July 10, 2020

Two Federal Proposals Would Promote Employee Ownership

A new bill introduced by Rep. Ocasio-Cortez and an amendment to the Defense Authoriziation Act would both encourage employee ownership. The two proposals come shortly after Sen. Ron Johnson (R-WI) advocated linking business support during the COVID crisis to employee ownership.

Rep. Ocasio-Cortez Introduces Equity Requirement Bill for Federal Aid to Public Companies

Representative Alexandria Ocasio-Cortez (D-NY) has introduced H.R. 6851, a bill that would “require major corporations receiving Federal aid related to COVID–19 to make annual payments of equity to employees of the corporation while such aid is outstanding.” The bill applies only to public companies. It would require that a grant of equity be made to all full- and part-time employees. The grant could be directly in shares, restricted stock grants, or an ESOP, and would be allocated to each individual employee “at least in proportion to a formula taking into account that employee’s salary adjusted for tenure with each year of tenure counting equally, and with a wage limit of $137,700.” The total amount of equity granted would have to at least equal the amount of equity granted in any form to employees in the prior year (these grants would have gone almost entirely to executives in almost all covered companies).

House Committee Adds ESOP Provision to National Defense Authorization Act

The House Armed Services Committee has added a provision to the 2021 National Defense Authorization Act that would add an ESOP company as a “non-traditional business” eligible for the Department of Defense’s “Other Transaction Authority” (OTA). The OTA allows to Department to contract for certain prototype, research, and production projects. Under the program, the Department can contract with traditional providers only if they either subcontract with non-traditional providers, cost-share with the Department, or there is a unique need to use that contractor. Otherwise, contracts should go to “an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to the full coverage under the cost accounting standards prescribed pursuant to Section 1502 of title 41 and the regulations implementing such section” or to a small business as defined by the Small Business Act.

The new bill would add ESOP companies to the category of non-traditional businesses, conceivably giving these companies an edge in winning contract awards even if they do not meet the small business standards. Two of the key promoters of the change were Rep. Joe Courtney (D-CT) and Rep. Mo Brooks (R-AL), who represents the Huntsville area, which has the highest concentration of ESOP companies of any metro area in the U.S. relative to its size.