BILL ANALYSIS �
AJR 36
Page A
Date of Hearing: April 23, 2014
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hern�ndez, Chair
AJR 36 (Gonzalez) - As Amended: March 25, 2014
SUBJECT : Special Minimum Wage Certificate Program.
SUMMARY : Urges Congress to phase out the use of the Special
Minimum Wage Certificate provision and eventually repeal Section
14(c) of the 1938 Fair Labor Standards Act to support the goal
of competitive integrated employment of people with disabilities
through the use of modern practices of vocational training,
improved technology, and innovative rehabilitation and
employment strategies. Specifically, this resolution makes the
following legislative findings and declarations:
1)Meaningful employment, and the wages associated with it, can
be an integral part of enabling human dignity and creating
more meaningful lives for disabled persons.
2)The 1938 federal Fair Labor Standards Act sets out in Section
14(c) the ability for entities that employ disabled persons to
obtain special minimum wage certificates from the United
States Department of Labor's Wage and Hour Division which
entitle them to pay a disabled worker less than the legislated
minimum wage rate.
3)The 1938 Fair Labor Standards Act's subminimum wage provisions
were created in the era of the Great Depression with the
intent of subsidizing sheltered workshops which could not
afford to pay their workers full wages and, some may argue,
incentivizing private companies to employ disabled persons.
4)These special wage rates are calculated according to
productivity with no specified wage floor.
5)The productivity-based calculation of a special minimum wage
is generally done by a complicated "time study" which entails
an administrator comparing how fast a disabled worker is able
to complete a certain task compared to nondisabled workers.
6)There are differing work and equipment conditions beyond the
worker's control, a lack of oversight and enforcement by the
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Wage and Hour Division for the special minimum wage
certificates, a lack of consistency in the time study tests
done by employers, and a singling out of disabled workers
given that the general workforce is not subjected to standards
of timed productivity.
7)Time study practices used to determine special wage rates are
both inconsistent and unfair and the subminimum wages they
produce have been described by disabled workers throughout the
media as humiliating, degrading, and making them feel like
"second-class citizens."
8)Some entities have claimed that the special minimum wage
certificates are an essential stepping stone to permanent and
fully paid employment in the general workforce. The
Psychiatric Rehabilitation Journal published empirical
evidence in 2004 which suggested that sheltered workshops are
generally ineffective at progressing the disabled workers,
while for other employers the special minimum wage
certificates serve as an incentive to exploit disabled workers
rather than integrate them into the mainstream economy.
9)It has been widely documented that many of the organizations
which employ disabled persons are in financial situations that
would enable them to pay minimum wage to all of their disabled
employees, evident in the high compensation packages paid to
their executives.
10)Some employers, such as the National Industries for the
Blind, have already recognized the exploitive nature of paying
disabled workers subminimum wage and have been able to
transition to the payment of Federal minimum wage, or higher,
to their disabled employees without a significant change in
profitability or a reduction in their workforce.
FISCAL EFFECT : None
COMMENTS : This resolution urges Congress to phase out and
eventually repeal Section 14(c) of the federal Fair Labor
Standards Act (FLSA), also known as the Special Minimum Wage
Certificate program.
Brief Background on Section 14(c) of the FLSA
AJR 36
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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.
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.
-------------------------
<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).
AJR 36
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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 employers of workers with disabilities, was not
altered."
Controversy Around 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
-------------------------
<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).
AJR 36
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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
independence for individuals with disabilities."
Provisions Under 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 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,
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or more frequently as determined by the commission."
AUTHOR'S STATEMENT IN SUPPORT OF THE RESOLUTION :
The author's fact sheet for AJR 36 states the following:
"This legislation was enacted in 1938, a time when not only
was it difficult for organizations that had struggled
through the Great Depression to pay disabled workers full
wages, but also a time when the disabled community was
viewed very differently.
The use of a Special Minimum Wage Certificate, commonly
referred to as a "subminimum wage" contributes to an
outdated perception of disabled persons as inherently less
productive and less valuable than others. This has been
proven over and over again to be incorrect by programs that
effectively match disabled workers with jobs that
complement their skills and abilities.
This perception is reinforced by the "time studies" used in
calculating the subminimum wage rate. Disabled employees
are timed while performing a task, such as hanging clothes,
to calculate their job productivity compared to a
nondisabled person performing the same task. These time
studies have been described as degrading by disabled
workers, lack oversight by the federal government, and are
often misleading because of differing work conditions.
The subminimum wage rates assigned are also difficult for
disabled workers to appeal when they believe the rate does
not accurately reflect their abilities, because the
evidence submitted regarding the supposed productivity
comes solely from the employer, and there are no legal
penalties against employers who are found to be underpaying
a disabled employee.
Proponents of Section 14(c) often claim that subminimum
wages are an effective tool to train and then transition
disabled workers into competitive, integrated employment.
However, a 2001 Governmental Accountability Office Report
found that most disabled workers employed in sheltered
workshops do not move on to competitive employment. In 2000
AJR 36
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55% of the workers in sheltered workshops had worked there
for five or more years.
Furthermore, many organizations which employ disabled
workers have shown that businesses do not need this program
to be successful. For instance, National Industries of the
Blind was able to transition to paying all of its workers
at least the federal minimum wage without any of its
facilities going out of business.
US Secretary of Labor Thomas Perez has recently
acknowledged these problems and said that the Section 14(c)
program "has worked to the detriment of people with
disabilities." Additionally, a recent increase by President
Obama in the minimum wage of federal contractors included
disabled workers for the first time, marking a significant
step forward in this issue."
ARGUMENTS IN SUPPORT :
The National Federation of the Blind (NFB) supports this
resolution, stating:
"This section of the law authorizes the outrageous practice
of paying people with disabilities less than the minimum
wage. As long as Section 14(c) is law, people with
disabilities will be trapped in segregated subminimum wage
work environments. We believe that competitive integrated
employment should be the goal for all individuals, with or
without disabilities. With the use of modern technology,
vocational rehabilitation, and high expectations people
with disabilities are able to reach their full vocational
potential.
Written in 1938, Section 14(c) of the Fair Labor Standards
Act allows entities to obtain special wage certificates
which authorize these entities to pay people with
disabilities subminimum wages, some as low as pennies per
hour. [NFB] believes this practice is antiquated, immoral
and discriminatory. The characteristic of disability
should not be sufficient to warrant the payment of
subminimum wages.
As stated in your resolution over 400,000 people with
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disabilities are being unfairly paid less than the minimum
wage. We applaud your efforts to phase out and repeal
Section 14(c) of the Fair Labor Standards Act and urge the
California Assembly to expeditiously adopt Assembly Joint
Resolution 36."
ARGUMENTS IN OPPOSITION :
The Alliance, which describes itself as a statewide coalition
supporting the lives of thousands of people with intellectual
and developmental disabilities in a wide variety of programs,
including employment programs, opposes this measure.
They argue that this resolution is a well-meaning but very
damaging effort to improve employment outcomes for people with
significant disabilities. They contend that this resolution
implies that all workers, regardless of their disability, should
be able to compete with workers without disabilities. But what
if, as a result of their disability, they cannot complete the
same amount of work or work at the same rate as someone without
a disability?
They argue that for some, their ability to work will always
require extensive services and supports. It is not up to the
families, advocates, service providers or others to decide
up-front what the potential of a person with disabilities will
be. It is not appropriate to label someone's capability for life
or to deprive them of opportunities for advancement. But it is
also inappropriate to label them as having no disability that
impacts their ability to work in competitive employment. Without
Section 14(c) of the FLSA, persons are told that unless they can
compete, they will simply be unable to work.
The Alliance argues that if this resolution passes, it would
lead to the elimination of the tool of productivity-based wages
and these worker's jobs would be at risk.
They conclude that our collective goal should be to improve
employment outcomes for people with disabilities. Causing some
AJR 36
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who can't compete with workers without disabilities to lose
their jobs will not create a single new job for anyone. They
contend that, while clearly not its goal, application of the
principles in this resolution would unfortunately cost thousands
of people their jobs.
RELATED LEGISLATION :
SB 1109 (Hueso) would address this issue in a number of ways
related to state contracts for services.
First, SB 1109 would provide that a successful bidder on
specified state service contracts is not authorized to use the
minimum wage exemption (under the Labor Code provisions
discussed above) for any employee, engaged in any way, in
providing services under the contract.
Second, SB 1109 would establish statewide participation goals of
not less than 3 percent for persons with disabilities business
enterprises, as defined, to participate in state service
contracts.
Finally, existing law authorizes a state or local to purchase
materials and supplies manufactured and services provided by
public or private nonprofit California corporations operating
community rehabilitation programs serving persons with
disabilities that have indicated an interest in supplying those
goods without advertising or calling for bids. SB 1109 would
require that a corporation employing persons with disabilities
under a contract with a state agency for goods or services
described above pay all of its employees at least the state
minimum wage for work on the contract.
SB 1109 is pending in the Senate Committee on Governmental
Organization.
REGISTERED SUPPORT / OPPOSITION :
Support
National Federation of the Blind
Opposition
AJR 36
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Achievement House, Inc.
Advocacy for Respect and Choice
California Elwyn (Orange County)
Carl R. Ochsner, M.S.
NCI Affiliates, Inc.
San Gabriel Valley Training Center
The Alliance
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091