Braille Monitor                                                                                March 1986



Sheltered Workshops and the Subminimum Wage: What Goes Around Comes Around

by James Gashel

Section 14(c) of the Fair Labor Standards Act allows exemptions from the federal minimum wage in the case of workers whose productivity is impaired by handicap or age. Any employer otherwise required to pay the minimum wage may obtain authority to pay the lower wage rates permitted by law. However, there is a fairly extensive amount of paperwork involved to secure approval by the Wage and Hour Division of the United States Department of Labor.

Now, some sheltered workshops who are organized into an association called the National Association of Rehabilitation Facilities have developed a new idea from an old idea. They want permission to pay subminimum wages to all handicapped workers without doing the paperwork. That idea is strikingly similar to the old approach which Congress allowed from 1938 (the beginning of the Fair Labor Standards Act) until 1966 when the subminimum wage provisions of the Act were last amended.

The old system, prior to the 1966 amendments, amounted to a blanket exemption. Handicapped workers could be paid whatever the workshop managers thought they should be paid. By 1966, Congress decided that the workers needed some protection against wage exploitation by management. So the 1966 amendments established several categories of subminimum wage rates. The days of the blanket exemption were over.

Section 14(c) has not been amended since 1966. It requires that each individual handicapped worker be paid on the basis of productivity. The pay rate for each individual must then be figured as a percentage of the "prevailing wage" for essentially the same type, quantity, and quality of work performed by non handicapped workers in the general vicinity. Thus, if a handicapped worker's productivity is reported to be 65% of the normal productivity for a nonhandicapped worker doing essentially the same kind of work, the handicapped individual's wage can legally be 65% of the prevailing wage for that job. That sounds good on paper, but it does not work out in practice.

Under the current law, most blind workers are protected to some extent by a requirement that pay rates in a "regular sheltered workshop" cannot be less than 50% of the federal minimum wage. So right now the minimum wage for the blind under that provision is $1.67 per hour. Still, workers with higher than 50% productivity must be paid more. Anyone whose productivity is reported to be less than 5 0% of the norm may be paid below $1.67 per hour if the Department of Labor approves an individual exemption. Individual exemptions cannot be less than 25% of the minimum wage.

Then there is the "work activity center." The work activity center actually amounts to another category of exemption from the minimum wage. Individuals under the work activity center exemption are still supposed to be paid prevailing wages based on productivity. But their productivity must be minimal. Anyone who can produce even 50% of the norm or thereabouts may not be included in a work activity center. A work activity center must be physically separated from a regular sheltered workshop. There is no minimum wage requirement for a work activity center.

Separating nonproductive from productive handicapped workers was a major benefit of the 1966 amendments to Section 14(c) of the Fair Labor Standards Act. But the managers of sheltered workshops have never liked that policy. Also, they have never liked the other requirements such as the workshop exemption of no less than 50% of the minimum wage. Now there is a bill in Congress which the workshops have actually put forward as their proposal. The bill is H.R. 2676, introduced by Representative Thomas Petri of Wisconsin. Mr. Petri's bill would abolish all of the subminimum wage categories but not the subminimum wage itself. The 50% subminimum wage guarantee in regular workshops would be gone. So would the 25% guaranteed wage under individual exemptions and any other form of wage protection.

The new system under Mr. Petri's bill would be just about like the old system which existed from 1938 until Congress tightened up the law in 1966. The result would be that all sheltered workshops would actually amount to work activity centers, where there is no minimum wage requirement whatsoever. In fact, at a recent hearing on H.R. 2676 a representative of the Wage and Hour Division of the U.S. Department of Labor acknowledged that his office would approve "any wage above zero" if Congress were to pass this bill. The next thing is that the workshops will want us to pay them just for the "privilege" of having something to do, kind of a minimum wage in reverse, so to speak.

Witnesses at the hearing, held October 3, 1985 were principally the representatives of sheltered workshops. It was their day to tell Congress how they really wanted "to help" the handicapped. I was the lone witness to speak up on behalf of the interests of the workers. Incidentally, a representative of the American Council of the Blind was also in the room, but he did not speak up. By his silence we can only assume that the ACB, too, would approve any wage above zero. At least their representative did not say otherwise.

Actually, I was not without an ally at the hearing. He was Austin Murphy, Chairman of the Subcommittee on Labor Standards, the subcommittee to which H.R. 2676 had been referred. Mr. Murphy was chairing the hearing. He was concerned about the fact that the managers of sheltered workshops were asking for unchecked discretion in approving any wage rates above zero for all handicapped workers. He commented that H.R. 2676 would remove any wage protection which now exists in the law. At one point Mr. Murphy even suggested that "slave conditions" could very likely be the result if Congress were to pass this bill. Hearing that, I knew I was not alone.

Here is a summary of the testimony as I presented it. An additional written statement, expanding on the points was also filed for the hearing record. There is no question that H.R. 2676 is a thoroughly unacceptable and flawed proposal. Nonetheless, its introduction represents a serious move by the workshops to expand their authority to pay wages well below the federal minimum. But there is one thing we agree upon-- Section 14(c) of the Fair Labor Standards Act should be changed. Agreeing as to how it should be changed will certainly be more difficult. Now for the testimony.

Remarks of James Gashel Before the Subcommittee on Labor Standards
Committee on Education and Labor
United States House of Representatives
Washington, D.C.
October 3, 1985

Mr. Chairman, I guess I have a unique role here, since we speak from the viewpoint of workers, not managers. NFB's members are the rank and file blind. Thousands are paid under the 14(c) exemptions.

We oppose H.R. 2 676. Its results, in our opinion, would not be beneficial either to productive or nonproductive handicapped people. We support reforming Section 14(c) of the FLSA because we think the totality of this law is neither sound in theory nor fair in its administration. However, in our judgment, it would be detrimental to handicapped people to make the changes proposed in H.R. 2676.

Here is why we feel that way. There are four basic points. One, H.R. 2676 would repeal the 50% minimum wage standard of Section 14(c)(1). The repeal would be caused when managers mix clients exempt under Section 14(c)(3) with workers exempt under Section 14(c)(1). Mixing would cause lower rates of productivity.

Managers would create the groupings of clients and workers. Managers would measure their productivity. Managers would certify everything to the Department of Labor, and no one else could ever know if it was justified.

Two, H.R. 2676 would result in lower wages for handicapped workers. Productive workers would be forced to slow down in order to match their output with the severely limited nonproducers absorbed from the work activity center. Productivity is the basis for pay under Section 14(c). Hence, H.R. 2676 asks handicapped workers to take a pay cut in order to accommodate the lesser skills of the nonproducers and the desires of management to group the workers and clients to achieve its own objectives.

The policy of current law says accurately that handicapped people are not a homogeneous class in terms of productivity. Some can produce and others cannot. Some can work; others need therapy provided by the special centers. The mixture of capacities caused by H.R, 2676 would make everyone in the workforce subject to the lowest common denominator of productivity. The losers would be the workers and the clients.

Three, H.R. 2676 would make enforcement of Section 14(c) more difficult. Separating productive workers from clients who need therapy provides the appropriate program for both groups. Separation is thus an enforcement mechanism to prevent exploitation of the members of either group--clients or workers.

Compared to many difficult to enforce FLSA standards, separation is clear-cut. By contrast, H.R. 2676 might, at best, require massive recordkeeping sufficient to justify individual exemptions for the hundreds of thousands of individuals whose work falls under this law.

Four, H.R. 2676 would ignore the special needs of handicapped workers and handicapped clients. Regular workshops are primarily places of employment where workers are told to maximize their productivity because this will maximize their wages. This is not consistent with H.R. 2 676 which would prevent maximum productivity by means of having nonproducers in the same workforce. This is unfair to those who are being told and expected to maximize their productivity.

On the other hand, the clients who really need the therapy are being ignored because they are being expected to achieve greater and greater heights of productivity. And what about their therapeutic program--the special exclusive, planned and designed program now established under Section 14(c)(3)? These requirements are being repealed by H.R. 2676. In their place, we would get a common work program--work for all--and no longer would we have a program planned and designed for the special needs of anyone, except management, who would get more work and pay less for it.

Mr. Chairman, we urge you not to pass H.R. 2676 while leaving the rest of Section 14(c) alone. Do not create a worse arrangement for us than we already have today. Several studies have shown that we need more wage protection, not less. Enforcement should be strengthened, not lessened. Yet, these would be the undesirable and unhappy results of enacting H.R. 2676 in our opinion. Thank you very much.