Cooperatives with Members Who are Foreign Nationals
By Sushil Jacob, Tuttle Law Group
Many organizations are interested in creating cooperatives for undocumented people. “Undocumented people” refers to foreign nationals who are unauthorized to live and work in the United States. In official speak they are labeled “unauthorized aliens.” This is a very complicated and unsettled area of law, but in short, while a worker-owned business may provide some benefits, business ownership will not resolve a person’s legal status. However, foreign nationals are not prohibited from owning a business in the U.S.
There are currently 11 million unauthorized people living and working in the U.S. However, the Immigration and Nationality Act provides that anyone living in the United States without authorization is deportable. So clearly not everyone who is “deportable” is actually being deported. Despite this reality, a federal law, known as IRCA, or the Immigration Control and Reform Act of 1986, bans “hiring for employment” of “unauthorized aliens”. This makes it very difficult for undocumented people to find and maintain work.
“Unauthorized aliens” are people who are not authorized to live or work in the U.S. Pursuant to IRCA, any business entity that would be considered to be “employing” unauthorized aliens would be violating federal law. However, IRCA does not ban foreign nationals from owning businesses outright. Thus, in setting up a business that is to be owned by unauthorized aliens, or foreign nationals, it is very important that organizations and workers prevent the owners from being characterized as employees of the business.
As discussed above, in California, the law sometimes assumes that members or owners of cooperative corporations are employees. This would mean that a cooperative corporation composed of unauthorized aliens could potentially be liable for violating IRCA. However, as also discussed above, managing members of LLCs or partnerships are generally not considered employees under CA law.
Therefore, if you are structuring a worker-owned business composed of foreign nationals it is best not to choose the consumer cooperative statute to create your business. Moreover, if structured properly, members of LLCs will generally not be considered “employees” of the business, and thus within the bounds of IRCA. However, care must be taken to structure the business such that the individual working members have control over the business. The Clackamas factors discussed above would most likely be used to determine whether an individual member of the LLC has enough control over her work and over the entity to not be classified as an employee.
The fact that an LLC may not be in violation of IRCA does not mean that an individual member of the LLC is authorized to work in the U.S. Business ownership does not change a person’s unauthorized status, nor does it put an undocumented person on the path to citizenship. The individual is still unlawfully present in the U.S. and must resolve his or her legal status. In sum, all we can comment on is that, in our opinion, owning the business as a partner (or member of an LLC) is not prohibited. However, please consult an attorney if you are considering creating such an entity. This is an untested legal theory and an unsettled area of law.
Best Practices for LLC Cooperatives with Undocumented Workers
Below is a memo written for a LLC coop with many undocumented workers. It contains advice for how to structure the LLC to ensure that the members are owners/partners and not employees. However, the memo is specific to this client and should not be relied upon as legal advice for your situation.
A Legal Overview of Business Ownership for Immigrant Entrepreneurs in Massachusetts
The below legal guide, prepared by the Community Enterprise Project of the Harvard Transactional Law Clinics in conjunction with the Immigrant Worker Center Collaborative, was developed in response to the needs of communities surrounding the Legal Services Center run by Harvard Law School in the Boston neighborhood of Jamaica Plain. It is intended for use by immigrant entrepreneurs as well as technical assistance providers who work with immigrant entrepreneurs. It also contains general business law information that will be of interest to all entrepreneurs, regardless of immigration status.