatives. As of 2005, there were roughly 200 worker-owned businesses in Argentina, most of which were started in response to this crisis. The documentary film The Take is the best-known document in English about this phenomenon.
See also recovered factory.
Indians own the largest worker cooperative in the world: Indian Coffee Houses. The Indian Coffee Houses in India were started by the Coffee Board in early 1940s, during British rule. In the mid 1950s the Board closed down the Coffee Houses, due to a policy change. The thrown-out workers then took over the branches, under the leadership of A. K. Gopalan and renamed the network as Indian Coffee House. This history is recorded in Coffee Housinte Katha, a book in Malayalam, the mother tongue of A. K. Gopalan. The author of the book is Nadakkal Parameswaran Pillai one of the leaders of the ICH movement. Another very large network of worker coops is Kerala Dinesh Beedi, originally started by exploited beedi rollers.
There are significant differences between ends and means between firms where capital controls labour, or firms where the state controls both labour and capital. Worker-ownership has been described as "a Third Way (centrism)." These distinctions are easily seen when measured by essential elements of commerce: purpose, organization, ownership, control, sources of capital, distribution of profits, dividends, operational practices, and tax treatment. The following chart compares the commercial elements of capitalism, socialism, and cooperative worker-ownership. It is based on US rules and regulations.
|Commercial Criteria||Corporations||State-Owned Enterprises||Worker Cooperatives|
|Purpose||a) To earn profit for owner, to increase value of shares.||a) To provide goods and services for citizens.||a) To maximize net and real worth of all owners.|
|Organization||a) Organized and controlled by investors||a) Organized and controlled by state||a) Organized and controlled by worker-members|
|b) Incorporated under relevant incorporation laws - varies by country||b) Chartered by relevant level of government||b) Incorporated under relevant incorporation laws - varies by country|
|c) Except for closely held companies anyone may buy stock||c) No stock||c) Only worker-members may own stock, one share per member|
|d) Stock may be traded in the public market||d) n/a||d) No public sale of stock|
|Ownership||a) Stockholders||a) State||a) Worker members|
|Control||a) By Investors||a) By state||a) By worker members|
|b) Policies set by stockholders or board of directors.||b) Policy set by government planners.||b) Policy set by directors elected by worker-members, or by assembly of worker-members|
|c) Voting on basis of shares held||c) n/a||c) One person, one vote|
|d) Proxy voting permitted||d) n/a||d) Proxy votes seldom allowed|
|Sources of Capital||a) Investors, banks, pension funds, the public||a) The state||a) By members or lenders who have no equity or vote|
|b) From profitable subsidiaries or by retaining all or part of the profits||b) From net earnings, a portion of which are set aside for reinvestment|
|Distribution of Net Margin||a) To stockholders on the basis of number of shares owned||a) To the State||a) To members after funds are set aside for reserves and allocated to a collective account|
|Capital Dividends||a) No limit, amount set by owner or Board of Directors||a) n/a||a) Limited to an interest-like percentage set by policy|
|Operating Practices||a) Owners or managers order production schedules and set wages and hours, sometimes with union participation||a) Managers order production schedules and set wages and hours, sometimes with union participation||a) Workers set production schedules either through elected boards and appointed managers or directly through assemblies|
|b) Working conditions determined by labour law and collective bargaining.||b) Working conditions determined by labour law and collective bargaining.||b) Working conditions determined by labour law and assembly of worker-members, or internal dialogue between members and managers.|
|Tax Treatment||a) Subject to normal corporate taxes||a) n/a||a) Special tax treatment in some jurisdictions|