BILL ANALYSIS Ó AB 488 Page A Date of Hearing: January 6, 2016 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Roger Hernández, Chair AB 488 (Gonzalez) - As Amended January 4, 2016 SUBJECT: Employment discrimination SUMMARY: Eliminates an exemption to the Fair Employment and Housing Act (FEHA) for individuals "employed under a special license in a nonprofit sheltered workshop or rehabilitation facility." EXISTING LAW: 1)Prohibits employment discrimination and harassment on the basis of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of the person discriminated against. (Government Code section 12940 et seq.) 2)Provides that "employee" for purposes of these protections does not include any individual employed by his or her parents, spouse, or child, "or any individual employed under a special license in a nonprofit sheltered workshop or rehabilitation facility." AB 488 Page B FISCAL EFFECT: None. This bill is currently keyed non-fiscal by Legislative Counsel. COMMENTS: The California Fair Employment and Housing Act (FEHA) prohibits employment discrimination and harassment of individuals on the basis of specified enumerated categories - race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status. FEHA defines an "employer" as any person regularly employing five or more persons, but does not include a religious association or corporation not organized for private profit. FEHA also excludes from the definition of "employee" any individual employed by his or her parents, spouse or child, or "any individual employed under a special license in a nonprofit sheltered workshop or rehabilitation facility." What is a "sheltered workshop?" Section 14(c) of the federal Fair Labor Standards Act (FLSA) provides for the employment of certain individuals at wage rates below the minimum wage. Under this provision, individuals whose earnings or productive capacity is impaired by physical or mental disability for the work to be performed, including those related to age or injury, may be paid less than the federal minimum wage. Certificates issued by the Department of Labor to the employer are required for the employer to pay the special minimum wage. AB 488 Page C Employers that have obtained such special certificates to pay a subminimum wage to disabled workers have traditionally been referred to as "sheltered workshops." However, the term "sheltered workshop" is seen by some as offensive and obsolete, and has become generally disfavored. Unfortunately, many statutes, including FEHA, continue to use the term "sheltered workshop." Related Provisions of California Law The California Labor Code contains two specific provisions related to the payment of subminimum wage to individuals with disabilities: Labor Code Section 1191 provides as follows: "For any occupation in which a minimum wage has been established, the commission may issue to an employee who is mentally or physically handicapped, or both, a special license authorizing the employment of the licensee for a period not to exceed one year from date of issue, at a wage less than the legal minimum wage. The commission shall fix a special minimum wage for the licensee. Such license may be renewed on a yearly basis." Labor Code Section 1191.5 provides as follows: "Notwithstanding the provisions of Section 1191, the commission may issue a special license to a nonprofit organization such as a sheltered workshop or rehabilitation facility to permit the employment of employees who have been determined by the commission to meet the requirements in Section 1191 without requiring individual licenses of such AB 488 Page D employees. The commission shall fix a special minimum wage for such employees. The special license for the nonprofit corporation shall be renewed on a yearly basis, or more frequently as determined by the commission." Additional Background on Section 14(c) of the FLSA A 2005 paper prepared<1> by the Congressional Research Service describes the history of the FLSA Section 14(c) program as follows: "Under Section 14(c) of the Fair Labor Standards Act (FLSA), persons with various physical or mental disabilities (or persons who have vision impairment or are blind) can be employed at rates below the otherwise applicable federal minimum wage. Under certificates issued by the Secretary of Labor, their wages are set at a level commensurate with their productivity and reflective of rates found to be prevailing in the locality for essentially "the same type, quality, and quantity of work." For these workers, under current law, there is no other statutory wage rate. The origins of Section 14(c) treatment of persons with disabilities go back at least to the National Industrial Recovery Act (NIRA) of 1933-1935. Under the NIRA, a productivity-based sub-minimum wage, arranged through a system of certificates, was established for persons with disabilities. In competitive industry, such workers were payable at 75% of the industry minimum. In sheltered workshops, there was no wage floor. The NIRA was declared unconstitutional in 1935. -------------------------- <1> Whittaker, William G. "Treatment of Workers with Disabilities Under Section 14(c) of the Fair Labor Standards Act." Congressional Research Service. (February 9, 2005). AB 488 Page E With passage of the FLSA in 1938, the certification system was reestablished under Section 14 of the Act. No statutory wage floor was set for persons with disabilities, though, administratively, minimum wages for the disabled in competitive industry came to be set at 75% of the federal/FLSA minimum. In the sheltered workshops, the floor was productivity-based with no lower limit. Under the 1966 FLSA amendments, the system was modified. The rate for persons with disabilities was set in statute at not less than 50% of the FLSA minimum, both in competitive industry and in workshops, except that in separate work activities centers where employment was largely therapeutic and its economic content inconsequential there was no statutory floor. Charges of inequities followed - together with a rapid expansion of employment in the work activities centers. Some suggested that workers with vision impairment should not, on that basis alone, be included under the Section 14 reduced wage option. A number of studies subsequently reviewed operation of the system. Congressional hearings on the issue were conducted repeatedly through the years. In 1986, Section 14(c) was amended to remove the separation of workshops and work activities centers - and to eliminate any statutory wage floor for persons with disabilities in certificated employment. In theory, such workers were to be paid a wage commensurate with their productivity. In 1994, further hearings were held and it was asserted that the entire system of productivity-based sub-minimum wage rates was inequitable and unworkable. The law, however, supported by AB 488 Page F employers of workers with disabilities, was not altered." Controversy Surrounding FLSA Section 14(c) For many years, the special minimum wage certification program has generated heated debate on both sides of the issue. One commentator<2> described the nature of the debate as follows: "There is disagreement among many factions of the disability community regarding the efficacy and integrity of the Section 14(c) wage certificate program of the Fair Labor Standards Act (FSLA) which allows employers to pay workers with disabilities a special minimum wage based on their productivity. Some believe this program may keep disabled employees in isolated workshop environments and often allows them to be paid less than the federal minimum wage. Others believe that some form of financial support is essential to creating and maintaining jobs for people with disabilities. The initial legislation was passed to give individuals with disabilities a chance to work when the perspective on disability was very different than it is today. As views have changed, this program seems to no longer be fully aligned with the national disability agenda. Although Section 14(c) gives individuals with disabilities the experience of working, it allows them to be paid less than prevailing wage, and in some instances isolates them and fails to integrate them fully with their non-disabled peers. Federal legislation was introduced that would repeal Section 14(c) and prohibit the payment of special minimum wages. While this legislation will potentially leave hundreds of thousands of workers without employment, opponents argue that special minimum wage certificates are antithetical to current national disability policy promoting integration and financial -------------------------- <2> Nye, Gretchen. "The Uncertain Future of Section 14(c) of the Fair Labor Standards Act." The George Washington University School of Public Health and Health Services, Department of Health Policy. (June 2013). AB 488 Page G independence for individuals with disabilities." Recent Movement Towards "Integrated Employment" In light of some of the controversy associated with payment of a subminimum wage discussed above, in recent years several states have announced initiatives to transition from "sheltered workshops" to focus more on "integrated employment." This effort involves preparing people with disabilities to work in integrated settings (as opposed to isolated workshops employing primarily disabled individuals) earning a livable wage. This trend is sometimes referred to as "competitive integrated employment." In January 2015, the California Department of Rehabilitation, the Department of Developmental Services, and Department of Education, in collaboration with Disability Rights California, announced plans to join other states in transforming its provision of employment services to people with intellectual and developmental disabilities. The agencies announced the development of a blueprint that among other things, states that employment in integrated, competitive settings is preferred for individuals with disabilities, and calls for the establishment of measurable goals and benchmarks. In making this move, California joined several other states, AB 488 Page H including New York, Massachusetts, Pennsylvania and Rhode Island, which have announced efforts to transition from "sheltered workshops" to "integrated employment." Change in this area is also being directed by the federal government. Specifically, the Workforce Innovation and Opportunity Act (WIOA), which was signed by President Obama in 2014, placed a number of limitations on placements at sheltered workshops. Under the law, individuals with disabilities age 24 and younger will no longer be allowed to work for less than the federal minimum wage unless they first are provided pre-employment transition services and attempt vocational rehabilitation services first. WIOA also requires state vocational rehabilitation agencies to work with education providers to provide transition services and requires the agencies to allocate at least 15 percent of their federal funds towards such transition efforts. Change Proposed by This Bill As discussed above, FEHA currently contains an exemption which excludes employees in "sheltered workshops" from the provisions of the law. This bill seeks to eliminate that exemption and provide that such employees are covered under the employment discrimination provisions of FEHA. AB 488 Page I ARGUMENTS IN SUPPORT According to the author, workers in sheltered workshops and rehabilitation centers are currently excluded from the protections against discrimination and sexual harassment offered by California's Fair Employment and Housing Act. This leaves workers with disabilities who are employed in these settings no recourse for discrimination based on characteristics like race, religion or gender identity by their employer. The author notes that AB 1443 (Skinner) from 2014 extended FEHA's protections to cover unpaid interns and volunteers, suggesting that these workplace protections are appropriate even for those making less than minimum wage or in a program for a limited time to gain experience. Also, the author notes that, while California has been moving towards competitive and integrated job placements for individuals with disabilities, this does not take away from the fact that it is important for workers in all settings to have legal protections against and recourse from discrimination and harassment. The sponsor of this bill, Disability Rights California, states that it would change the Government Code so that individuals with disabilities who are in sheltered work are considered AB 488 Page J "employees" and are provided the same protections as other employees under FEHA. They argue that reform is needed to strengthen rights and protections for sheltered workshop employees who work in highly-restrictive environments and currently are not afforded the same protections against discrimination as other employees. REGISTERED SUPPORT / OPPOSITION: Support Disability Rights California (sponsor) State Council on Developmental Disabilities Opposition None on file. Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091 AB 488 Page K