Employment of Workers With Disabilities Under Section 14(c) of the Fair Labor Standards Act, 96466-96511 [2024-27880]

Download as PDF 96466 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules DEPARTMENT OF LABOR Wage and Hour Division 29 CFR Part 525 RIN 1235–AA14 Employment of Workers With Disabilities Under Section 14(c) of the Fair Labor Standards Act Wage and Hour Division, Department of Labor. ACTION: Notice of proposed rulemaking. AGENCY: The Fair Labor Standards Act (FLSA or Act) authorizes the Secretary of Labor to issue certificates allowing employers to pay productivity-based subminimum wages to workers with disabilities, but only where such certificates are necessary to prevent the curtailment of opportunities for employment. Employment opportunities for individuals with disabilities have vastly expanded in recent decades, in part due to significant legal and policy developments. Based on that evidence, the Department has tentatively concluded that subminimum wages are no longer necessary to prevent the curtailment of employment opportunities for individuals with disabilities and thus proposes to phase out the issuance of section 14(c) certificates. SUMMARY: Interested persons are invited to submit written comments on this notice of proposed rulemaking (NPRM) on or before January 17, 2025. ADDRESSES: You may submit comments, identified by Regulatory Information Number (RIN) 1235–AA14, by either of the following methods: • Electronic Comments: Submit comments through the Federal eRulemaking Portal at https:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Address written submissions to: Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S–3502, 200 Constitution Avenue NW, Washington, DC 20210. Instructions: Response to this NPRM is voluntary. The Department requests that no business proprietary information, copyrighted information, or personally identifiable information be submitted in response to this NPRM. Commenters submitting file attachments on https://www.regulations.gov are advised that uploading text-recognized documents—i.e., documents in a native file format or documents which have undergone optical character recognition (OCR)—enable staff at the Department to ddrumheller on DSK120RN23PROD with PROPOSALS2 DATES: VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 more easily search and retrieve specific content included in your comment for consideration. Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and will be posted without change to https:// www.regulations.gov. The Department posts comments gathered and submitted by a third-party organization as a group under a single document ID number on https://www.regulations.gov. All comments must be received by 11:59 p.m. ET on January 17, 2025, for consideration in this rulemaking; comments received after the comment period closes will not be considered. The Department recommends that commenters submit their comments electronically via https:// www.regulations.gov to ensure timely receipt prior to the close of the comment period. Please submit only one copy of your comments by only one method. Docket: For access to the docket to read background documents or comments, go to the Federal eRulemaking Portal at https:// www.regulations.gov. In accordance with 5 U.S.C. 553(b)(4), a summary of this rule may also be found at https:// www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Daniel Navarrete, Director, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division (WHD), U.S. Department of Labor, Room S–3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693–0406 (this is not a toll-free number). Alternative formats are available upon request by calling 1– 866–487–9243. If you are deaf, hard of hearing, or have a speech disability, please dial 7–1–1 to access telecommunications relay services. Questions of interpretation or enforcement of the agency’s existing regulations may be directed to the nearest WHD district office. Locate the nearest office by calling the WHD’s tollfree help line at (866) 4US–WAGE ((866) 487–9243) between 8 a.m. and 5 p.m. in your local time zone, or log onto WHD’s website at https://www.dol.gov/ agencies/whd/contact/local-offices for a nationwide listing of WHD district and area offices. SUPPLEMENTARY INFORMATION: I. Executive Summary The FLSA generally requires that employees be paid at least the Federal minimum wage, currently $7.25 per hour, for every hour worked and at least PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 one and one-half times their regular rate of pay for each hour worked over 40 in a single workweek. 29 U.S.C. 206(a), 207(a). Since its enactment in 1938 through today, section 14 of the FLSA has included a provision authorizing the Department to issue certificates permitting employers to pay workers at wage rates below the Federal minimum wage when the worker’s disabilities impair their earning or productive capacity. The section 14 statutory provision, however, has always provided that such certificates may only be issued to the extent ‘‘necessary to prevent curtailment of opportunities for employment.’’ 1 As the Supreme Court explained in 1947, the language and legislative history of the section show that its purpose is to prevent the imposition of a full minimum wage from depriving those with ‘‘physical handicaps’’ of ‘‘all opportunity to secure work.’’ 2 However, as the Court emphasized, ‘‘to have written a blanket exemption of all [such workers] from the Act’s provisions might have left open a way for wholesale evasions. Flexibility of wage rates for them was therefore provided under the safeguard of administrative permits.’’ 3 Hence, section 14(c) authorizes the Secretary to issue certificates allowing payment of subminimum wages to individuals with disabilities only when conditions make it ‘‘necessary’’ to do so. The Department first promulgated regulations governing the issuance of these ‘‘administrative permits’’ in 1938, and last substantively updated them in 1989, more than 35 years ago. Since 1989 (and profoundly more so since the time the statutory provision was enacted and its implementing regulations were promulgated nearly 85 years ago), opportunities for employment have dramatically changed for individuals with disabilities. Fueled by the disability rights movement, societal and cultural assumptions, beliefs and expectations regarding the employment of individuals with disabilities have evolved, and opportunities for individuals with disabilities have 1 29 U.S.C. 214(c)(1). v. Portland Terminal Co., 330 U.S. 148, 151 (1947). The Department notes that some terminology used in this NPRM reflects the terms used in the statute and regulations at the time of their issuance or quotations from various sources. Quotations are attributable to the sources indicated and do not necessarily reflect the current views or terminology of the Department. Since the early 1990s, the government has replaced outdated and offensive terms like ‘‘the handicapped’’ with more respectful, person-first terminology, such as ‘‘individuals with disabilities.’’ Throughout this NPRM, the Department references outdated terms only when necessary to accurately reflect quoted sources or to illustrate changes that have occurred. 3 Id. 2 Walling E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 dramatically expanded. Federal legislation and judicial precedent have established and enshrined fundamental legal protections requiring equal access, opportunities, and respect for individuals with disabilities in both education and employment. Of these legislative and judicial developments, the landmark Americans with Disabilities Act (ADA) of 1990,4 enacted the year after the section 14(c) regulations were last substantively updated, has had a profound impact on employment opportunities for individuals with disabilities. In addition, the President and executive agencies have taken steps to end the payment of subminimum wages to workers with disabilities on certain government contracts. Numerous States and localities have prohibited or limited the payment of subminimum wages to workers with disabilities within their jurisdictions. In short, employment opportunities for individuals with disabilities have advanced significantly since the FLSA’s enactment in 1938, when it was much more difficult for individuals with disabilities to secure employment at the full minimum wage.5 Although it is widely acknowledged that individuals with disabilities continue to face challenges in obtaining equal opportunity and treatment, the extent of legal protections, opportunities, resources, training, technological advancements, and supports has dramatically expanded since 1989, when the Department’s regulation was last substantively updated, to assist individuals with disabilities both in obtaining and maintaining employment at or above the full minimum wage.6 Employers similarly have substantially more resources and training available to recruit, hire, and retain workers with disabilities in employment at or above the full minimum wage. This comprehensive system of new approaches has rendered it unnecessary 4 The ADA was subsequently amended by the ADA Amendments Act of 2008, 42 U.S.C. 12111 et seq. As discussed in section III.B, the ADA mandates equal employment opportunity for individuals with disabilities by prohibiting discrimination and requiring reasonable accommodation. 5 Id. 6 This expansion of employment opportunities, resources, training, and supports is applicable for all individuals with disabilities, including individuals with intellectual and developmental disabilities who comprised about 90 percent of the workers with disabilities still being paid subminimum wages as of August 2021. See U.S. Gov’t Accountability Office, GAO–23–105116, ‘‘Subminimum Wage Program: DOL Could Do More to Ensure Timely Oversight’’ (2023) (2023 GAO Report), at 24, https://www.gao.gov/products/gao23-105116. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 to depend upon subminimum wages to secure employment opportunities for individuals with disabilities and, given the enhanced opportunities for employment since the Department last substantively updated its regulations in 1989, vastly more individuals with disabilities—including intellectual or development disabilities (I/DD)—work at full-wage employment than work under section 14(c) certificates. Recognizing the expansion of full-wage employment options for individuals with disabilities, an increasing number of oversight and advisory reports, such as those published by the U.S. Commission on Civil Rights (USCCR) and the National Council on Disability (NCD), have vigorously called for a ‘‘phase out’’ of section 14(c) certificates. As another indication that subminimum wages are not necessary to prevent the curtailment of employment opportunities, an increasing number of States and localities, including many jurisdictions with higher minimum wages than the FLSA minimum wage, have prohibited or limited the payment of subminimum wages in their respective jurisdictions, and an increasing number of employers themselves are voluntarily opting out of paying subminimum wages, as is reflected in the rate at which the number of section 14(c) certificate holders has substantially declined in recent years. Against this backdrop, the Department must fulfill its statutory mandate of assessing whether section 14(c) certificates continue to be necessary in order to prevent the curtailment of employment opportunities for individuals with disabilities. After careful review, consideration of input from stakeholders with a wide variety of viewpoints, and for the reasons discussed in this notice of proposed rulemaking, the Department preliminarily concludes that section 14(c) certificates that allow employers to pay subminimum wages to workers with disabilities are no longer necessary and thus proposes to amend 29 CFR part 525 to phase out the issuance of such certificates. Accordingly, the Department proposes to stop issuance of new section 14(c) certificates and to phase out existing certificates over several years. At the conclusion of the phaseout period, this proposal would require only that subminimum wages no longer be paid to workers with disabilities. This proposed rule would not require workers to leave their current places of employment, where they often also receive a number of services, such as PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 96467 rehabilitation and training, nor would it require current section 14(c) certificate holders to amend the type of services that they currently provide or to modify the settings in which work is performed.7 The Department specifically proposes to cease issuance of new section 14(c) certificates to employers submitting an initial application on or after the effective date of a final rule and permit existing section 14(c) certificate holders, assuming all legal requirements are met, to continue to operate under section 14(c) certificate authority for up to 3 years after the effective date of a final rule. The Department is also requesting comment as to whether, if this proposed rule is finalized, it would be appropriate to grant an extension for existing section 14(c) certificate holders who demonstrate a need and seeks comments on the need for such an extension period, and, if needed, its scope, structure and length. II. Background A. Introduction The FLSA provides basic labor protections including Federal minimum wage and overtime compensation requirements. Section 6 of the FLSA establishes that the Federal minimum wage for covered employees is currently $7.25 per hour, ‘‘except as otherwise provided’’ in the Act.8 Since its enactment in 1938, the FLSA has authorized the Department to issue certificates permitting the employment of certain workers with disabilities at wage rates lower than the otherwise applicable Federal minimum wage ‘‘to the extent necessary to prevent curtailment of opportunities for employment.’’ 9 To provide appropriate contextual information about section 14(c), this section of the proposed rule provides a high-level summary of the Department’s legal authority regarding the issuance of section 14(c) certificates, the relevant statutory and regulatory history pertaining to FLSA section 14(c), an overview of how the Department’s Wage and Hour Division (WHD) administers section 14(c) certificates and enforces the section 14(c) provisions, and a description of how 7 For example, if an employer currently employs a worker with disabilities to perform an assembly line job for 2 hours per day and then provides rehabilitation services to that same individual for 6 hours per day, this proposed rule would require only that the employer pay at least the full Federal minimum wage for the 2 hours of work performed by the worker. This proposed rule would not require any changes be made to the setting or rehabilitation services offered. 8 29 U.S.C. 206. 9 29 U.S.C. 214(c)(1). E:\FR\FM\04DEP2.SGM 04DEP2 96468 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules employers are currently using certificates. The Department then discusses its recent review of section 14(c) and addresses the current need for rulemaking. ddrumheller on DSK120RN23PROD with PROPOSALS2 B. Statutory Authority Section 14(c)(1) of the FLSA provides that the ‘‘Secretary, to the extent necessary to prevent curtailment of opportunities for employment, shall by regulation or order provide for the employment, under special certificates, of individuals . . . whose earning or productive capacity is impaired by age or physical or mental deficiency’’ at productivity-based subminimum wages.10 The FLSA explicitly authorizes the Secretary to issue regulations governing the issuance of subminimum wage certificates. In authorizing the Secretary to issue certificates allowing employers to pay subminimum wages, Congress included a significant statutory limitation by permitting the issuance of certificates only ‘‘to the extent necessary to prevent curtailment of opportunities for employment.’’ At the same time, Congress determined that the Secretary ‘‘shall by regulation or order’’ provide for subminimum wage certificates, thereby conferring authority upon the Department to determine whether that standard has been met and under what circumstances subminimum wages should be paid. To best implement the statute at this point in time, the Department proposes to exercise its authority to find that subminimum wages are no longer necessary to prevent the curtailment of employment opportunities for workers with disabilities and to phase out the issuance of section 14(c) certificates.11 The Secretary’s issuance of certificates prior to permitting employers to pay a subminimum wage acts as a ‘‘safeguard’’ against widespread abuse.12 Section 14(c) requires the curtailment clause determination to be made by the Secretary prior to permitting employers to pay a subminimum wage because the right to a minimum wage under the FLSA is not waivable. The provision places this obligation on the Secretary to safeguard the program against abuse and ensure that no individual employer or 10 29 U.S.C. 214(c)(1). has legal authority to require payment of the full Federal minimum wage for all hours worked by covered, non-exempt employees. As previously noted, this proposed rule would not require workers to leave their current places of employment, nor would it require current section 14(c) certificate holders to amend the type of services that they currently provide or to modify the settings in which work is performed. 12 Portland Terminal, 330 U.S. at 151. 11 WHD VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 employee can effect a waiver of their rights, contrary to the FLSA. It is a fundamental principle of FLSA jurisprudence that the Act’s rights, including the right to the Federal minimum wage, cannot be waived. The Supreme Court’s ‘‘decisions interpreting the FLSA have frequently emphasized the nonwaivable nature of an individual employee’s right[s] . . . under the Act’’ and ‘‘have held that FLSA rights cannot be abridged by contract or otherwise waived.’’ 13 The Supreme Court has identified at least three reasons for this nonwaiver rule. First, the Court has determined that the Act constituted ‘‘a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency.’’ 14 According to the Court, the protective purposes of the Act thus ‘‘require that it be applied even to those who would decline its protections’’; otherwise, ‘‘employers might be able to use superior bargaining power to coerce employees to . . . waive their protections under the Act.’’ 15 Second, the FLSA sought to establish a ‘‘uniform national policy of guaranteeing compensation for all work’’ performed by covered employees.16 Third, the Court has held that permitting employees to waive their FLSA rights is inconsistent with the explicit purpose of the Act to protect employers against unfair methods of competition.17 Accordingly, just as employees cannot choose to forego overtime compensation due, employees cannot choose to be paid subminimum wages. Rather, an employer may only pay subminimum wages to workers with disabilities after obtaining a certificate from the Secretary. In turn, the Secretary may only issue such certificates when the threshold statutory requirement is met, that is, the Secretary determines that such certificates are necessary to prevent the curtailment of employment opportunities. Recognizing the uniqueness of the certificate process for subminimum wages, the Supreme Court has observed that in enacting the FLSA, Congress 13 Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 740 (1981) (listing cases). 14 Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 706 (1945). 15 Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 302 (1985) (citing Barrentine, 450 U.S. 728 and Brooklyn Sav., 324 U.S. 697). 16 Jewell Ridge Coal Corp. v. Local No. 6167, UMWA, 325 U.S. 161, 167 (1945). 17 See 29 U.S.C. 202(a); Brooklyn Sav., 324 U.S. at 710. PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 wished to increase opportunities for gainful employment, and not impose requirements that would deprive any worker of ‘‘all opportunity to secure work.’’ 18 The Court further recognized, however, that a ‘‘blanket exemption’’ of workers with disabilities from the minimum wage could have invited ‘‘wholesale evasions’’ and accordingly subminimum wages could only be paid under the very specific ‘‘safeguard of administrative permits.’’ 19 Thus, the Secretary continues to be responsible for monitoring the payment of subminimum wages and ensuring that the statutory prerequisites for both certificate issuance and use of such certificates have been met. The FLSA expressly confers authority to the Department to make the determination under the curtailment clause that certificates are necessary to prevent the curtailment of employment opportunities prior to issuing certificates.20 The most logical reading of the statutory phrase ‘‘opportunities for employment’’ is that the term ‘‘opportunities’’ refers to ‘‘a time or place favorable for executing a purpose’’ or ‘‘a suitable combination of conditions.’’ 21 Thus, the statutory language does not require a particular employment outcome for a worker with a disability being paid subminimum wages pursuant to a section 14(c) certificate. Rather, the statute requires the Department to evaluate the necessity of issuing section 14(c) certificates to prevent the curtailment of employment opportunities. In other words, the Department must consider whether the payment of subminimum wages is necessary to prevent the curtailment of ‘‘a suitable combination of conditions,’’ for employment opportunities, advancement, or progress broadly, not whether all workers attain a particular employment outcome, or a specific worker attains a particular job in a particular setting. 18 See Walling v. Portland Terminal, 330 U.S. at 151–52. 19 Portland Terminal, 330 U.S. at 151–52. 20 The Secretary has exercised this authority in various ways. Although the statutory language states that a certificate for subminimum wages may be issued when productive capacity is impaired by ‘‘age, physical or mental deficiency, or injury,’’ the granting of certificates has historically focused on disability, and today employers are paying subminimum wages almost exclusively to workers with I/DD. As an example of the Department’s exercise of its authority, the Department promulgated regulations in 1939 which stated that workers with ‘‘temporary, or readily correctible, disabilities,’’ and those ‘‘where age alone is cited as a disability for a worker under 65,’’ would be ineligible for a certificate. 29 CFR 524.7(a), (c) (1939). 21 See ‘‘Opportunity,’’ Webster’s New International Dictionary 1709 (1938 ed.). E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules The statute gives the Department discretion to determine whether the curtailment standard has been met, and the Department proposes that, at this time, the issuance of certificates does not appear to be necessary to prevent the curtailment of employment opportunities for individuals with disabilities. Today, the Department is proposing to find that, due to the legal, social, and technological changes since that determination was made in 1989, subminimum wage certificates are unnecessary to prevent employment curtailment. This proposed rule considers the framework that the Department’s current section 14(c) regulations, last substantively revised in 1989, uses to determine whether subminimum wages are necessary to prevent curtailment of employment opportunities. The current regulations (explained in more detail below) presume, without further analysis, that subminimum wages are necessary to prevent the curtailment of employment opportunities provided that (i) an individual has a disability that impacts their productivity in performing a particular job offered by a single certificate-holding employer and (ii) the employer can demonstrate it has calculated a productivity-based wage rate in accordance with the regulations for that particular job. In adopting this approach, the 1989 regulations collapse the statutory curtailment clause requirement into the statutory requirement that any commensurate wage for a particular job must be ‘‘related to the individual’s productivity’’ at that job. The regulatory framework from 1989 thus rests on an implicit assumption that the two statutory requirements are the same, that disability-related impacts on an individual’s productivity at a particular task means that a subminimum wage was necessary in order to prevent the curtailment of employment opportunities. Given the substantial developments in law and policy that have occurred since the regulations were last updated nearly 35 years ago and the expansion of opportunities now available to individuals with disabilities, the Department proposes to take into account the current scope of those employment opportunities instead of assuming that certificates are necessary to prevent the curtailment of employment opportunities for individuals with disabilities. Given this, the proposed rule proposes to fulfill the curtailment clause requirement by assessing whether subminimum wages are still necessary based on a comprehensive consideration VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 of how employment opportunities are both curtailed and created across the employment market. In assessing the statutory curtailment clause requirement, the Department today has more tools at its disposal than ever before—such as, for example, information from the nearly half of States that have prohibited or limited the use of subminimum wages—to make a preliminary determination that the payment of subminimum wages is not necessary to prevent the curtailment of employment opportunities. Particularly in view of the substantial social, structural, and legal changes that have occurred since 1989 to systemically reshape employment opportunities for individuals with disabilities (also discussed in detail below), the Department proposes herein that this comprehensive approach better fulfills the Secretary’s statutory obligation to provide for the issuance of certificates only when ‘‘necessary.’’ C. Overview of Statutory and Regulatory History of FLSA Section 14(c) The FLSA provision allowing the payment of subminimum wages to certain workers with disabilities became effective when the FLSA was signed into law on June 25, 1938. As passed in 1938, section 14 of the FLSA instructed that the WHD Administrator, ‘‘to the extent necessary in order to prevent curtailment of opportunities for employment, shall by regulations or by orders provide for . . . the employment of individuals whose earning capacity is impaired by age or physical or mental deficiency or injury, under special certificates issued by the Administrator, at such wages lower than the minimum wage applicable under section 6 [of the FLSA] and for such period as shall be fixed in such certificates.’’ 22 As is plain from the statutory text, the precondition that certificates may only be issued to the extent necessary to prevent the curtailment of employment opportunities has been an essential part of the section 14 provision since enactment. The legislative history shows that Congress intended to limit the circumstances under which subminimum wage certificates could be issued so as to avoid undermining the larger purposes of the FLSA and granted the Department authority to administer these limits. The initial legislative history of the Act includes statements from the joint Congressional hearings on 22 Fair Labor Standards Act of 1938, Public Law 75–718, 52 Stat. 1060 (1938) (codified at 29 U.S.C. 214). The original version of the FLSA also provided for subminimum wage rates for learners, apprentices, and messengers. 29 U.S.C. 214(1). PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 96469 the enactment of the FLSA in 1938 which addressed the purposes of establishing a Federal minimum wage and the Department’s discretion in applying that standard under section 14. Congress explained that the Act ‘‘provides a floor below which the hourly wage ought not to fall and a limit beyond which the working week should not be stretched. These are the rudimentary standards of human decency at which the relatively automatic provisions of the bill are directed.’’ 23 Regarding the clause limiting the issuance of certificates to circumstances where they are ‘‘necessary in order to prevent curtailment of opportunities for employment’’ (the ‘‘curtailment clause’’), Congress further explained that ‘‘even in the application of these rudimentary standards, a certain discretion is given to the enforcement agency so that it can protect the earning power of the workers and their opportunities for employment from unreasonable curtailment.’’ 24 Additionally, Congress advised that, in considering subminimum wages, the Department was to give ‘‘due consideration to the maintenance of the minimum standard of living, the health, efficiency, and well-being of the employees, and the avoidance of unreasonable curtailment of opportunities for employment and the earning power of the employees.’’ 25 The Department has exercised the authority Congress gave it to evaluate the curtailment clause throughout the history of its administration of section 14. As a reflection of the determination that payment of subminimum wages was, at that time, necessary under certain circumstances to prevent the curtailment of employment opportunities, the Department promulgated its initial regulations implementing section 14 in 1938. Among other matters, the initial regulations established procedures whereby certificates were issued on an individual basis, set a general wage floor at 75 percent of the FLSA section 6 minimum wage, and allowed for a lower wage rate if an investigation showed that it was justified.26 The Department amended its regulations in 1939, exercising its ‘‘curtailment clause’’ authority to limit the issuance of certificates by specifying that, for 23 Fair Labor Standards Act of 1937: Joint Hearings on S. 2475 and H.R. 7200 Before the Senate Comm. on Educ. and Labor, and House Comm. on Labor, 75th Cong. 1st Sess. Part 1, p. 55 (June 2–5, 1937). 24 Id. 25 Id. at 57. 26 29 CFR 524.5 (1938). E:\FR\FM\04DEP2.SGM 04DEP2 96470 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules example, certain groups of workers, including those with ‘‘temporary, or readily correctible, disabilities,’’ those ‘‘where age alone is cited as a disability for a worker under 65,’’ and those ‘‘whose piecework earnings are generally equal to or above the statutory minimum [wage],’’ would be ineligible for a certificate.27 The Department also amended its regulations in 1940 to provide specific requirements governing the payment of subminimum wages to individuals with disabilities working in ‘‘sheltered workshops.’’ 28 The Department made a number of changes to its regulations implementing section 14 of the FLSA over the next 25 years, changing how certificates were issued and how wages were determined for workers. In 1966, Congress amended the FLSA to, in relevant part, establish a wage floor for persons with disabilities in both general employment and in certain sheltered workshops at not less than 50 percent of the FLSA minimum wage.29 The 1966 statutory amendments also created three special categories of certificates for workers who were not subject to the wage floor 30 and extended FLSA coverage to hospitals and other institutions as employers.31 The statutory language limiting the issuance of certificates to only circumstances where subminimum wages were necessary to prevent the curtailment of opportunities for employment was not changed by these amendments. The 1966 FLSA amendments also required the Secretary to submit a study to Congress ‘‘of wage payments to handicapped clients of sheltered workshops and of the feasibility of raising existing wage standards in such workshops.’’ 32 27 29 CFR 524.7(a), (c), and (d) (1939). FR 655 (Feb. 13, 1940) (defining ‘‘sheltered workshop’’ as ‘‘a charitable organization or institution conducted not for profit, but for the purpose of carrying out a recognized program of rehabilitation for individuals whose earning capacity is impaired by age or physical or mental deficiency or injury, and to provide such individuals with remunerative employment or other occupational rehabilitating activity of an educational or therapeutic nature.’’); see also 29 CFR 525.1 (1940). 29 Public Law 89–601, 80 Stat. 830, 843–44 (1966) (29 U.S.C. 214(d)(1)). 30 Id. (29 U.S.C. 214(d)(2)(A)–(B), 214(d)(3)). The three categories of certificates for workers who were not subject to the wage floor established by the 1966 FLSA amendments included, in certain specified circumstances, ‘‘handicapped workers engaged in work which is incidental to training or evaluation programs,’’ ‘‘multihandicapped individuals and other individuals whose earning capacity is so severely impaired that they are unable to engage in competitive employment,’’ and ‘‘handicapped clients in work activities centers.’’ Id. 31 Id. at 831–32 (29 U.S.C. 203(r), (s)). 32 See id. at 845. ddrumheller on DSK120RN23PROD with PROPOSALS2 28 5 VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 The 1966 amendments demonstrated Congress’ continued intent to give the Department discretion to issue section 14 certificates based on a determination of need. In 1967, the Department updated its regulations based on the 1966 statutory amendments. That same year, the Department submitted its report to Congress, recognizing that the Congressional intent of the 1966 FLSA amendments was ‘‘aimed at ‘improving the economic circumstances of handicapped workers, speeding their movement into fully productive private employment, and assuring that such workers are not exploited through low wages.’ ’’ 33 Reflecting the rapidly shifting views on the employment of individuals with disabilities since the FLSA was passed 28 years earlier, the report continued by noting that ‘‘it is now clearly the intent of the Congress that handicapped workers’ wages be raised to at least the minimum wage as soon as feasible.’’ 34 The Department’s report made additional observations about subminimum wage employment and made recommendations on changes needed to support movement at that time from section 14(c) employment to full wage employment. In describing sheltered workshops, the Department observed that while individuals with disabilities being paid subminimum wages by the workshops (described as ‘‘clients’’ in the report) may be limited in their ability to produce, they were also limited by ‘‘the frequently obsolete methods of organization and production of the workshop.’’ 35 The report concluded that ‘‘[t]o measure the ‘worth’ of a handicapped client by his ‘productivity’ while making him work with outmoded equipment, or on jobs long ago automated, or with modern equipment which is not adapted to the 33 U.S. Dep’t of Labor, ‘‘Sheltered Workshop Report of the Secretary of Labor and Technical Report on Wage Payments to Handicapped Clients in Sheltered Workshops’’ (1967) (1967 DOL Report) at 1 (quoting Senate Report No. 1487, August 23, 1966, at 23). 34 1967 DOL Report at 1. The report did not explicitly address the curtailment clause regarding certificate issuance. However, as evidenced by the quoted passage, lawmakers’ understanding of the potential employment of individuals with disabilities rapidly evolved since the 1938 passage of the FLSA. In 1938, Congressional documents were replete with references to individuals with disabilities as ‘‘subnormal’’ and, in contrast to the 1967 report cited herein, often assumed, without discussion, they were ‘‘unable to compete with their fellow workers.’’ See, e.g., Fair Labor Standards Act of 1937: Joint Hearings on S. 2475 and H.R. 7200 before the Senate Comm. On Educ. And Labor; House Comm. On Labor, 75th Cong. 1st Sess. Part 1, p. 38 (June 2–5, 1937) (statement of Robert H. Jackson, Assistant Attorney General, U.S. Dep’t of Justice); Cong. Rec. Vol. 83, Part 6, 75th Cong. 3d Sess. P. 7134 (May 19, 1938). 35 1967 DOL Report at 2. PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 individual’s needs is to foredoom the great majority of handicapped clients to subminimum wages.’’ 36 Additionally, of particular note, the Department reported about the demographics of workers receiving subminimum wages in sheltered workshops, including by disability. The Department observed that, in 1967, workers with I/DD comprised approximately one-third of all workshop clients and were paid the lowest wages of any group of workers with disabilities employed under certificates.37 In 1971, the Department again amended its regulations to include, in part, the introduction of a new 25–50 percent wage floor for ‘‘multihandicapped and other workers whose earning capacity is severely impaired’’ working under the sponsorship of a public rehabilitation agency.38 In 1974, Congress amended the FLSA by moving the subminimum wage provision for workers with disabilities to section 14(c) of the Act but yet again left the substantive requirements, including the statutory ‘‘curtailment clause,’’ unchanged.39 At this juncture, Congress’s maintenance of the Department’s authority, through the ‘‘curtailment clause,’’ to determine the extent to which subminimum wage certificates were necessary is especially notable in light of the Department’s 1967 report seven years earlier, which, as discussed above, emphasized the Department’s understanding that Congress sought to have individuals with disabilities earn full minimum wages ‘‘as soon as feasible.’’ 40 In 1986, Congress amended the FLSA to eliminate the specific types of certificates and wage floors that previously applied to section 14(c) employment.41 These revisions again retained the ‘‘curtailment clause’’ standard as a precondition governing the issuance of certificates. While the revised statute retained the basic requirement that workers with disabilities employed under section 14(c) certificates be paid commensurate wages, it added a requirement that the wages be ‘‘related to the individual’s productivity.’’ In full, section 14(c)(1), which remains in effect today, provides that ‘‘[t]he Secretary, to the extent necessary to prevent curtailment of opportunities for employment, shall by regulation or order provide for the 36 Id. 37 Id. at 21. 36 FR 50–51 (Jan. 5, 1971) (29 CFR 524.1(c)). 39 See Public Law 93–259,88 Stat. 55, 72 (1974). 40 See n. 34, above. 41 See Pub. L. 99–486, 100 Stat. 1229 (1986) (29 U.S.C. 214). 38 See E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules employment, under special certificates, of individuals (including individuals employed in agriculture) whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury, at wages which are: (A) lower than the minimum wage applicable under section 206 of this title, (B) commensurate with those paid to nonhandicapped workers, employed in the vicinity in which the individuals under the certificates are employed, for essentially the same type, quality, and quantity of work, and (C) related to the individual’s productivity.’’ 42 The 1986 statutory amendments also required that employers provide ‘‘written assurances’’ that wages for hourly workers be reviewed at least every 6 months, and that wages for all employees be adjusted at least once a year to reflect changes in the prevailing wages in the locality.43 Additionally, the new language set forth a ‘‘wage petition’’ procedure by which an employee or their parent or guardian can ‘‘petition the Secretary to obtain a review of’’ the subminimum wage rate paid by the employer.44 The revised statute also requires that the appeal process include a hearing before an Administrative Law Judge (ALJ), placing the burden on the employer to prove that the subminimum ‘‘wage rate is justified as necessary in order to prevent curtailment of opportunities for employment.’’ 45 Since these 1986 amendments, Congress has not directly amended the statutory text of section 14(c), but, as discussed in more detail below, Congress has passed several significant laws that impact employment opportunities for individuals with disabilities. The Department’s section 14(c) regulations have remained substantively untouched for the last 35 years.46 In 1989, the last time the Department made significant regulatory updates regarding section 14(c), the Department among other things, amended and consolidated regulations governing the section 14(c) provisions to 29 CFR part 525 (the regulations had previously existed in three parts: parts 524, 525, and 529), addressed the 1986 amendments to the FLSA, and made other administrative changes.47 In its 1989 regulations, the ddrumheller on DSK120RN23PROD with PROPOSALS2 42 Id. (29 U.S.C. 214(c)(1)). (29 U.S.C. 214(c)(2)(A), (B)). 44 Id. (29 U.S.C. 214(c)(5)(A)). 45 Id. (29 U.S.C. 214(c)(5)(B)–(G)). 46 Since 1989, the only revisions to the section 14(c) regulations were technical corrections to the recordkeeping regulation at 29 CFR 525.16. See 82 FR 2221 (Jan. 9, 2017), and non-substantive updates to the regulation governing the administrative appeal process at 29 CFR 525.22. See 82 FR at 2228; 86 FR 1772 (Jan. 11, 2021). 47 54 FR 32920 (Aug. 10, 1989) (1989 final rule). 43 Id. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 Department defined a ‘‘worker with a disability’’ as ‘‘an individual whose earning or productive capacity is impaired by a physical or mental disability . . . for the work to be performed,’’ and cautioned that ‘‘a disability which may affect earning or productive capacity for one type of work may not affect such capacity for another.’’ 48 The regulations also provide that ‘‘[a]n individual whose earning or productive capacity is not impaired for the work being performed cannot be employed under a certificate issued pursuant to this part and must be paid at least the applicable minimum wage.’’ 49 The Department’s 1989 regulations also state that the Department will consider four criteria in determining whether subminimum wage rates are necessary in order to prevent curtailment of opportunities for employment. As set out in the 1989 rule, these criteria, still in effect today, examine the impact of the worker’s disability on their productivity compared to the earnings and productivity of experienced workers without disability doing essentially the same type of work and employed in the vicinity; as previously noted, the criteria do not include an assessment of the general scope of employment opportunities available to individuals with disabilities. The specific criteria are: (1) the nature and extent of the disabilities of the individuals employed as these disabilities relate to the individuals’ productivity; (2) the prevailing wages of experienced employees not disabled for the job who are employed in the vicinity in industry engaged in work comparable to that performed at subminimum wage rates; (3) the productivity of the workers with disabilities compared to the norm established for nondisabled workers through the use of a verifiable work measurement method or the productivity of experienced nondisabled workers employed in the vicinity on comparable work; and (4) the wage rates to be paid to the workers with disabilities for work comparable to that performed by experienced nondisabled workers.50 To determine whether these criteria are met, the Department’s regulations also provide guidance on determining the prevailing wage in a vicinity using different methods, instructions on establishing 48 Id. (29 CFR 525.3(d)). (29 CFR 525.5(a). See also 29 CFR 525.12(b) (noting that a subminimum wage certificate applies only to such workers who ‘‘are in fact disabled for the work they are to perform’’)). 50 Id. (29 CFR 525.9(a)). 49 Id. PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 96471 piece rates and hourly rates for workers with disabilities, and procedures to be used in deciding petitions for review of a subminimum wage rate under section 14(c).51 In determining whether subminimum wages are necessary to prevent curtailment of employment opportunities for individuals with disabilities, the 1989 regulations do not consider the opportunities generated by the employment market as a whole, do not contemplate structural measures such as pre-employment training and skill-matching job placement services, and, notably, were published a year prior to the 1990 passage of the original ADA, and thus do not take into account the fundamental anti-discrimination and reasonable accommodation protections of the ADA. D. Administration, Use, and Enforcement of Section 14(c) Certificates Today 1. Administration and Enforcement of Certificates The Department’s WHD administers and enforces the section 14(c) provisions.52 The administration, use, and enforcement of section 14(c) certificates is governed by the FLSA and WHD’s current regulations at 29 CFR part 525, as explained above. Specifically, the current § 525.9 identifies the criteria that the Department considers in determining whether to issue a section 14(c) certificate. In effect, the current regulation conditions the issuance of a certificate on satisfaction of the standards set forth in other regulatory provisions governing the proper computation and payment of subminimum wages. Section 525.11 likewise provides that ‘‘[u]pon consideration of the criteria cited in these regulations, a special certificate may be issued.’’ The regulations also outline procedures, further elaborated upon in subregulatory guidance, that WHD generally must use to deny or revoke certificates as well as appellate procedures for stakeholders who may be ‘‘aggrieved’’ by any WHD certificate action.53 Employees and their parents or guardians also have the ability to 51 Id. 52 The Secretary has delegated authority to WHD to issue regulations governing FLSA section 14(c), as well as to administer and enforce the section 14(c) provisions. See Sec’y of Labor’s Order No. 01– 2014, Delegation of Authority and Assignment of Responsibility to the Administrator, Wage and Hour Division, 79 FR 77527 (Dec. 24, 2014) (Secretary’s Order No. 01–2014). 53 29 CFR 525.11(b) and 525.13 (certificate denials), 525.17 (certificate revocations), and 525.18 (administrative review process). E:\FR\FM\04DEP2.SGM 04DEP2 96472 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules petition for review of their subminimum wage rates.54 If an employer applies for and is issued a section 14(c) certificate, the certificate allows the employer to pay individualized subminimum wage rates to workers with disabilities whose disabilities impact their productivity on the work being performed that are ‘‘commensurate’’ with the rates paid to workers without a disability performing the same type of work in the vicinity.55 Generally, to determine the proper commensurate wage rate, an employer must: (1) identify the prevailing wage rate paid to experienced workers without disabilities performing essentially the same type, quality, and quantity of work in the vicinity where the worker with a disability is employed, often by conducting a prevailing wage survey; (2) determine the productivity standard for experienced workers without disabilities (the ‘‘standard setter’’) against which the productivity of the worker with disabilities must be measured; and (3) assess the quality and quantity of the productivity of the worker with a disability.56 Employers generally determine the productivity of both the standard setter and the worker with a disability on a particular job by performing an observational stopwatch time study (‘‘time study’’).57 Employers holding a section 14(c) certificate must also maintain adequate documentation of each worker’s disability that impairs their productivity for the work performed, each required step that the employer took in determining the relevant commensurate wage, and time and pay records. Employers must also conduct periodic evaluations and make appropriate updates to the wage rates.58 In 2014, the Workforce Innovation and Opportunity Act (WIOA) established new limitations on the payment of a subminimum wage in section 511 of the Rehabilitation Act of 1973 (Rehabilitation Act or section 511), 54 29 U.S.C. 214(c)(5), and 29 CFR 525.22. the term ‘‘subminimum wages’’ typically refers to wage rates that are less than the Federal minimum wage, section 14(c) certificates also allow the payment of wages that are less than the required prevailing wage to workers who have disabilities for the work being performed on Federal contracts subject to the McNamara-O’Hara Service Contract Act (SCA) and the Walsh-Healey Public Contracts Act. See 41 U.S.C. 6701 et seq., 6501 et seq. The SCA’s implementing regulations generally incorporate the ‘‘conditions and procedures’’ governing section 14(c) employment set forth in 29 CFR 525. 29 CFR 4.6(o). 56 See 29 CFR 525.10; 29 CFR 525.12; WHD Field Operations Handbook (FOH) 64g05, https:// www.dol.gov/agencies/whd/field-operationshandbook/Chapter-64. 57 See FOH 64g06. 58 29 CFR 525.16. ddrumheller on DSK120RN23PROD with PROPOSALS2 55 Although VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 which became effective in 2016.59 As discussed further in section III.B. below, section 511 prohibits an employer who holds a section 14(c) certificate from paying a subminimum wage to a worker with a disability unless the worker receives certain services and information prior to, and/or during, as applicable, their employment at subminimum wages.60 The Secretary has authority to enforce the terms under which individuals are employed at a subminimum wage, including the section 511 provisions, and WHD has issued guidance providing detailed instructions on the requirements.61 As previously discussed, an employer must obtain an authorizing certificate from WHD as a prerequisite to paying subminimum wages to workers with disabilities. The certificate application requires employers to provide WHD information about themselves and a snapshot of information about the way they use or seek to use the subminimum wage certificate.62 WHD reviews each application to determine whether to issue or deny a certificate. Having an active section 14(c) certificate does not provide the employer with a good faith defense should violations of section 14(c) or other provisions of applicable law be found during an investigation of the employer. Certificates issued to employers by WHD have both an effective date and an expiration date and are generally valid for either 1 or 2 years, depending on the employer type (discussed in more detail below). To remain authorized to pay subminimum wages, the employer must properly and timely file an application 59 29 U.S.C. 794g. 511 generally requires that youth with disabilities who are age 24 or younger complete certain activities, including pre-employment transition services under section 113 of the Rehabilitation Act or transition services under the Individuals with Disabilities Education Act (IDEA) (to the extent either of these services are available to them), an application for vocational rehabilitation services, and career counseling, information and referrals, to enable them to explore, discover, experience, and attain competitive integrated employment before they are employed at subminimum wage rates. See 29 U.S.C. 794g. Section 511 also requires that all workers with disabilities who are paid subminimum wages, regardless of their age, receive regular career counseling information and referrals and information about self-advocacy, selfdetermination, and peer mentoring training opportunities in their local area, every 6 months during the first year of employment and annually thereafter. Id. 61 See U.S. Dep’t of Labor, ‘‘Materials for Employers with Section 14(c) Certificates,’’ April 2024, https://www.dol.gov/agencies/whd/workerswith-disabilities/employers. 62 See U.S. Dep’t of Labor, ‘‘14(c) Certificate Application,’’ April 2024, https://www.dol.gov/ agencies/whd/workers-with-disabilities/section-14c/ apply. 60 Section PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 for renewal with WHD before the expiration of its certificate.63 Employers submit applications to renew certificate authority in the same manner as when seeking an initial application but are required to provide additional information, including a snapshot of information about the applicant’s workforce paid a subminimum wage during their last completed fiscal quarter. If an application for renewal has been properly and timely filed with WHD, the employer’s existing subminimum wage certificate remains in effect and its authority to pay subminimum wages continues while the application for renewal is under review.64 Each year, WHD investigates a number of section 14(c) certificate holders to determine their compliance with all the provisions and requirements of section 14(c) as well as their compliance with section 511.65 WHD may initiate these cases due to a complaint or based upon agency selection. In fiscal year 2023, WHD concluded 89 investigations of employers holding section 14(c) certificates, found violations in approximately 88 percent of cases, and recovered more than $2 million in back wages for nearly 3,000 workers.66 WHD checks for compliance with the section 511 requirements in every investigation of an employer holding a section 14(c) certificate and, since 2016, has identified violations of these provisions in more than 250 investigations. If WHD discovers a violation of the section 14(c) or section 511 requirements during the course of an investigation, WHD can assess back wages in addition to seeking action by the employer to ensure future compliance with the applicable laws. In certain circumstances, WHD can also assess liquidated damages and civil monetary penalties and can also revoke the employer’s section 14(c) certificate.67 Certificate revocation is an enforcement tool that WHD uses in certain circumstances such as misrepresentations or false statements made in obtaining the certificate or egregious violations of statutory requirements. In cases where employers 63 29 CFR 525.13(b). 64 Id. 65 Enforcement data collected by the Department’s enforcement agencies can be found at: https://enforcedata.dol.gov/views/data_ catalogs.php. The ‘‘Wage and Hour Compliance Action Data’’ dataset contains all concluded WHD compliance actions since fiscal year 2005. The dataset includes whether any violations were found, the back wage amount, number of employees due back wages, and civil money penalties assessed. 66 Id. 67 29 U.S.C. 214(c), 216(c); 29 CFR 525.17. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules do not voluntarily agree to pay back wages and come into compliance, WHD can also file suit in Federal court to resolve violations of the law. ddrumheller on DSK120RN23PROD with PROPOSALS2 2. Use of Section 14(c) Certificates In recent decades, the estimated number of workers with disabilities paid subminimum wages has dramatically declined, as has the number of employers holding section 14(c) certificates. In 2001, the U.S. Government Accountability Office (GAO) estimated that approximately 424,000 workers with disabilities were paid subminimum wages while working for 5,612 employers holding section 14(c) certificates.68 As of May 1, 2024, the Department’s data shows there were 801 employers with either an issued certificate or a pending certificate application.69 Employers with an issued certificate reported paying approximately 40,579 workers at subminimum wages in their previously completed fiscal quarter.70 The number of employers holding or pursuing a section 14(c) certificate as of May 1, 2024, had dropped by nearly 86 percent from those in 2001. Further, there were roughly one-tenth the number of workers being paid subminimum wages under section 14(c) certificates as there were in 2001—approximately a 90 percent reduction over that 23-year period.71 Additionally, very few 68 U.S. Gov’t Accountability Off., GAO–01–886, ‘‘Special Minimum Wage Program: Centers Offer Employment and Support Services to Workers With Disabilities, But Labor Should Improve Oversight’’ 10, 18 (2001) (2001 GAO Report). 69 See U.S. Dep’t of Labor, ‘‘14(c) Archive,’’ June 2024, https://www.dol.gov/agencies/whd/workerswith-disabilities/section-14c/certificate-holders/ archive. 70 Id. The Department notes that data collected by the Department from section 14(c) applications is not census data. Data is derived from information received by WHD during the certificate application process, which is used for the purposes of determining whether to issue a certificate. The application requires the employer to provide a snapshot of its operations and workforce that is paid a subminimum wage during its most recently completed fiscal quarter at the time of its renewal application, and the submission date varies per applicant. Because certificates are issued to the employer, not individuals employed at subminimum wages, the specific number of employees may change over the duration of the certificate. The certificate application data is selfreported by employers and is not independently verified by WHD. Additionally, the data provided reflects active certificates as of the date that the Department’s website list was revised and does not include the number of employees on ‘‘pending’’ 14(c) certificates. 71 The Department notes that the May 1, 2024, employee count (40,579) does not reflect any employment changes an employer may have made subsequent to the data provided to WHD in its certificate application nor does it reflect the workers with disabilities paid under pending renewal certificates. Notwithstanding, the Department believes this data comparison remains VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 employers seek new section 14(c) certificates; over 97 percent of certificate applications received annually seek renewal of an existing section 14(c) certificate.72 WHD issues section 14(c) certificates to business establishments, community rehabilitation programs (CRPs), hospitals/patient worker facilities, and school-work experience programs (SWEPs). The overwhelming majority of current certificate holders are CRPs, representing approximately 93 percent of current certificate holders in 2023.73 In the context of section 14(c), WHD defines CRPs as ‘‘not-for-profit agencies that provide rehabilitation and employment for people with disabilities.’’ 74 Such establishments are sometimes referred to as ‘‘sheltered workshops’’ 75 as they typically are facility-based and often serve workers with disabilities in sheltered, or segregated, settings. Only a small number of private-sector, for-profit businesses hold certificates for the payment of subminimum wages, as reflected by the fact that only approximately 4 percent of current section 14(c) certificate holders are businesses.76 77 Many CRPs provide both employment and other services, such as rehabilitation and training, and receive public funding. GAO has noted that many employers holding a section 14(c) certificate pay their operating costs through a mix of public funding and public and private contracts for goods or services.78 Specifically, GAO noted in a valid and would be little changed with these additional data points. 72 This statistic is compiled from WHD’s listing of 14(c) certificate holders between October 1, 2020, and April 1, 2024. WHD maintains a listing of employers who hold or have applied for 14(c) certificates at https://www.dol.gov/agencies/whd/ workers-with-disabilities/section-14c/certificateholders. 73 WHD listing of certificate holders from October 1, 2023, indicating that approximately 93 percent of certificate holders are CRPs, https://www.dol.gov/ agencies/whd/workers-with-disabilities/reports-tocongress. 74 FOH 64k00. 75 FOH 64b00. 76 WHD listing of certificate holders from October 1, 2023, https://www.dol.gov/agencies/whd/ workers-with-disabilities/reports-to-congress. 77 Currently, the small number of private sector businesses amongst section 14(c) certificate holders is a marked contrast to the Congressional understanding of how such certificates would be used at the time of the original enactment of section 14 in 1938. During the debate preceding the passage of the FLSA, members of Congress focused on the provision as being intended for employment in the private sector, discussing the impact on ‘‘industry,’’ ‘‘manufacturers,’’ and ‘‘small businessmen.’’ 82 Cong. Rec., 88–89 (1937). 78 See 2001 GAO Report at 14; see also U.S. Gov’t Accountability Office, GAO–21–260, ‘‘Subminimum Wage Program: Factors Influencing PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 96473 2021 report that Medicaid is the largest source of Federal funds for day and employment services (such as those provided by CRPs) for individuals with developmental disabilities.79 Likewise, in a 2020 report, the USCCR found that ‘‘the majority of community rehabilitation programs which provide supports and services for people with intellectual and developmental disabilities to obtain a job are funded by the vocational rehabilitation [program].’’ 80 As the USCCR explained, in addition to Medicaid funding noted by GAO, the vocational rehabilitation funding includes U.S. Department of Education program grants under the Rehabilitation Act, in addition to State and local funding used for match purposes under the Vocational Rehabilitation program.81 As noted above, Congress removed any wage floor for section 14(c) employment nearly 40 years ago. As summarized in the table below, in a 2023 report, the GAO analyzed section 14(c) data for 62 percent of renewal certificates for the period covering 2019 to 2021 and found that more than 50 percent of workers in the data analyzed were paid less than $3.50 per hour, while approximately 14 percent were paid at or above the current Federal minimum wage of $7.25 per hour.82 Nearly 5 percent of workers were paid 25 cents per hour or less. Approximately 14 percent were paid $1.00 per hour or less. GAO observed that higher-paid workers under section 14(c) certificates were more likely to be paid by the hour, while lower-paid workers were more likely to be paid on a piece rate basis 83 (a piece rate fixes a wage payment on each completed unit of work).84 Using WHD’s administrative data of issued certificates that were valid in the first two quarters of fiscal year 2024 (between October 2023 and the Transition of Individuals with Disabilities to Competitive Integrated Employment’’ (2021), at 6, https://www.gao.gov/products/gao-21-260 (‘‘2021 GAO Report’’). 79 Id. at 6, n.19. 80 U.S. Comm’n on Civ. Rts., ‘‘Subminimum Wages: Impacts on the Civil Rights of People with Disabilities,’’ https://www.usccr.gov/files/2020/ 2020-09-17-Subminimum-Wages-Report.pdf, at 6 n.101 (2020) (‘‘USCCR Report’’). 81 See, for example, USCCR Report at 9 (explaining that in Vermont, sites that have transitioned from subminimum wage employment use Federal and State funding to provide employment and non-work services for individuals with disabilities). 82 See 2023 GAO Report at 16. A worker employed under a section 14(c) certificate may be paid more than the Federal hourly minimum wage of $7.25 if the prevailing wage upon which their productivity-based commensurate wage is based exceeds the Federal minimum wage. 83 Id. at 18–19. 84 FOH 64g06(a)(1). E:\FR\FM\04DEP2.SGM 04DEP2 96474 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules March 2024), WHD found that approximately 16 percent of workers were reported by the employer on their most recent application (reflecting average hourly wages from their prior fiscal quarter) to have been paid at least the current Federal minimum wage of $7.25 per hour while nearly 49 percent made less than $3.50 per hour. Based on WHD’s administrative data, Scope of data studied GAO’s 2019 to 2021 analysis WHD’s October 2023 to March 2024 analysis 62 percent of renewal certificates administrative data of issued certificates Workers Workers Workers Workers paid paid paid paid 25 cents or less per hour .................................................................. $1.00 or less per hour ....................................................................... less than $3.50 per hour ................................................................... at or above the current Federal minimum wage of $7.25 per hour Most workers currently employed under section 14(c) certificates have I/ DD as their primary disability. In the years immediately after section 14(c) was enacted, it was assumed that workers with a wide range of disabilities, including physical disabilities, might be paid subminimum wages. Over time, however, subminimum wage payments to all groups other than individuals with I/DD substantially diminished. As noted above, in 1967, one-third of workers in sheltered workshops were individuals with I/DD.86 In 2001, GAO estimated that three-quarters of workers employed under a section 14(c) certificate experienced some form of I/DD.87 By 2021, GAO estimated approximately 90 percent of workers employed under a section 14(c) certificate experienced I/ DD.88 E. Comprehensive Review of Section 14(c) On September 26, 2023, Acting Secretary Julie Su announced that the Department would conduct a comprehensive review of the section 14(c) program. As part of this review, between October 20, 2023, and November 20, 2023, the Department held a series of stakeholder engagement sessions to hear diverse views on section 14(c) from members of the public, including workers with disabilities and their family members, disability rights advocates, service providers, and section 14(c) certificate holders. ddrumheller on DSK120RN23PROD with PROPOSALS2 86 1967 DOL Report at 21. GAO Report at 19. 88 2023 GAO Report at 24. The Department notes that GAO’s findings in this area generally match the Department’s internal data, derived from the information self-reported by certificate holders; the Department cites to the GAO herein as an independent source. From WHD’s listing of section 14(c) certificate holders between October 2020, and April 2024, the percentage of workers identified by their employers on their certificate applications as having I/DD as their primary disability was 91 percent. 87 2001 VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 Nearly 5 percent ..................................... Approximately 14 percent ...................... More than 50 percent ............................. Approximately 14 percent ...................... In holding these listening sessions, the Department received wide-ranging feedback about section 14(c), including viewpoints regarding the impacts of potentially ceasing to issue 14(c) certificates in the future. Approximately 2,000 individuals participated in these sessions. During these listening sessions, the Department heard from individuals and groups that oppose permitting employers to pay subminimum wages under section 14(c); those stakeholders emphasized, among other points, that the payment of subminimum wages is outdated, discriminatory, and no longer needed to provide employment opportunities for individuals with disabilities. The Department also heard from individuals and groups in support of the continued payment of subminimum wages who focused, among other things, on the importance of individuals with disabilities, and their families, being able to choose whether to remain in their subminimum wage jobs and on the benefits that they have experienced in such employment. The Department deeply valued those listening sessions and it greatly appreciates and has considered the wide-ranging and diverse input gathered from them in the formulation of this proposed rule. The Department also welcomes comments from the general public, including any individuals or entities who participated in these earlier listening sessions, on its proposed rule. The Department has included the section 14(c) regulations on its longterm Regulatory Agenda for many years and has carefully reviewed the history of section 14(c) and its current operations. In crafting this proposal, the Department consulted with other Federal agencies to better understand how their programs may intersect with the employment of workers under section 14(c) as well as to discuss any foreseeable impacts to those programs if changes were to be made to the section 14(c) regulations. In addition, the Department has extensively reviewed PO 00000 Frm 00010 Fmt 4701 approximately 10 percent made $1.00 per hour or less and nearly 2 percent made 25 cents per hour or less. Sfmt 4702 Nearly 2 percent. Approximately 10 percent. Nearly 49 percent. Approximately 16 percent. numerous oversight reports, existing data, and information concerning relevant trends in the availability of supports for employment opportunities for workers with disabilities. The Department has also reviewed numerous examples of legislative, policy, and executive actions at all levels of government and analyzed their effect on the employment of workers with disabilities. The Department summarizes this research and analysis, and presents its conclusions based on this comprehensive review, below. III. Need for Rulemaking A. Introduction Since 1938, the FLSA has authorized the Secretary to issue certificates to employers permitting them to pay workers whose disabilities impair their earning or productive capacity at wage rates below the Federal minimum wage rate.89 WHD is responsible for administering the issuance of certificates and enforcing the provisions of section 14(c). The Department issued its most recent substantive revisions to the regulations pertaining to the issuance of section 14(c) certificates in 1989, more than 35 years ago. Since 1989, and even more so since 1938, employment opportunities have changed dramatically for workers with disabilities. In stark contrast to the New Deal era in which section 14(c) was enacted, disability rights are now enshrined in Federal civil rights laws and enforced by the Federal government.90 Through the disability rights movement, advocates, including self-advocates, have worked to ensure that individuals with disabilities have the same access to employment and 89 See 29 U.S.C. 214(c). e.g., U.S. Dep’t of Justice, Civil Rights Div., ‘‘The Americans with Disabilities Act (ADA) protects people with disabilities from discrimination,’’ https://www.ada.gov/; U.S. Equal Emp’t Opportunity Comm’n, ‘‘What Laws Does EEOC Enforce?,’’ https://www.eeoc.gov/statutes/ laws-enforced-eeoc; 42 U.S.C. 12101 et seq. (1990); 29 CFR part 1630. 90 See, E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 other opportunities as others and that individuals with disabilities are not subject to segregation and discrimination on the basis of a disability.91 This access includes the legal right to reasonable accommodation and prohibitions on discrimination in the workplace. During this time, largely due to the efforts of self-advocates and their allies, society’s views about what it means to live and work with a disability have evolved. In contrast to historical approaches that may have viewed disability as a deficiency that needed to be ‘‘fixed’’ or ‘‘cured’’ or as a tragic condition, current understandings emphasize the social model of disability, which identifies structural and social barriers as the primary reason that individuals with disabilities experience limitations on full engagement in all aspects of community life, focuses on removing those barriers to facilitate full engagement, and recognizes disability as a natural part of the human experience.92 Thus, there has been a striking and consistent movement away from the medical 93 and charitable 94 models of disability, toward a social model of disability focused on various barriers which may hinder full and effective participation in society.95 91 See, e.g., Nicole LeBlanc, ‘‘Why Employment Matters: A Resource Guide by and for SelfAdvocates Interested in Pursuing Competitive, Integrated Employment,’’ Administration on Disability Employment Technical Assistance Center, September 2021, https:// aoddisabilityemploymenttacenter.com/wp-content/ uploads/2021/10/DETAC-2021-GEN-3_Final_ 508.pdf. 92 Arlene S. Kanter, ‘‘The Law: What’s Disability Studies Got To Do With It or an Introduction to Disability Legal Studies,’’ 42 Columbia Human Rights Law Review 403, 410 (2011) (‘‘2011 Kanter Paper’’). 93 The medical model generally views disability as some deficiency to be ‘‘fixed’’ or ‘‘cured.’’ ‘‘As a result of viewing disability through a medical lens, societies have erected large institutions to protect and exclude people with disabilities from society.’’ 2011 Kanter Paper at 420; see also Samuel R. Bagenstos, ‘‘Subordination, Stigma, and ‘Disability’ ’’, 86 Va. L. Rev. 397, 427 (2000) (‘‘2000 Bagenstos Paper’’) (citations omitted) (‘‘Indeed, virtually the entire ideology of the modern disability rights movement can be seen as a reaction to that ‘medical/pathological paradigm’ of disability.’’). 94 ‘‘People who work with blind, deaf, autistic, developmentally disabled, and/or physically disabled individuals often see their clients’ or patients’ impairment as a great personal tragedy. Yet, people with disabilities do not necessarily see their own lives that way.’’ 2011 Kanter Paper at 412, 414. 95 See, e.g., World Health Organization Policy on Disability (2021), https://iris.who.int/bitstream/ handle/10665/341079/9789240020627eng.pdf?sequence=1. ‘‘By relying on the social model of disability, it is impossible to say that any person is ‘unable’ or ‘unqualified’ to exercise rights or to participate fully in society. Instead, it is affirmatively the obligation of society to change or adapt its services, programs, facilities, systems, and VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 The successes of the disability rights movement and the changing views regarding disability have been reflected in legislative, legal, policy, and programmatic changes that have broadly influenced available employment options for individuals with disabilities today. As described below, there have been several significant pieces of Federal legislation that have vastly expanded opportunities for individuals with disabilities, requiring better access and accommodations in educational, work, and community settings.96 Supreme Court and other judicial precedent has amplified the impacts of this legislation, most notably by requiring that individuals with disabilities be able to live, work, and play in the most integrated setting appropriate to their needs.97 As part of this movement, various non-partisan entities, including the USCCR and the National Council on Disability (NCD), along with a number of non-profit advocacy organizations, have published detailed reports urging the cessation of subminimum wage payments to individuals with disabilities.98 Multiple States and localities have prohibited or are in the process of phasing out the payment of subminimum wages, and, as discussed below, for nearly a decade, the Federal government has maintained a wage floor above the FLSA’s Federal minimum wage for certain government contracts that fully applies to workers with disabilities who work on or in connection with those contracts. Simultaneously, numerous Federal, State, and local programs have emerged to increase access to opportunities for competitive integrated employment other entities, so that all people can exercise their rights to the best of their ability, regardless of their particular impairment.’’ 2011 Kanter Paper at 427– 28.; see also 2000 Bagenstos Paper at 427–28. 96 For example, legislation such as the Americans with Disabilities Act, 42 U.S.C. 12101 et seq, and the Workforce Innovation and Opportunity Act, 29 U.S.C. 3101 et seq, are discussed in detail later in this section. 97 See Olmstead v. L.C. ex rel. Zimring, 527 U.S. 581 (1999); see also Tennessee v. Lane, 541 U.S. 509 (2004); Toyota Motor Manufacturing, Kentucky, Inc. v. Williams, 534 U.S. 184 (2002); Sutton v. United Air Lines, Inc., 527 U.S. 471 (1999); Cedar Rapids Community School District v. Garret F., 526 U.S. 66 (1999). 98 See, for example, USCCR Report; National Council on Disability (NCD), ‘‘Has the Promise Been Kept? Federal Enforcement of Disability Rights Laws (Part 1),’’ (October 2018), https:// www.ncd.gov/report/has-the-promise-been-keptfederal-enforcement-of-disability-rights-laws-part-1october-2018/(‘‘2018 NCD Progress Report’’); NCD, ‘‘Report on Subminimum Wage and Supported Employment’’ (2012), https://www.ncd.gov/report/ national-council-on-disability-report-onsubminimum-wage-and-supported-employment/ (‘‘2012 NCD Report’’). PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 96475 (CIE) 99 for workers with disabilities.100 Amidst these advancements, the employment experiences of workers with many types of disabilities indicate that subminimum wages are unnecessary to safeguard their employment opportunities. In 2023, the unemployment rate for individuals with disabilities was as low as has ever been recorded.101 As a result of these changes, today, subminimum wage employment under section 14(c) certificates is no longer the most common form of employment for individuals with disabilities. It bears emphasizing that, currently, only a miniscule fraction of those working individuals with disabilities are employed by section 14(c) certificate holders; in the present day, millions of individuals with disabilities who are working are doing so without section 14(c) certificates.102 Also, as the number 99 The term ‘‘competitive integrated employment’’ (CIE) is defined at 29 U.S.C. 705(5), and in the Department of Education’s regulations at 34 CFR 361.5(c)(9). Those regulations define CIE as work that is performed on a full-time or part-time basis for which an individual is: compensated at or above minimum wage and comparable to the customary rate paid by the employer to employees without disabilities performing similar duties and with similar training and experience; receiving the same level of benefits provided to other employees without disabilities in similar positions; at a location where the employee interacts with other individuals without disabilities; and presented opportunities for advancement similar to other employees without disabilities in similar positions. See also https://www.dol.gov/agencies/odep/ program-areas/cie. 100 The Department of Education amended regulations at 34 CFR parts 361 and 363, and established new part 397, in response to the WIOA amendments to the Rehabilitation Act. These amended and new regulations govern the State Vocational Rehabilitation Services program and the State Supported Employment Services program, and placed greater emphasis on the achievement of CIE. See U.S. Dep’t of Education, State Vocational Rehabilitation Services Program; State Supported Employment Services Program; Limitations on Use of Subminimum Wage, Final Regulations, 81 FR 55630 (Aug. 19, 2016). 101 See U.S. Dep’t of Labor, Bureau of Labor Statistics, ‘‘Economic News Release: Persons with a Disability: Labor Force Characteristics Summary,’’ Feb. 22, 2024, https://www.bls.gov/news.release/ pdf/disabl.pdf (noting that the unemployment rate for individuals with a disability was 7.2 percent in 2023, and also stating that ‘‘[i]n 2023, 22.5 percent of people with a disability were employed—the highest recorded ratio since comparable data were first collected in 2008’’ and that such rate reflected a 1.2 percentage point increase from 2022); see also U.S. Dep’t of Labor, Bureau of Labor Statistics, ‘‘Data Retrieval: Labor Force Statistics (CPS)’’, https://www.bls.gov/webapps/legacy/cpsatab6.htm (making available historical data on unemployment and employment rates). 102 As discussed above, as of May 1, 2024, employers with an issued certificate reported to the Department that they paid approximately 40,579 workers at subminimum wages in their previously completed fiscal quarter. This is a tiny fraction of the total number of individuals with disabilities working today, as in each month in the first half E:\FR\FM\04DEP2.SGM Continued 04DEP2 96476 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 of workers being paid subminimum wages under section 14(c) certificates has continued to shrink,103 available data indicates that the numbers of individuals with I/DD (who, as discussed above, comprise approximately 90 percent of the workers paid subminimum wages by section 14(c) certificate holders today), working for full Federal minimum wages (or higher) has continued to grow.104 Specifically, as shown by a 2023 Thinkwork Report, there are now many of 2024, over 7 million individuals 16 years and over with a disability were employed in the civilian labor force. See U.S. Dep’t of Labor, Bureau of Labor Statistics, ‘‘Data Retrieval: Labor Force Statistics (CPS)’’ https://data.bls.gov/pdq/ SurveyOutputServlet. Additionally, crossreferencing these data points, the Department estimates that, nationwide, there are only approximately 4,000 individuals with disabilities other than I/DD who are paid subminimum wages. 103 See section II.C.2, above, reflecting the decline in numbers of employees being paid subminimum wages from approximately 424,000 in 2001 to about 40,579 in 2024. 104 See Agnieszka Zalewska, Jean Winsor & John Butterworth, ‘‘Intellectual and Development Disabilities Agencies’ Employment and Day Services,’’ Data Note Plus, no. 87 (2023) (‘‘2023 Thinkwork Report’’), at 8–9, https:// www.thinkwork.org/sites/default/files/2024-01/DN_ 87_R_0.pdf. This report, supported in part by the Administration on Disabilities, Administration for Community Living, U.S. Department of Health and Human Services, builds on annual and bi-annual surveys of State I/DD agencies spanning several decades and compiles data from all States (noting some States for which data is not available). Of particular relevance here, the report includes a chart depicting that, in 2021, approximately 130,000 clients of State agencies serving individuals with I/DD worked in integrated employment, while noting that in 2022, approximately 59,000 total individuals participated in subminimum wage jobs. While this report, which focuses on integration, does not directly compare the number of workers with I/DD being paid full wages to the number of workers paid subminimum wages (nor does it offer data sets about those populations from the same year), in publishing this specific data, it nevertheless supports the conclusion that more individuals with I/DD now are paid full wages, as the total number of individuals with I/DD who are reported as working in integrated settings is more than twice the estimated total number of all individuals working under section 14(c) certificates. As discussed in previous sections, the overwhelming majority of section 14(c) certificate holders are CRPs who typically provide work in non-integrated settings. Most of the approximately 130,000 reported workers with I/DD in integrated settings are likely paid at minimum wage or higher rates, compared to the report’s estimates of approximately 59,000 reported workers paid subminimum wages who are primarily employed by non-integrated CRPs. Moreover, the ratio of individuals with I/DD working for full wages to individuals working for subminimum wages is likely far higher than the estimate reported here because the ThinkWork report only collects data about those individuals who are tracked by State I/ DD agencies. The report thus does not capture individuals who have secured full-wage work without the assistance or knowledge of those agencies. Therefore, the report’s identification of approximately 130,000 individuals with I/DD working in integrated settings likely undercounts the total actual number of individuals with I/DD working for full wages. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 more individuals with I/DD who are being paid full wages than who are being paid subminimum wages; the Department has preliminarily assessed that the total number of working individuals with I/DD is at least twice the total number of individuals working under section 14(c) certificates.105 In other words, the existing data—though limited—shows that, by a significant margin, most workers with I/DD do not rely on subminimum wages to gain employment opportunities and have demonstrated therein that section 14(c) certificates are no longer necessary for them to do so. The Department welcomes comments on this data and the Department’s preliminary analysis.106 Cognizant of this changed employment landscape, the Department now assesses, pursuant to its statutory mandate, whether the issuance of section 14(c) certificates authorizing the payment of subminimum wages is necessary to prevent the curtailment of opportunities for employment for workers with disabilities. B. Federal Legislation, Regulations, and Supreme Court Precedent The current section 14(c) regulations were promulgated prior to having the benefit of nearly all the most significant legislative and legal developments regarding individuals with disabilities, and thus do not contemplate the protections, rights, and opportunities created by these developments. The discussion that follows is intended to highlight several of the most notable and relevant of these developments since 1989, and is not intended to provide a comprehensive survey of all such changes.107 The Department 105 Id. 106 The Department requests comments reflecting any 2022, 2023, and 2024 updates on similar reporting from State I/DD agencies about the numbers of their clients working in integrated employment, as well as any other comments relating to the declining numbers of individuals working for subminimum wages in comparison to the growing numbers of individuals with I/DD working for full wages. 107 This section provides only highlights of certain key laws; however, the Department notes there are numerous pieces of legislation over the last several decades that have incorporated ways to enhance career opportunities for workers with disabilities. For example, when Congress enacted the Rehabilitation Act of 1973, section 504 of that law required that programs receiving Federal financial assistance operate without discrimination on the basis of disability. 29 U.S.C. 794. Modeled after the language of the Civil Rights Act of 1964, the Rehabilitation Act of 1973, and subsequent amendments, also prohibited discrimination on the basis of disability by Federal agencies and contractors in their employment practices. In enacting and amending the Act, Congress enlisted all programs receiving Federal funds in an effort ‘‘to share with handicapped Americans the PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 requests comments on the discussion of these developments and the Department’s analysis of them, as well as comments on any other Federal legislative or judicial development relevant to whether the continued issuance of section 14(c) certificates is necessary to prevent curtailment of opportunities for employment of individuals with disabilities. 1. The Americans With Disabilities Act and the Supreme Court’s Olmstead Decision Perhaps the most foundational of these developments was the enactment of the Americans with Disabilities Act (ADA) in 1990.108 The ADA, as amended by the ADAAA, among other things, prohibits discrimination on the basis of disability in the workplace and in the provision of public programs, services, and activities. Title I of the ADA, enforced by the U.S. Equal Employment Opportunity Commission (EEOC), applies to private employers and State or local governments and prohibits discrimination ‘‘against a qualified individual on the basis of disability in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of opportunities for an education, transportation, housing, health care, and jobs that other Americans take for granted.’’ 123 Cong. Rec. 13,515 (1977) (statement of Senator Humphrey). The 1998 amendments made to the Rehabilitation Act stated that among other things, ‘‘[i]t is the policy of the United States that all programs, projects, and activities receiving assistance under this Act shall be carried out in a manner consistent with . . . [the] pursuit of meaningful careers, based on informed choice, of individuals with disabilities.’’ 29 U.S.C. 701(c) (1998). The amendments further stated that workers were to develop an individualized plan for employment that ‘‘to the maximum extent appropriate, results in employment in an integrated setting.’’ Id. 108 See 42 U.S.C. 12101 (1990). In 2008, Congress passed the ADA Amendments Act (ADAAA) which made a number of changes to the ADA definition of ‘‘disability’’ to ensure broad coverage, making it easier for individuals seeking the protection of the ADA to establish that they have a disability that falls within the meaning of the statute. See ADA Amendments Act of 2008, Public Law 110–325 (S. 3406), September 25, 2008; see also https:// archive.ada.gov/nprm_adaaa/adaaa-nprm-qa.htm. Under the Federal equal employment opportunity laws that the EEOC enforces, including the ADA, an employer cannot ask an employee to prospectively waive their rights to protection. See, e.g., Lester v. O’Rourke, No. 17–cv–1772, 2018 WL 3141796, at *4–6 (N.D. Ill. June 27, 2018). In addition, employers may not interfere with the protected right of an employee to file a charge, testify, assist, or participate in any manner in an investigation, hearing, or proceeding. See, e.g., EEOC, ‘‘Enforcement Guidance on non-waivable employee rights under EEOC enforced statutes,’’ https://www.eeoc.gov/laws/guidance/enforcementguidance-non-waivable-employee-rights-undereeoc-enforced-statutes. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 employment.’’ 109 Title I also requires employers to provide reasonable accommodations to qualified individuals—an individual who, with or without reasonable accommodation, can perform the essential functions of the employment position that they hold or desire.110 Under the ADA, the term ‘‘reasonable accommodation’’ means: (1) modifications or adjustments to a job application process that enable a qualified applicant with a disability to be considered for the position such qualified applicant desires; (2) modifications or adjustments to the work environment, or to the manner or circumstances under which the position held or desired is customarily performed, that enable an individual with a disability who is qualified to perform the essential functions of that position; or (3) modifications or adjustments that enable a covered entity’s employee with a disability to enjoy equal benefits and privileges of employment as are enjoyed by its other similarly situated employees without disabilities.111 A reasonable accommodation may include, but is not limited to, making existing facilities used by employees readily accessible to and usable by individuals with disabilities, job restructuring, part-time or modified work schedules, acquisition or modification of equipment, appropriate adjustment or modifications of examinations, training materials, or policies, and other similar accommodations for individuals with disabilities.112 An employer is required to provide such reasonable accommodations, unless it ‘‘can demonstrate that the accommodation would impose an undue hardship on the operation of the business of such covered entity.113 Examples of reasonable accommodations may include modifying job tasks, improving accessibility in a work area, changing the presentation of tests or training 109 42 U.S.C. 12112(a). An individual with a disability is defined by the ADA as a person who has a physical or mental impairment that substantially limits one or more major life activities, a person who has a history or record of such an impairment, or a person who is regarded as having such an impairment. Id. at Sec. 12102(1). To be ‘‘regarded as’’ having such an impairment, an individual must establish that they have been subjected to a discriminatory action because of an actual or perceived physical or mental impairment, whether or not the impairment limits or is perceived to limit a major life activity. Id. at Sec. 12102(3). 110 See 42 U.S.C. 12111. 111 29 CFR 1630.2(o)(1). 112 42 U.S.C. 12111(9). 113 The term ‘‘undue hardship’’ means an action requiring significant difficulty or expense when considered in light of several factors set forth in the ADA statute. 42 U.S.C. 12111(10), 12112(b)(5)(A). VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 materials, providing an aid or service to increase access (such as specialized computer software), providing alternative formats for feedback (such as verbally instead of in writing), or job restructuring (such as providing checklists to ensure task completion).114 Title II of the ADA, enforced by the U.S. Department of Justice (DOJ), prohibits discrimination on the basis of disability by State and local government entities.115 It requires that State and local governments ensure equal access for individuals with disabilities (for example, in public education, employment, transportation, recreation, health care, social services, courts, voting, and town meetings). Additionally, DOJ’s Title II regulations require public entities to ‘‘administer services, programs, and activities in the most integrated setting appropriate to the needs of qualified individuals with disabilities.’’ Appendix B to the regulation implementing Title II explains that ‘‘the most integrated setting’’ is one that ‘‘enables individuals with disabilities to interact with nondisabled persons to the fullest extent possible.’’ 116 In 1999, in Olmstead v. L.C., the Supreme Court issued a landmark decision that held that Title II of the ADA prohibits the unjustified segregation of individuals with disabilities.117 The Court held that public entities are required to provide community-based services to persons with disabilities when (1) such services are appropriate; (2) the affected persons do not oppose community-based treatment; and (3) community-based services can be reasonably accommodated, taking into account the resources available to the entity and the needs of others who are receiving disability services from the entity.118 The Court explained that this holding reflected two judgments. First, ‘‘institutional placement of persons who can handle and benefit from community settings perpetuates unwarranted assumptions that persons so isolated are incapable or unworthy of participating in community life.’’ 119 Second, 114 Many workplace accommodations are no-cost or low-cost, and resources exist to help individuals with disabilities and their employers identify accommodations. See, e.g., ADA National Network Fact Sheet—Reasonable Accommodations in the Workplace (2018), https://adata.org/factsheet/ reasonable-accommodations-workplace; Job Accommodation Network (JAN), https://askjan.org/. 115 42 U.S.C. 12131, 12132. 116 28 CFR part 35, app. B, 703 (2023) (addressing 28 CFR 35.130(d)). 117 See 527 U.S. 581, 583, 597, 602 (1999). 118 Id. at 607. 119 Id. at 600. PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 96477 ‘‘confinement in an institution severely diminishes the everyday life activities of individuals, including family relations, social contacts, work options, economic independence, educational advancement, and cultural enrichment.’’ 120 Under Department of Justice regulations, a public entity may be found in violation of this integration mandate if it administers programs in a manner that results in unjustified segregation of persons with disabilities.121 DOJ has explicitly recognized that a public entity may be found in violation of the ADA’s integration mandate if it plans, administers, operates, funds, or implements employment services in a way that unjustifiably segregates individuals with disabilities.122 As discussed below, DOJ has taken action to enforce the integration mandate, with broad impacts to employment opportunities for workers with disabilities. Title III of the ADA, also enforced by DOJ, pertains to public accommodations. Under Title III, individuals with disabilities cannot be discriminated against on the basis of disability in the ‘‘full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation.’’ 123 Places of public accommodation may include, for example, restaurants, retail stores, hotels, movie theaters, private schools, recreational facilities, and transportation services run by private entities. As DOJ has explained, when workers with disabilities are given access to employment opportunities pursuant to the ADA and Olmstead ‘‘in the most integrated setting appropriate to their needs, they have the opportunity to live fuller lives, be more integrated into the community, and gain financial independence to ‘move proudly into the 120 Id. at 601. 28 CFR 35.130(b)(1) (prohibiting a public entity from discriminating ‘‘directly or through contractual, licensing or other arrangements, on the basis of disability’’); 28 CFR 35.130(b)(2) (‘‘A public entity may not deny a qualified individual with a disability the opportunity to participate in services, programs, or activities that are not separate or different, despite the existence of permissibly separate or different programs or activities.’’). 122 See U.S. Dep’t of Justice, Civil Rights Div., ‘‘Questions and Answers on the Application of the ADA’s Integration Mandate and Olmstead v. L.C. to Employment and Day Services for People with Disabilities,’’ https://www.ada.gov/assets/pdfs/ olmstead-employment-qa.pdf (‘‘DOJ ADA Integration Mandate Q&As’’). 123 42 U.S.C. 12182(a). 121 See E:\FR\FM\04DEP2.SGM 04DEP2 96478 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 economic mainstream of American life.’ ’’ 124 This access fulfills the goals of the ADA to ‘‘assure equality of opportunity, full participation, independent living, and economic selfsufficiency.’’ 125 Moreover, EEOC and DOJ have explained that the ADA is fully applicable to workers with disabilities regardless of the work site or how much they are paid. For example, ‘‘Title I’s coverage can include individual service provider entities or sheltered workshops in their capacity as private employers,’’ prohibiting discrimination regarding various terms and conditions of employment.126 Additionally, DOJ has explicitly recognized that a public entity may be found in violation of the ADA’s Title II integration mandate if it plans, administers, operates, funds, or implements employment services in a way that unjustifiably segregates individuals with disabilities.127 Finally, under Title III of the ADA, individuals with disabilities cannot be discriminated against on the basis of disability in a place of public accommodation, which can include an individual service provider entity or a sheltered workshop.128 The legal protections for individuals with disabilities arising out of the ADA and the Supreme Court’s Olmstead decision have profoundly impacted the rights and employment opportunities available to individuals with disabilities. This has resulted in changes to workforce development and vocational rehabilitation systems to more fully support individuals with disabilities in achieving and maintaining CIE, as discussed below. The Department’s regulations implementing section 14(c) were last updated prior to the enactment of the ADA and therefore do not take into account changes to the employment landscape for individuals with disabilities in light of the fundamental anti-discrimination and reasonable accommodation protections of the ADA, or those protections as later interpreted by Olmstead. Although many section 14(c) certificate holders are subject to both the FLSA and the ADA,129 the 124 See DOJ ADA Integration Mandate Q&As, https://www.ada.gov/assets/pdfs/olmsteademployment-qa.pdf (quoting President George H.W. Bush, Remarks at the Signing of the Americans with Disabilities Act, July 26, 1990, https://perma.cc/ VNU4-HR7P). 125 See 42 U.S.C. 12101(a)(7); see also DOJ ADA Integration Mandate Q&As. 126 Id.; see also 42 U.S.C. 12112(a). 127 See DOJ ADA Integration Mandate Q&As. 128 Id.; see also 42 U.S.C. 12181(7)(K). 129 The Department notes that holding a section 14(c) certificate does not protect an employer from charges pursuant to the ADA, see FOH 64a02(c). VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 Department’s current regulation addressing the section 14(c) curtailment clause did not, and could not, have taken into account the changes in employment opportunities that would arise as a result of the ADA and the plethora of legal and policy developments that have occurred as a result of this landmark legislation. For instance, the Department did not consider (and could not have considered) when it last promulgated its section 14(c) regulations how the ADA’s reasonable accommodation and workplace modification requirements may affect a worker’s productivity, nor did the Department consider other ADA provisions that have expanded the employment opportunities available to individuals with disabilities. Today, the Department’s assessment of whether section 14(c) certificates are necessary cannot ignore the dramatic expansion of employment opportunities for individuals with disabilities. 2. Additional Federal Legislation, Executive Orders, and Regulatory Changes Expanding Opportunities for Workers With Disabilities A wide range of other significant legislative and executive actions have had a profound impact on employment opportunities and outcomes for individuals with disabilities, particularly over the last decade. These legal and policy developments have fundamentally altered the landscape in which individuals with disabilities learn and work, beginning from their earliest educational opportunities and settings. i. Individuals With Disabilities Education Act In 1975, Congress passed the Education for All Handicapped Children Act (EHA), which addressed the rights and educational needs of students with disabilities. In 1990 EHA was reauthorized and retitled to the Individuals with Disabilities Education Act (IDEA).130 IDEA provides funding to States, which must provide early intervention services and a free appropriate public education to eligible infants, toddlers, and children with disabilities.131 IDEA states that 130 Educ. of the Handicapped Act Amendments of 1990, Public Law 101–476, 104 Stat. 1103 (1990) (codified at 20 U.S.C. 1400). Subsequent reauthorizations included reauthorizations in 1997 and 2004. 131 See 20 U.S.C. 1400 et seq. and U.S. Department of Education, ‘‘About IDEA,’’ https:// sites.ed.gov/idea/about-idea (recording that early intervention, special education, and related services were provided to more than 8 million eligible infants, toddlers, children, and youth with disabilities in school year 2022–2023). PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 ‘‘[a]lmost 30 years of research and experience has demonstrated that the education of children with disabilities can be made more effective by having high expectations for such children and ensuring their access to the general education curriculum in the regular classroom, to the maximum extent possible . . . .’’ 132 IDEA further states that this focus on high expectations and inclusion is intended to meet developmental goals and challenging expectations, and, as particularly relevant here, that students with disabilities are ‘‘prepared to lead productive and independent adult lives, to the maximum extent possible.’’ 133 Notably, the 1990 reauthorization also mandated that as a part of a student’s individualized education program (IEP), an individual transition plan must be developed to help each student transition to post-secondary life, including employment opportunities.134 Subsequent guidance has been released about the benefits of inclusion, for example, in 2015, the U.S. Department of Health and Human Services (HHS) and U.S. Department of Education issued a joint policy statement about the importance of the inclusion of children with disabilities in early childhood programs. The Departments updated and reiterated the statement in 2023.135 For nearly 50 years, children with disabilities have benefited from increased access to high-quality education from early childhood to high school, providing them with better 132 20 U.S.C. 1400(c)(5). A multitude of studies and academic literature have concluded that students with disabilities make more progress when educated in integrated, rather than segregated, settings. See, e.g., Meghan Cosier, Julie CaustonTheoharis, & George Theoharis, ‘‘Does access matter? Time in general education and achievement for students with disabilities,’’ Remedial and Special Educ. 34(6)(2013), at 323–332; Rachel Sermier Dessemontet, Gerard Bless, & D. Morin. ‘‘Effects of inclusion on the academic achievement and adaptive behaviour of children with intellectual disabilities,’’ Journal of Intellectual Disability Research 56(6) (2012) at 579–587. 133 20 U.S.C. 1400(c)(5)(A)(ii). 134 The term ‘‘individualized education program’’ (IEP) means a written statement for each child with a disability that is developed, reviewed, and revised in accordance with 20 U.S.C. 1414(d). See 20 U.S.C. 1401(14); see also 34 CFR 300.320. 135 See U.S. Dep’t of Health and Human Services and U.S. Dep’t of Education, ‘‘Policy Statement on Inclusion of Children with Disabilities in Early Childhood Programs,’’ November 28, 2023, https:// sites.ed.gov/idea/idea-files/policy-statementinclusion-of-children-with-disabilities-in-earlychildhood-; see also Endrew F. v. Douglas County School Dist., 580 U.S. 386, 399 (2017) (affirming the promise of IDEA and holding that in order ‘‘[t]o meet its substantive obligation under the IDEA, a school must offer an IEP reasonably calculated to enable a child to make progress appropriate in light of the child’s circumstances.’’) E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules preparation for employment than past generations of students with disabilities. As educational reforms took hold, competitive integrated employment became the goal of many youths with disabilities, including those with I/DD. The groundbreaking National Longitudinal Transition Study-2 (NLTS2), funded by the U.S. Department of Education and published in 2005, identified a strong desire among youth with disabilities to participate in competitive employment. Specifically, the NLTS2 found that among the 70 percent of secondary school students with disabilities who identified employment as a goal for the post-school years, 62 percent had a goal to work in competitive employment, while only 3 percent wished to work in ‘‘sheltered’’ employment.136 As indicated in the NLTS2, students generally preferred competitive employment rather than employment at a sheltered workshop regardless of the type of disability experienced.137 ii. Workforce Innovation and Opportunity Act In 2014, WIOA,138 a comprehensive Federal law enacted to improve workforce development and training services for workers and jobseekers, including various groups such as youth and workers with disabilities, amended the Rehabilitation Act to add section 511.139 Section 511 of the Rehabilitation Act limits the ability of employers to pay subminimum wages to workers with disabilities, even when the employer holds a section 14(c) certificate. Section 511 requires that individuals with disabilities who are age 24 or younger complete requirements designed to enable the individual to explore, discover, experience, and attain CIE, including receiving pre-employment transition services under the Vocational Rehabilitation program or transition services under IDEA (to the extent either of those services are available to the individual with a disability), applying for vocational rehabilitation services, and receiving career counseling and information and referral services, before they are employed at subminimum wages. Section 511 also requires that all workers with disabilities who are paid subminimum wages, of any age, receive regular career counseling, information and referrals, and information about self-advocacy, self-determination, and peer mentoring training opportunities in their local area once every 6 months for the first year of subminimum wage employment and annually thereafter.140 Section 511 was intended to help stop the pipeline by which youth with disabilities were going straight from school to subminimum wage employment.141 This provision was also enacted to ensure that workers with disabilities who are currently paid subminimum wages are regularly provided with counseling and information about supports and resources available to them in their locality that may support them in obtaining CIE.142 iii. Achieving a Better Life Experience Act In further support of competitive employment for workers with disabilities, in 2014, Congress enacted the Achieving a Better Life Experience Act (ABLE Act), which allows individuals with disabilities to establish tax-advantaged savings accounts, subject to certain restrictions, without jeopardizing access to public benefits. ABLE accounts allow individuals with disabilities to maintain resources and save for expenses while maintaining eligibility for critical public benefits 140 34 ddrumheller on DSK120RN23PROD with PROPOSALS2 136 Mary Wagner, Lynn Newman, Renee Cameto, Nicolle Garza, & Phyllis Levine, ‘‘After High School: A First Look at the Postschool Experiences of Youth with Disabilities. A Report from the National Longitudinal Transition Study–2 (NLTS2),’’ SRI International, April 2005, pp. 5–3 to 5–4, www.nlts2.org/reports/2005_04/nlts2_report_2005_ 04_complete.pdf. 137 Id. 138 29 U.S.C. 794g; also see https:// www.congress.gov/113/bills/hr803/BILLS113hr803enr.pdf. 139 The Rehabilitation Act was the first Federal legislation to address access and equity for individuals with disabilities. This Act promoted successful employment outcomes by requiring that programs receiving Federal financial assistance operate without discrimination on the basis of disability. The Rehabilitation Act develops and implements comprehensive and coordinated programs of vocational rehabilitation for individuals with disabilities to maximize their employability, independence, and integration into the workplace. See 29 U.S.C. 701. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 CFR part 397. 113 of the Rehabilitation Act described a specific set of services, Pre-employment transition services, that are intended to improve and expand vocational rehabilitation services for students with disabilities, facilitating their transition from educational services to postsecondary life. See 29 U.S.C. 733 and 34 CFR 361.65(a)(3). At least 15 percent of each State’s federal funding allotment for vocational rehabilitation services must be reserved for Preemployment transition services. See 29 U.S.C. 730(d)(1). Through these provisions, the Rehabilitation Act and its regulations emphasized the provision of Pre-employment transition services to students with disabilities, providing new opportunities for them to explore careers and receive the training and supports to increase the likelihood of achieving CIE. See 34 CFR 361.48. 142 29 U.S.C. 794g; 34 CFR part 397. Additionally, throughout WIOA, there are multiple references to ensuring that people with disabilities have access to the training providers and services and supports needed to succeed in CIE. Other sections of WIOA provide funding to States in order to develop programs that support workers with disabilities. 141 Section PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 96479 such as Medicaid and other meanstested programs. In 2020, the Internal Revenue Service (IRS) released final ABLE regulations.143 The regulations noted that in enacting the ABLE Act, ‘‘Congress recognized the special financial burdens borne by families raising children with disabilities and the fact that increased financial needs generally continue throughout the lifetime of an individual with a disability.’’ 144 Legislation such as the ABLE Act facilitates workers’ transitions from subminimum wage jobs to jobs paying competitive wages because workers now are able to save more without jeopardizing access to meanstested public benefits such as health care.145 iv. Executive Orders 13658 and 14026 In 2014 and 2021 respectively, Executive Orders 13658 and 14026 directed federal agencies to contract only with entities willing to pay an hourly minimum wage (raised by Executive Order 14026) for workers performing on or in connection with covered Federal construction and service contracts.146 Workers covered by the Executive Orders, and due the full applicable Executive Order minimum wage rates, include workers with disabilities whose wages are calculated pursuant to section 14(c) certificates.147 Executive Order 13658 stated that ‘‘raising the pay of low-wage workers increases their morale and the productivity and quality of their work’’ and explicitly stated that the Order applies to workers whose wages are calculated pursuant to section 14(c).148 143 See Guidance Under Section 529A: Qualified ABLE Programs, 85 FR 74010 (Nov. 19, 2020). 144 85 FR 74010. 145 ‘‘The ABLE Act states that funds in an ABLE account will not affect eligibility for federallyfunded, means-tested benefits such as SSI and Medicaid.’’ See ABLE National Resource Center, https://www.ablenrc.org/what-is-able/debunkingable-myths/. 146 On April 27, 2021, President Joseph R. Biden, Jr. issued Executive Order 14026, ‘‘Increasing the Minimum Wage for Federal Contractors.’’ 86 FR 22835. The order builds on the foundation established by Executive Order 13658, ‘‘Establishing a Minimum Wage for Contractors,’’ signed by President Barack Obama on February 12, 2014. See 79 FR 9851. The Department notes that, at the time of the drafting of this NPRM, there are several pending lawsuits challenging the President’s authority to have issued Executive Order 14026. Such cases are not discussed herein because they are beyond the scope of this proposed rule, which simply highlights the issuance of the Executive Order as an example of the profound legal and policy developments that have impacted individuals with disabilities in recent decades. 147 See 86 FR at 22835; 79 FR at 9851. 148 79 FR 9851, Executive Order 13658, ‘‘Establishing a Minimum Wage for Contractors,’’ February 12, 2014, https:// E:\FR\FM\04DEP2.SGM Continued 04DEP2 96480 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules Executive Order 14026 similarly extended the full Executive Order minimum wage to workers with disabilities performing on or in connection with covered Federal contracts, stating, among other benefits, that raising the minimum wage has the effects of ‘‘boosting workers’ health, morale, and effort.’’ 149 v. Home and Community-Based Services ‘‘Settings Rule’’ In addition to legislative and presidential action, other Federal agencies have also promulgated regulations consistent with expanding CIE opportunities for workers with disabilities. For example, in 2014, HHS’s Centers for Medicare and Medicaid Services (CMS) issued the Home and Community Based Settings (HCBS) ‘‘Settings Rule’’ that focused on various aspects of residential and employment settings for individuals with disabilities. The rule emphasized that individuals have free choice of providers for services in their service plan, including employment services.150 These regulations further stipulate that the ‘‘setting is integrated in and supports full access of individuals receiving Medicaid HCBS to the greater community, including opportunities to seek employment and work in competitive integrated settings . . . to the same degree of access as individuals not receiving Medicaid HCBS.’’ 151 ddrumheller on DSK120RN23PROD with PROPOSALS2 vi. U.S. AbilityOne Commission 2022 Final Rule The AbilityOne Program provides the Federal Government with services and products procured through a nationwide network of approximately 450 nonprofit entities that employ individuals who are blind or have significant disabilities.152 In 2022, the U.S. AbilityOne Commission (Commission) issued a final rule prohibiting the payment of subminimum wages under section 14(c) to employees on contracts within the AbilityOne Program.153 The 2022 AbilityOne final rule adds a new requirement for non-profit agencies that seek both initial and continuing qualification to participate in the AbilityOne Program: namely, such agencies must certify that, when paying workers on AbilityOne contracts, they obamawhitehouse.archives.gov/the-press-office/ 2014/02/12/executive-order-minimum-wagecontractors. 149 86 FR at 22835. 150 79 FR 2948 (Jan. 16, 2014). 151 42 CFR 441.530(a)(1)(i). 152 See AbilityOne Program, FAQs, https:// www.abilityone.gov/abilityone_program/ faqs.html#1. 153 87 FR 43427 (July 21, 2022). VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 will not use section 14(c) certificates. In its 2022 final rule, the Commission states that ‘‘ending wage disparities between employees based solely on disability places the economic power of individuals with disabilities on par with their work colleagues who do not have disabilities and paying the same wage to individuals with disabilities and those without conveys a message of equality and a commitment to inclusion.’’ 154 The Commission explained that ending the payment of subminimum or subprevailing wages on AbilityOne contracts was designed to help break cycles of poverty and dependence for workers with disabilities, and instead shift the focus on assisting workers with disabilities to move to careers of meaningful employment.155 The Commission further explained that societal expectations of people with disabilities had changed and that the availability of reasonable accommodations and employment supports had significantly changed the employment landscape for workers with disabilities.156 The final rule was published on July 21, 2022, and took effect 90 days later on October 19, 2022. Nonprofit agencies seeking qualification to participate in the AbilityOne program were allowed to apply for a single extension of up to 12 months if they provided required support for the need of the extension and a corrective action plan detailing how they planned to achieve compliance during the requested extension period. As of September 30, 2023, no employee on an AbilityOne contract was being paid a subminimum wage.157 AbilityOne’s final rule prohibiting the payment of subminimum wages marked a noteworthy step away from the use of subminimum wage certificates. In sum, legislation, judicial precedent, and regulatory initiatives have fundamentally and profoundly altered the rights, protections, access, and opportunities available to individuals with disabilities. These evolving changes to the employment landscape have dramatically altered access to employment opportunities and available supports for workers with disabilities. 154 87 FR 43428–43429. FR 43428. 156 87 FR 43429. 157 See U.S. AbilityOne Commission, ‘‘Fiscal Year 2023 Performance and Accountability Report,’’ at 95, https://www.abilityone.gov/commission/ performance.html. In fiscal year 2022, approximately 36,000 people who are blind or have significant disabilities were employed through the AbilityOne program. Id. at 7. 155 87 PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 vii. Strategies, Initiatives, and Resources Focused on Increasing Competitive Integrated Employment Opportunities Alongside these legislative, executive, and judicial developments clarifying and expanding the rights and opportunities of individuals with disabilities, virtually all of which occurred after Congress last amended section 14(c) and the Department last substantively updated the section 14(c) regulations, a number of strategies focused on increasing CIE have also emerged. The proliferation of resources and strategies to increase CIE since 1989 demonstrates to the Department that there are numerous alternatives to subminimum wage employment, as well as many additional pathways to employment at or above the full Federal minimum wage for individuals with disabilities. The diversity of available supports, services, and strategies to facilitate the attainment of CIE for workers with disabilities indicates that subminimum wages are no longer a strategy that is necessary to prevent curtailment of opportunities for employment for these workers. One example is Employment First, which is a national framework centered on the premise that all individuals, including those individuals with the most significant disabilities, are capable of full participation in CIE and community life.158 Under Employment First, public systems and States are urged to align policies, regulatory guidance, and reimbursement structures to commit to CIE as the priority option with respect to the use of publicly-financed day and employment services for youth and adults with significant disabilities.159 Many States have formally committed to the Employment First framework through official executive proclamation or formal legislative action.160 The Association of People Supporting Employment First (APSE) website reports that, to date, every State has taken some Employment First action, with 31 States having passed Employment First legislation, 16 States having issued Employment First executive orders, and 32 States having administrative policies and/or 158 U.S. Dep’t of Labor, Office of Disability Emp’t Policy, ‘‘Employment First,’’ https://www.dol.gov/ agencies/odep/initiatives/employment-first. 159 Id. There are multiple additional initiatives that have developed from Employment First, including the National Expansion of Employment Opportunities Network (NEON) and the Advancing State Policy Integration for Recovery and Employment (ASPIRE) initiatives. 160 Id. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 regulations in place in support of the Employment First framework.161 The methods of assisting individuals to obtain and maintain competitive employment have evolved over the past several decades, further enhancing these CIE programs. For example, research shows that the development of supported employment, the Individual Placements and Supports (IPS) model, and customized employment methodologies have been used to successfully implement CIE for workers with disabilities.162 Specifically, the IPS model is designed to assist individuals with serious mental health conditions and involves a multi-disciplinary team that employs eight strategies: competitive employment, systematic job development, rapid job search, integrated services, benefits planning, time-limited supports, worker preferences, and zero exclusion of participants.163 This coordination of medical care and supported employment has been described as a standardization of evidence-based supported employment.164 The Department of Labor’s Office of Disability Employment Policy (ODEP), established in 2001, led the research that built evidence for customized employment, ‘‘a process for achieving competitive integrated employment or self-employment through a relationship between employee and employer that is personalized to meet the needs of both.’’ 165 Customized employment tailors job tasks to fit the individual who will be performing the work, and this strategy has been shown to be particularly beneficial for people with 161 See https://apse.org/home-v2-2/employmentfirst/ for a state-by-state summary. As of June 2024, all 50 States (as well as the District of Columbia) are listed on this website, with Idaho having taken Employment First action other than legislation, executive order, or administrative policies/ regulations. Many States ‘‘have a combination of legislation, Executive action and/or State Agency policy in place.’’ Id. 162 See, e.g., Joonas Poutanen, Matti Joensuu, Kirsi Unkila & Piurjo Juvonen-Posti, ‘‘Sustainable employability in Supported Employment and IPS interventions in the context of the characteristics of work and perspectives of the employers: a scoping review protocol,’’ BMJ Open 12(6) (June 17, 2022), https://www.ncbi.nlm.nih.gov/pmc/articles/ PMC9207909/ (‘‘The sustainable employment outcomes and cost-effectiveness of SE and IPS have been well reported.’’). 163 See https://ipsworks.org/index.php/what-isips/. 164 See Gary R. Bond, Robert E. Drake & Deborah R. Becker, ‘‘An update on randomized controlled trials of evidence-based supported employment.’’ Psychiatric Rehabilitation Journal, 31(4) (April 2008), 280–290, https://doi.org/10.2975/ 31.4.2008.280.290. 165 See U.S. Dep’t of Labor, Office of Disability Emp’t Policy, ‘‘Customized Employment,’’ https:// www.dol.gov/agencies/odep/program-areas/ customized-employment. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 disabilities who might not have been successful in CIE using other training and employment strategies. In 2014, customized employment was included in Title IV of the WIOA as a strategy under the definition of supported employment. Finding these methodologies effective, various Federal agencies have adopted them, and funded their use, through their programs and initiatives. For example, supported employment was added to the Rehabilitation Act in 1986 to help more workers with disabilities obtain employment. Customized employment emerged first through grant programs beginning in 2001 and was added to WIOA in 2014. The development and implementation of these strategies for successful CIE align with the emergence of the social model of disability as well as with person-centered planning. Strategies consistent with the social model of disability that decrease barriers and increase access to opportunities and focus on the individual needs of each worker have created new pathways for workers with disabilities to find, and maintain, the right jobs for them. ODEP has also led several initiatives focused on promoting CIE and aiding States and service providers in implementing CIE strategies. For example, the Campaign for Disability Employment, an ODEP-funded outreach effort, showcases supportive, inclusive workplaces for all workers and brings together several leading disability and business organizations convened by ODEP to work together to address disability employment, demonstrating the increased collaboration among employers to advance employment options for workers with disabilities.166 The Disability Employment Initiative (DEI), funded by ODEP and the Department’s Employment and Training Administration, awarded more than $123 million through the initiative to 49 projects in the public workforce system in 28 States to improve education, training, and employment outcomes of youth and adults with disabilities.167 In addition, through the Employment First State Leadership Mentoring Program, ODEP supported 24 States in their strategic efforts to increase CIE for individuals with disabilities, including those with significant disabilities.168 ODEP has also established the National Expansion of Employment 166 U.S. Dep’t of Labor, Office of Disability Emp’t Policy https://www.dol.gov/agencies/odep/ initiatives/campaign-for-disability-employment. 167 U.S. Dep’t of Labor, Office of Disability Emp’t Policy https://www.dol.gov/newsroom/releases/ odep/odep20160914. 168 See supra note 159. PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 96481 Opportunities Network (NEON) to collaborate with CRPs to extend CIE for the people they serve through provider transformation. ODEP explains that this process ‘‘realigns’’ disability service provider agencies’ business models ‘‘from providing work opportunities in segregated settings or at subminimum wages to providing CIE for people with disabilities.’’ 169 This robust level of programming and State participation allows the refocusing of many State resources from programs relying on the payment of subminimum wages to workers with disabilities to programs that support CIE opportunities. In 2012, ODEP began and actively maintains an Employment First Community of Practice (COP) of nearly 3,000 State agency and service provider professionals, researchers, policy makers, workers and family members, and Federal officials. The COP shares CIE challenges and solutions, resources, events, and successes. In March 2024, ODEP launched an online CIE Transformation Hub of practical Federal resources that support CIE organized by target audience—individuals with disabilities and family members, employment service providers, State agencies, and employers.170 Since 2021, the U.S. Department of Education’s Rehabilitation Services Administration (RSA),171 has administered demonstration programs with discretionary grants through the Disability Innovation Fund (DIF) to support innovative activities aimed at increasing CIE.172 In 2022, RSA made DIF awards to 14 vocational rehabilitation agencies to, as the Department of Education has explained, ‘‘decrease the use of subminimum wages and increase access to competitive integrated employment for people with disabilities.’’ 173 In recent 169 See U.S. Dep’t of Labor, Office of Disability Emp’t Policy, ‘‘National Expansion of Employment Opportunities Network (NEON),’’ https:// www.dol.gov/agencies/odep/initiatives/neon. 170 U.S. Dep’t of Labor, Office of Disability Emp’t Policy, https://www.dol.gov/agencies/odep/ program-areas/cie/hub. 171 To assist individuals with disabilities in the pursuit of gainful employment, RSA administers and manages programs that assist individuals with disabilities to achieve employment outcomes. One of these programs, the State Vocational Rehabilitation Services Program, provides State formula grant programs to vocational rehabilitation (VR) agencies providing a wide variety of services to individuals with significant disabilities, including individuals with the most significant disabilities. 172 See Consolidated Appropriations Act, Public Law 117–103, 136 Stat. 49, 479 (2022). 173 U.S. Dep’t of Educ., ‘‘Education Department Awards $177 Million in New Grants to Increase Competitive Integrated Employment for People with Disabilities,’’ https://www.ed.gov/news/press- E:\FR\FM\04DEP2.SGM Continued 04DEP2 96482 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 years, DIF grant projects have focused on improving the outcomes of individuals with disabilities through, for example, (1) career advancement programs, (2) transition from subminimum wage to CIE programs, and (3) ‘‘pathways to partnerships programs’’ that seek to support projects that foster the establishment of close ties among agencies—such as State vocational rehabilitation agencies, State educational agencies, local educational agencies, and federally funded Centers for Independent Living—to actively collaborate to support coordinated transition processes for children and youth with disabilities.174 These 5-year grants are awarded to States as cooperative agreements to support innovative activities aimed at increasing CIE for youth and other individuals with disabilities.175 A landmark agreement in Oregon, the Lane v. Brown settlement agreement, illustrates some of this legal, legislative, and policy progression. In 2012, a class action complaint was filed in district court on behalf of individuals with I/DD alleging that by unnecessarily segregating them and other similar individuals with I/DD in sheltered workshops receiving public funds, Oregon was in violation of Title II of the ADA and section 504 of the Rehabilitation Act.176 DOJ intervened in the lawsuit as a plaintiff, and a statewide settlement agreement was signed in 2015 requiring, among other things, that Oregon decrease State support of sheltered workshops for individuals with I/DD and expand releases/education-department-awards-177-millionnew-grants-increase-competitive-employmentpeople-disabilities. 174 U.S. Dep’t of Educ., Rehabilitation Services Administration (RSA), ‘‘RSA Programs,’’ https:// rsa.ed.gov/about/programs. 175 See 29 U.S.C. 705(5); see also Dep’t of Educ., RSA, ‘‘Disability Innovation Fund,’’ https:// rsa.ed.gov/about/programs/disability-innovationfund-pathways-to-partnerships. 176 The Department notes that, on May 9, 2024, HHS published a final rule which modernized and strengthened the implementing regulations for section 504 of the Rehabilitation Act, which prohibits discrimination on the basis of disability in programs and activities that receive Federal financial assistance. See 89 FR 40066 (May 9, 2024). The rule, among other things, clarifies obligations to provide services in the most integrated setting, appropriate to the needs of individuals with disabilities, and updates existing requirements to make them consistent with the ADA. See HHS, Section 504 of the Rehabilitation Act of 1973 Part 84 Final Rule: Fact Sheet, https://www.hhs.gov/ civil-rights/for-individuals/disability/section-504rehabilitation-act-of-1973/part-84-final-rule-factsheet/. Section 84.76 of HHS’s updated section 504 regulations specifically requires all recipients of Federal financial assistance from HHS to administer their programs and activities in the most integrated setting appropriate to the needs of a qualified person with a disability. See 45 CFR 84.76; 89 FR 40066, 40117. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 access to supported employment services that allow the opportunity to work in CIE settings. As a result, Oregon implemented a number of competitive and supported employment strategies to support individuals with disabilities in the State, including training for school districts and those providing support services, new grants, reallocation of funding and technical assistance to support CIE.177 These strategies accelerated the transition for workers with disabilities from employment under the prior sheltered workshop model to a CIE model within the State, ultimately ending the payment of subminimum wages to workers with disabilities in Oregon. In 2016, the year that this settlement was reached and approved by the court, there were 1,405 people working in sheltered workshops in Oregon.178 Through this transition, Oregon placed 1,138 individuals from the class who had previously worked for subminimum wages into CIE, exceeding the targets set by the consent judgment. Additionally, by September 2020, all sheltered workshops except one had converted to providing supported, fullwage employment opportunities.179 In sum, a wide range of resources and programs have emerged in recent years that are focused on increasing competitive integrated employment. These supports and services assist workers in obtaining and maintaining employment at or above the full Federal minimum wage and also assist employers in transitioning their business models to integrated workplaces where the minimum wage is paid to all workers. Today, subminimum wage employment under section 14(c) certificates is no longer the most common form of employment for individuals with disabilities, including individuals with I/DD. As the number of workers being paid subminimum wages under section 14(c) certificates continues to shrink, the numbers of 177 Oregon Dep’t of Human Services, ‘‘Lane v. Brown Settlement Agreement Report,’’ https:// www.oregon.gov/odhs/employment-first/ Documents/lane-v-brown-settlement-message-202206-21.pdf. 178 Id. 179 See Disability Employment TA Center, The Components of Integrated Employment Service Systems, p.11 (July 2022), https:// aoddisabilityemploymenttacenter.com/wp-content/ uploads/2022/07/Components-of-IntegratedEmployment-Part-II-FINAL-Final.pdf. In addition to the Oregon settlement, in 2014, DOJ entered into a statewide settlement agreement in Rhode Island to resolve violations of the ADA for approximately 3,250 Rhode Islanders with I/DD. See U.S. Dep’t of Justice, ‘‘Department of Justice Reaches Landmark Americans With Disabilities Act Settlement Agreement With Rhode Island,’’ April 8, 2014, https://www.justice.gov/usao-ri/pr/departmentjustice-reaches-landmark-americans-disabilitiesact-settlement-agreement-rhode. PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 workers with disabilities, including workers with I/DD, working in integrated settings for full wages continues to grow.180 C. Third Party Reports Regarding Section 14(c) In the context of the changes that have taken place over the past several decades in opportunities for employment for individuals with disabilities, both public and private entities (including from the nonprofit, academic, and business sectors) have published relevant reports and statements regarding subminimum wage employment. Though, as discussed below, some organizations remain in strong support of the continuation of section 14(c) certificate issuance, many of these reports, from governmental and non-governmental organizations alike, have compiled substantial evidence that subminimum wages are no longer a necessary method of providing employment opportunities to individuals with disabilities. In this subsection, the Department reviews key aspects of these reports, which represent the culmination of years of findings and conclusions, most of which provide support for the Department’s proposal to end the issuance of section 14(c) certificates. 1. Government Oversight Reports In recent years,181 a number of Federal government agencies and committees have studied the payment of subminimum wages to workers with disabilities and generated oversight reports. These agencies and committees brought together a wide range of individuals from across government and the non-profit and business sectors to share their expertise and experience regarding the payment of subminimum wages to workers with disabilities and corresponding models of employment. In general, these oversight entities have sharply criticized the continued payment of subminimum wages as an outdated method to support workers with disabilities and reflect a broad consensus that subminimum wages are not necessary to provide opportunities for employment of individuals with disabilities, including opportunities for individuals with I/DD Accordingly, many recommend that a phase out of section 14(c) certificates should begin immediately. The Department notes that 180 See discussion in section III.A. section is not an exhaustive listing of all such Federal government oversight reports relating to individuals with disabilities, but rather focuses on recent reports that specifically consider the role of section 14(c) and subminimum wages in the employment of those individuals. 181 This E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 there are no equivalent government oversight reports that favor the continued issuance of section 14(c) certificates (at least beyond a phaseout period). The Department welcomes comments on its analysis of the selected reports discussed in this proposed rule as well as comments on any other reports relevant to whether the continued issuance of section 14(c) certificates is necessary to prevent the curtailment of employment opportunities for individuals with disabilities. i. U.S. Commission on Civil Rights Report on Subminimum Wages The USCCR is an independent, bipartisan, fact-finding Federal agency established in part to study discrimination or denial of equal protection by reason of race, color, religion, sex, age, disability, or national origin. In 2020, the USCCR issued a comprehensive 349-page report entitled ‘‘Subminimum Wages: Impacts on the Civil Rights of People with Disabilities’’ (USCCR Report).182 The USCCR concluded that payment of subminimum wages should be eliminated through a planned phaseout period that allows for the transition among service providers and individuals with disabilities.183 In making this recommendation, the USCCR emphasized its finding that ‘‘[p]eople with intellectual and developmental disabilities who are currently earning subminimum wages under the 14(c) program are not categorically different in level of disability from people with intellectual and developmental disabilities currently working in competitive integrated employment.’’ 184 Especially given the comprehensive nature of the USCCR report, the Department gives weight to the report’s key factual findings and recommendations in proposing to phase out issuance of section 14(c) certificates. To generate the report, the USCCR collected data, reports, and testimony from ‘‘Members of Congress, Labor and Justice Department officials, selfadvocates and workers with disabilities, family members of people with disabilities, service providers, current and former public officials, and experts on disability employment and data analysis;’’ received thousands of public comments both in favor of and in 182 USCCR Report. The U.S. Commission on Civil Rights was established by Congress in 1957 and submits reports and recommendations to the President and Congress based upon their studies. Two members dissented from the conclusions of the 2020 report. 183 Id. at 223. 184 Id. at 221. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 opposition to the use of section 14(c) certificates; held a public hearing; and conducted in-person visits to both fullwage and subminimum wage worksites.185 During the USCCR’s hearings, they heard testimony from employers who provided insight into the impact of phasing out subminimum wages on their operations. For example, the USCCR heard from some employers who had transitioned away from the use of subminimum wages that, based on their experiences, section 14(c) certificates were no longer necessary to prevent curtailment of employment opportunities for individuals with disabilities. The Chief Executive Officer (CEO) of Melwood, a non-profit organization that transitioned their employees to at least the full minimum wage in 2013 and withdrew its section 14(c) certificate in 2016, testified that phasing out subminimum wages had positively impacted Melwood’s operations, resulting in higher morale and productivity, and contributed to its ongoing successes.186 Additionally, the CEO reflected on what she believed were the negative impacts of using section 14(c) certificates, testifying that ‘‘time trials caused our employees to feel extremely anxious and stressed, as employees knew that their performance could reduce their wages and harm their ability to live happy independent lives,’’ and that ‘‘the average employee lost five hours of productive time as a result of each time trial, not including the loss of productivity due to the anxiety distraction.’’ 187 The USCCR also spoke with employers who employed individuals with I/DD but who had never held a section 14(c) certificate, and those employers spoke positively of their experiences.188 The USCCR also collected extensive testimony from, among others, individuals with I/DD and their family members, current and former section 14(c) certificate holders, and employers of individuals with I/DD. The USCCR found that ‘‘[p]ersons with disabilities who have transitioned out of 14(c) 185 Id. at i. 186 USCCR Report at 50–51. at 50. 188 In a briefing to the USCCR, for example, Microsoft explained that, since 2013, its Supported Employment Program had placed over 280 individuals with I/DD in full-wage jobs at Microsoft. Id. at 48 (citing Brian Collins, briefing transcript at 272–73 and 274–75). Microsoft observed that employing workers with I/DD had added strength to the company because those workers tended to be longer-term employees (thus reducing recruitment, turnover, and onboarding costs) and tended to challenge the status quo and teach colleagues about ‘‘communication, inclusion, and empathy.’’ Id. at 49. 187 Id. PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 96483 workshops were adamantly against the program.’’ 189 For example, the USCCR interviewed a worker in Vermont who, after that State eliminated the payment of subminimum wages, had transitioned to working in integrated employment, where he received more than minimum wage and had opportunities for advancement.190 Reflecting on his previous experiences working for subminimum wages pursuant to a section 14(c) certificate, the worker explained that he believed that his former employer had been ‘‘using’’ his disability ‘‘against’’ him, and that he would ‘‘do more and get less than everyone else.’’ 191 As another key part of its review, the USCCR conducted intensive case studies of three States that, at the time of the report’s publication, still permitted payment of subminimum wages (Virginia, Arizona, and Missouri), and compared those States to three States that had taken steps to eliminate subminimum wages (Vermont, Maine, and Oregon). In general, the USCCR’s case studies detailed many successful transitions from subminimum wages to full wages. In terms of data regarding employment outcomes in those States, the USCCR noted both the complexity and insufficiency of available statistics. Summarizing its analysis of state-level employment data collected from those six States in 2016 and 2017, the USCCR explained that ‘‘contrary to the popular belief that ending subminimum wages will lead to job losses, the eradication of subminimum wages correlates with increased employment for people with disabilities’’ in certain States.192 The USCCR expressly noted, however, that ‘‘importing these data over a wider range of states shows even more complexity.’’ 193 Recognizing that the results of the then-existing data regarding impact of state-level legislation prohibiting subminimum wages was ‘‘mixed,’’ the USCCR concluded that ‘‘[t]he success of states like Oregon and Vermont show that there is a path forward[ ]; moreover, even concerned family members in those states eventually embraced a supported transition from 14(c) to competitive integrated employment.’’ 194 In addition to receiving comments urging the elimination of subminimum wages, however, the USCCR also noted that ‘‘the majority of the public 189 Id. 190 Id. at xi. at 198. 191 Id. 192 Id. at 143–45. 193 Id. 194 Id. E:\FR\FM\04DEP2.SGM at 217. 04DEP2 96484 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules comments the Commission received were from parents who support the continued operation of 14(c) workshops unchanged.’’ 195 These public comments included ‘‘family members of persons with disabilities working in 14(c) workshops . . . who stated it was their ‘CHOICE’ to work there and that they were against elimination of the 14(c) program.’’ As one family member of a person with a disability wrote to the USCCR, ‘‘We are NOT concerned with lower pay. We ARE concerned that the rights of our family member to work in a fulfilling, safe, stable job where he enjoys being part of a community is at risk due to the wage debate’’ (emphasis in original).196 The USCCR also found several other notable aspects of subminimum wage employment. In a chapter of its Report, the USCCR broadly reviewed the roles of different government agencies in relationship to section 14(c). The USCCR detailed the extensive use of public funds to support existing sheltered workshops. Among other key points, the USCCR found that some States have used HHS and Medicaid funding to fund worker supports necessary for those workers to access employment at the full minimum wage; this same funding is frequently used to fund non-profit employers who use section 14(c) certificates in other States.197 In other words, in some instances, funds could be shifted from supporting subminimum wage employment to supporting full-wage employment. Of note, the USCCR stated that transition away from subminimum wages could be ‘‘aided by the provision of accommodations such as a job coach, peer support, or specialized training or other supports that allow persons with disabilities to effectively work in integrated settings,’’ and that funds once used to fund employment under section 14(c) certificates (such as at CRPs) could be redirected to these purposes.198 The 195 Id. at xi. at 175. 197 Id. at xiv and 179–80. 198 Id. at xi–xii. Similarly, recent nongovernmental reports have also emphasized the role that States’ and organizations’ programmatic choices play in determining whether individuals with disabilities have opportunities for subminimum or full-wage employment. For example, in 2024, New America released a report analyzing States’ efforts to end payment of subminimum wages. This report examined the usage of programs that New America deemed to support successful transitions from subminimum to full wages, including ‘‘Medicaid expansion, benefits counseling, and tax-deferred savings accounts.’’ The report analyzed States’ efforts to put in place supportive employment policies and programs and noted a wide disparity of approaches among States in these areas. Among other conclusions in the report, New America observed that States that did ddrumheller on DSK120RN23PROD with PROPOSALS2 196 Id. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 USCCR explained that ‘‘[s]tate-level phase outs of the use of the 14(c) program have been developed and designed for State service providers and other stakeholders to ensure that a competitive integrated employment model does not result in a loss of critical services to individuals with disabilities including former 14(c) program participants.’’ 199 As part of its review, the USCCR collected and analyzed data about the use of section 14(c) certificates. Summarizing this analysis, the USCCR concluded that ‘‘the Department of Labor’s enforcement data as well as several key civil rights cases and testimony from experts show that with regard to wage disparities, the program is rife with abuse and difficult to administer without harming employees with disabilities, as reflected in over 80 percent of cases investigated.’’ 200 The USCCR based this finding in part on WHD enforcement data that, as discussed above, shows that WHD investigations of section 14(c) certificate holders reveal high rates of FLSA violations. The USCCR made no analysis of or conclusions about the types or severity of violations found in WHD investigations. However, the USCCR highlighted a well-documented case involving egregious civil rights abuses connected to an employer who had formerly held a section 14(c) certificate, the Hill Country Farms case.201 In that case, both the Department and the EEOC successfully recovered substantial damages for the workers based on, respectively, the employer’s willful violations of the not seek to limit or eliminate the use of subminimum wages often also did not engage in as many supportive employment or financial security initiatives. See New America, ‘‘Pennies on the Dollar: The Use of Subminimum Wage for Disabled Workers across the United States: Momentum to Change the Subminimum Wage’’ (2024), https:// www.newamerica.org/education-policy/reports/theuse-of-subminimum-wage-for-disabled-workersacross-the-us/. 199 2020 USCCR Report at xvi. 200 Id. at vi–vii. 201 In that case, Hill Country Farms, doing business as Henry’s Turkey Service, employed a group of men with intellectual disabilities for approximately 20 years at an Iowa turkey processing plant where the employer subjected the workers to ‘‘abusive verbal and physical harassment; restricted their freedom of movement; and imposed other harsh terms and conditions of employment such as requiring them to live in deplorable and sub-standard living conditions, and failing to provide adequate medical care when needed.’’ U.S. Equal Emp’t Opportunity Comm’n, https://www.eeoc.gov/eeoc/newsroom/release/5-113b.cfm (May 1, 2013). The employer also paid only pennies per hour—$65 a month in cash wages even when company time sheets reflected that they worked more than 40 hours a week. U.S. Dep’t of Labor, https://www.dol.gov/newsroom/releases/ whd/whd20110427 (April 27, 2011). PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 FLSA and the employer’s severe abuse and discrimination in violation of the ADA.202 In addition to highlighting the ‘‘disability-based harassment, discrimination and abuse’’ experienced by these workers, the USSCR commented that ‘‘[t]his case does not directly address whether 14(c)’s permitting payment of subminimum wages violates the ADA, but it does illustrate that Title I ADA violations are possible under those circumstances.’’ 203 In sum, the USCCR’s qualitative and quantitative study of the use and cessation of section 14(c) certificates— encompassing employer, worker, family, government, and expert perspectives— substantially aided the Department’s review of whether section 14(c) certificates are still necessary to prevent curtailment of employment opportunities for workers with disabilities. Furthermore, given this body of evidence, the Department finds the USCCR’s conclusion that subminimum wages are no longer necessary to be compelling. ii. National Council on Disability Reports Relevant to Payments of Subminimum Wages The National Council on Disability (NCD) is an independent Federal agency charged with advising Congress, the President, and other entities on policy related to people with disabilities. NCD has issued several reports related to section 14(c), including two reports that specifically favor the cessation of subminimum wages, finding that such practices are not necessary to prevent curtailment of opportunities for employment of individuals with disabilities. As with the USCCR report, the NCD’s thorough analysis, spanning nearly a decade, undergirds the Department’s finding that subminimum wages are no longer necessary to prevent curtailment of employment opportunities for individuals with disabilities. In 2012, the NCD issued a report recommending that section 14(c) be phased out.204 In this report, published prior to the passage of WIOA, NCD recommended many reforms similar to those that were subsequently enacted, including ‘‘mandatory information sharing to workers,’’ and expansion of supported education and postsecondary education and training for individuals 202 Solis v. Hill Country Farms, 808 F. Supp. 2d 1105 (S.D. Iowa 2011), aff’d, 469 Fed. App’x 498 (8th Cir. 2012); EEOC v. Hill Country Farms, Inc., 899 F. Supp. 2d 827 (S.D. Iowa 2012), aff’d, 564 Fed. App’x 868 (8th Cir. 2014). 203 2020 USCCR Report at 25. 204 2012 NCD Report. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules with disabilities.205 NCD recommended that section 14(c) ‘‘should be phased out gradually to provide adequate time for transition to new alternatives.’’ 206 To facilitate that proposed phaseout, NCD outlined in their 2012 report a ‘‘comprehensive system of support that will result in greater opportunities for people with disabilities.’’ 207 Among its key findings, the 2012 NCD report noted that work in subminimum wage settings generally did not provide a stepping stone to full-wage work but was instead almost always an endplacement. As NCD observed citing back to a 2001 GAO report, ‘‘Sheltered workshops are ineffective at transitioning people with disabilities to integrated employment. According to the 2001 investigation by [GAO] into the 14(c) program, only approximately 5 percent of sheltered workshop employees left to take a job in the community.’’ 208 In a follow-up 2018 report, NCD again focused on the issue of whether subminimum wages were necessary to secure employment opportunities for individuals with disabilities. NCD reiterated its recommendation to phase out the use of section 14(c) certificates, labelling continued certificate issuance as ‘‘even more evidently outdated and ineffective than it was six years ago.’’ 209 NCD termed the continued issuance of section 14(c) certificates a form of ‘‘economic disenfranchisement’’ of ‘‘great significance to the overall health of our nation’s economy and society.’’ 210 The report found that the ‘‘landscape of law and policy has been considerably expanded’’ to allow transitions from sheltered workshops into competitive integrated employment. NCD found that, despite these advances, those working under section 14(c) certificates remain ‘‘confined’’ to ‘‘sheltered workshops where they perform manual tasks that are often mismatched with their particular strengths and also with their preferences and interests as employees . . . even though new technologies, services, and supports exist that would allow them to succeed in competitive integrated employment.’’ 211 The NCD report, echoing the Department’s ddrumheller on DSK120RN23PROD with PROPOSALS2 205 Id. 206 Id. at 10. at 18. 207 Id. 208 Id. at 10. Council on Disability, ‘‘National Disability Employment Policy from the New Deal to the Real Deal: Joining the Industries of the Future,’’ Letter of Transmittal, 2018, https://www.ncd.gov/ report/national-disability-employment-policy-fromthe-new-deal-to-the-real-deal-joining-the-industriesof-the-future/ (2018 New Deal NCD Report). 210 Id. at 12. 211 Id. at 13–14. 209 Nat’l VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 findings discussed above in its report to Congress nearly 50 years earlier, posited that the ‘‘sheltered workshop business model, itself, rather than the impact of disability on productivity, incentivizes low wages and correspondingly disincentivizes reasonable accommodations, better job matches, and more integrated employment services.’’ 212 In its 2018 report, NCD described ‘‘successful examples of transformation from six States [of organizations] where providers have transitioned services from sheltered workshops that paid 14(c) subminimum wages to rival models of individualized supported and customized employment services . . . .’’ 213 In reviewing these examples, NCD analyzed ‘‘key success factors’’ in each of these organization case studies, including factors such as the presence of staff versed in ‘‘employment first’’ strategies, a strong organizational commitment to inclusion of individuals with disabilities in socially valued roles, collaboration with supported employment organizations, high expectations for outcomes, the fostering of an incentivizing link between an individual’s work performance and ‘‘a paycheck,’’ a business-oriented emphasis on placing employees where they will meet employers’ real needs, and fostering the self-advocacy skills of individuals with disabilities.214 NCD also made site visits and highlighted the stories of individuals. In one example, NCD wrote ‘‘[a] person with I/DD who was accused of being a ‘slow worker’ in the sheltered workshop became ‘a raging success’ working competitively in a family restaurant. He was better matched, and therefore performed better, in a job where he could interact with customers.’’ NCD also described, in specific detail, the methodologies of agencies in several States providing supportive employment services, such as individualized job matching and community networking strategies.215 NCD noted that ‘‘families’ viewpoints often change from hesitance about working in the community to full support after they see how successful a family member can be in a typical work setting, and how that success can run to other domains of life.’’ 216 Based on its review, NCD made several recommendations in its 2018 report. For example, NCD recommended that disability policy should focus on ‘‘increased capacity for sustained funding for integrated supported and customized employment,’’ improving technical assistance, benefits counseling, business engagement strategies, and developing resources and innovations to allow people with disabilities to do current and future available jobs.217 In conclusion, NCD recommended current certificate holders should be given time to phase out subminimum and sub-prevailing wages, while the Department’s issuance of ‘‘new’’ certificates should immediately cease.218 In an additional 2018 report entitled ‘‘National Disability Policy: A Progress Report,’’ (2018 NCD Progress Report), NCD also extensively reviewed WHD’s administration and enforcement efforts under section 14(c).219 Among other findings, NCD noted that WHD had recognized the need to focus enforcement efforts on areas ‘‘where large numbers of vulnerable workers are found,’’ such as workers employed by holders of section 14(c) certificates.220 As part of this effort, NCD reported that WHD conducted extensive investigations of such employers between 2008 and 2017. During that period, as also discussed in section II.D.1 (‘‘Administration and Enforcement of Certificates’’), NCD ‘‘documented ‘a high prevalence’ of FLSA and other violations among the 14(c) certificate holders investigated. In many instances, employers were unaware of the requirements of Section 14(c) or did not implement the requirements appropriately.’’ 221 The 2018 NCD Progress Report also highlighted the intersection between section 14(c) and anti-discrimination civil rights protections. This report, among many other recommendations, called for more collaboration between WHD and civil rights enforcement agencies; as an example of this type of activity, NCD highlighted that as a result of a WHD investigation of a certificate holder in Rhode Island, WHD made a referral to DOJ’s Civil Rights Division. DOJ then found ‘‘unnecessary segregation of adults and serious risks of unnecessary segregation of students in violation of the ADA and the U.S. Supreme Court Olmstead decision,’’ resulting in a court ordered settlement agreement with the State of Rhode Island and the city of Providence.222 217 Id. 212 Id. at 53. 213 Id. at Transmittal Letter. 214 Id. at 66, 70, 73–74, 78, 83. 215 Id. 216 Id. at 76. PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 96485 at 14. at 99–100. 219 2018 NCD Progress Report. 220 Id. at 68–69. 221 Id. at 69–70. 222 Id. at 74. 218 Id. E:\FR\FM\04DEP2.SGM 04DEP2 96486 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules The Department considers the NCD reports insightful in analyzing changed employment opportunities for individuals with disabilities, especially as the NCD documented the impact of these changes in reports spanning several years. Furthermore, it is relevant that NCD not only found that subminimum wage employment is unnecessary given the alternatives, but also put forward evidence that many employees working under section 14(c) certificates may, despite positive intentions, experience negative outcomes. iii. Report of the Advisory Committee on Increasing Competitive Integrated Employment for Individuals With Disabilities In 2014, the Advisory Committee on Increasing Competitive Integrated Employment for Individuals with Disabilities (Advisory Committee) was established under section 609 of the Rehabilitation Act, as amended by section 461 of the WIOA.223 The Advisory Committee was created to advise the Secretary and Congress in three areas: (1) ways to increase competitive integrated employment opportunities for individuals with intellectual or developmental disabilities or other individuals with significant disabilities; (2) the use of the section 14(c) certificate program for the employment of individuals with I/DD or other individuals with significant disabilities; and (3) ways to improve oversight of the use of such certificates.224 The Advisory Committee was established according to the provisions of the Federal Advisory Committee Act, which helps ensure the independent nature of the Advisory Committee in providing advice and recommendations to the Secretary. Especially as Congress specifically created the Advisory Committee to independently study questions closely related to the Department’s charge to determine whether continued issuance of certificates is necessary, the Department gives weight to the Committee’s relevant findings. Members of the Advisory Committee included Federal members,225 self- ddrumheller on DSK120RN23PROD with PROPOSALS2 223 29 U.S.C. 795n. 224 Id. 225 The Advisory Committee’s Federal membership consisted of the following agency leaders or their designee: Department of Labor’s Assistant Secretary of ODEP, the Assistant Secretary for Employment and Training Administration (ETA), and the WHD Administrator; the HHS Commissioner of the Administration on Intellectual and Developmental Disabilities; CMS Director; the Commissioner of the Social Security Administration (SSA) and the Department of Education’s RSA Commissioner. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 advocates for individuals with I/DD, providers of employment services, representatives of national disability advocacy organizations for adults with I/DD, academic experts, representatives from the employer community or national employer organizations, and other individuals or representatives with expertise on increase opportunities for CIE for individuals with disabilities. The Advisory Committee worked for 2 years on its study of the topics mentioned above. In evaluating these issues, the Advisory Committee held 10 public meetings during which individuals and organizations provided testimony and public comments. The Advisory Committee also received ‘‘more than 2,000 letters, emails and personal video messages from people with disabilities, and other citizens and organizations across the nation that helped inform the work of the committee and its final recommendations.’’ 226 As the culmination of these efforts, in September 2016, the Advisory Committee issued a detailed report (Committee Report) that included six chapters discussing that increasing CIE will require substantial capacity building, including for youth, in the marketplace, and within the Federal government itself.227 The Advisory Committee, among other conclusions, recommended that Congress repeal section 14(c) through a multi-year phaseout.228 The Advisory Committee further recommended that WHD ‘‘engage in stronger enforcement’’ of section 14(c) certificates and require both States and individual applicants to submit more information (including information about States’ and applicants’ efforts to work towards alternatives to the payment of subminimum wages) to show that the issuance of certificates would be necessary to prevent the curtailment of employment opportunities for individuals with disabilities.229 The Advisory Committee observed that ‘‘one by-product of subminimum wage employment is a culture with a low expectation for competitive integrated employment.’’ 230 The Committee further concluded that the ‘‘current widespread practice of paying workers subminimum wages, based on assumptions that individuals with 226 Advisory Committee on Increasing Competitive Integrated Employment for Individuals with Disabilities, ‘‘Final Report,’’ 2016, at p. iv, https://www.dol.gov/sites/dolgov/files/odep/topics/ pdf/acicieid_final_report_9-8-16.pdf. 227 Id. at 1–4. 228 Id. at 2. 229 Id. at 30. 230 Id. at 28. PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 disabilities cannot work in typical jobs, or on assumptions about the unavailability of alternative work opportunities, is antithetical to the intent of modern federal policy and law.’’ 231 The Advisory Committee explained that modern Federal policy and laws are ‘‘based on the assumption that all individuals with disabilities are capable of, and have a right to, CIE.’’ 232 The Advisory Committee further recommended that vocational rehabilitation services for individuals with disabilities focus more on practices demonstrated to produce positive outcomes in full-wage employment. For example, the Advisory Committee explained that research shows providing experience in community-based workplaces performing actual work tasks is a superior training strategy compared with providing ‘‘work readiness training’’ in sheltered workshops.233 Similarly, the Advisory Committee made recommendations regarding supportive employment practices based on its finding of the importance of factors such as ‘‘work experience and [competitive integrated employment] during secondary school years’’ and family expectations about employment.234 As with the other government oversight reports discussed above, the Department finds the thorough conclusions of the Advisory Committee to be highly relevant to the Department’s analysis, and, in particular, the Department notes the import of the Committee’s congressional mandate. Specifically, the Advisory Committee’s conclusions regarding the availability of alternatives to section 14(c) certificates informed the development of this proposed rule; the Committee Report provides a picture of the employment landscape for workers with disabilities that does not rely upon subminimum wages. 231 Id. at 29. 232 Id. 233 Id. at 10. at 21. The Department notes that in addition to the agency reports discussed herein, in 2018, the minority staff of the U.S. Senate Committee on Health, Education, Labor, and Pensions reached a similar conclusion that the evidence does not support the continued payment of subminimum wages and the Department should no longer issue new section 14(c) certificates. Minority Staff of S. Comm. on Health, Educ., Labor, and Pensions, ‘‘Disability Employment: Outdated Laws Leave People with Disabilities Behind in Today’s Economy,’’ Comm. Print 2018, https:// web.archive.org/web/20181224100838/https:// www.murray.senate.gov/public/_cache/files/ 84084732-e011-470a-b246-1cdab87755c3/staffreport-on-employment-for-people-with-disabilities10-29-2018-pm-.pdf. 234 Id. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 iv. U.S. Government Accountability Office Reports Unlike the government agency reports detailed above, GAO has not directly addressed the question of whether it is still necessary to permit payment of subminimum wages to promote employment opportunities for individuals with disabilities. However, GAO has issued multiple reports addressing various aspects of the use and operation of section 14(c) certificates, and in doing so, has generated significant data and analysis relevant to this proposed rule.235 The Department found this data and analysis to be helpful in its review of section 14(c) and development of this NPRM. In 2023, GAO issued a report addressing the Department’s oversight of employers using section 14(c) certificates. In this report, in addition to its primary recommendations regarding section 14(c) certificate processing, GAO emphasized that participation of employers using section 14(c) certificates has markedly decreased, tracking a steady decline over the decade from 2010 to 2019.236 GAO attributed this decline to changing Federal laws and policies, changing State policies (such as state-level phaseouts of the use of subminimum wages), and shifts in employer and worker views.237 In the 2023 report, GAO also published important demographic and statistical data about employers holding section 14(c) certificates and the employees they were paying subminimum wages. GAO confirmed that, currently, CRPs are the ‘‘vast majority of 14(c) employers,’’ and that ‘‘almost all 14(c) workers had an intellectual or developmental disability.’’ 238 GAO estimated that approximately 70 percent of section 14(c) workers were 25–54 years old, with approximately 26 percent 55 years or older, and only approximately 4 percent 18–24 years old.239 As already noted above, GAO found that the majority of workers paid under section 235 Additional GAO reports include GAO–81– 116519, ‘‘Stronger Fed. Efforts Needed for Providing Emp’t Opportunities and Enforcing Labor Standards in Sheltered Workshops’’ (1981), https:// www.gao.gov/products/hrd-81-99; GAO–01–886, ‘‘Special Minimum Wage Program: Centers Offer Emp’t and Support Servs. to Workers with Disabilities, But Labor Should Improve Oversight’’ (2001), https://www.gao.gov/products/gao-01-886; and GAO–12–594, ‘‘Students with Disabilities: Better Fed. Coordination Could Lessen Challenges in the Transition from High School’’ (2012), https:// www.gao.gov/products/gao-12-594. 236 See 2023 GAO Report. 237 Id. at 14–15. 238 Id. at 2. 239 Id. at 26. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 14(c) certificates in the data they analyzed were paid less than $3.50 per hour, approximately 14 percent were paid less than one dollar per hour, and approximately 5 percent were paid less than 25 cents per hour.240 GAO also found that ‘‘few 14(c) workers’’ engaged in competitive employment, including being paid at least minimum wage in an integrated work setting.241 Additionally, in 2021, GAO issued a report on ‘‘Factors Influencing the Transition of Individuals with Disabilities to Competitive Integrated Employment.’’ 242 GAO identified 32 factors that may influence transitions away from subminimum wages to competitive integrated employment.243 GAO did not find a consensus across the individuals it interviewed about the most significant factors influencing ‘‘14(c)–to–CIE transition.’’ 244 Instead, ‘‘each of the 32 factors was identified by at least one interviewee to be among the most important in influencing an individual’s transition to CIE.’’ 245 Additionally, many interviewees emphasized that the factors were heavily inter-related. GAO also emphasized the potential impact of the COVID–19 pandemic, noting uncertainty about such impacts at the time of the report’s publication.246 As a backdrop to its study of factors that might influence individuals’ transition to CIE, GAO noted legislative changes— such as WIOA—that promote access to employment at full wages.247 Additionally, GAO highlighted a ‘‘shift in federal and state priorities’’ away from reliance on section 14(c), and noted that ‘‘at least 40 states have adopted legislation or state policy stating that integrated employment in the community is the first and preferred option for people with disabilities . . . .’’ 248 GAO’s interviews with employees identified several factors that inhibited transitions to CIE, including the individuals’ age, concern for maintaining benefits, desire for a social community, concern for safety of nonsheltered working environment, and ‘‘views’’ about an individuals’ skills.249 Observing that family members’ judgments were often decisive even when differing from the preferences of employees themselves, GAO recounted 240 Id at 17. 241 Id. 242 2021 GAO Report. at 13. 244 Id. at 13. 245 Id. 246 Id. at 2. 247 Id. at 1. 248 Id. at 1–2. 249 Id. at 14. 243 Id. PO 00000 Frm 00023 Fmt 4701 that ‘‘one participant told us that family members may not see the individual’s potential for accomplishing work because they remember times when the person struggled.’’ 250 Interviewees also noted that ‘‘people who have been exposed to CIE, including through realworld, authentic experiences, almost always choose CIE . . . because they have a more accurate perception of what it entails.’’ 251 Regarding the views of employers, GAO listed factors that might influence a section 14(c) certificate holder’s decision to transition away from subminimum wages, a process GAO referred to as ‘‘provider transformation.’’ 252 GAO found that the factors most relevant to whether section 14(c) holders transitioned from subminimum wages to CIE were, in addition to resource-related factors, ‘‘14(c) certificate holder leadership views, 14(c) certificate holder’s use of person-centered approach to employment planning, 14(c) certificate holder’s mission or business model, 14(c) certificate holder’s access to training and technical assistance, and 14(c) certificate holder’s provision of ongoing supports for CIE.’’ 253 Finally, GAO noted several policy and economic factors that could influence transition away from subminimum wages. Among these factors, GAO identified State resources supporting CIE, State policies ‘‘allowing public benefits to continue while working,’’ ‘‘federal support for 14(c) employment versus CIE,’’ the overall unemployment rate, available transportation, and available employment services.254 In sum, while GAO’s reports did not directly address whether section 14(c) certificates were necessary to prevent curtailment of opportunities for employment, the Department found them relevant in several ways, as reflected by the information discussed above. In particular, GAO’s 2023 report provided additional insight into the demographics of the workers with disabilities currently working under section 14(c) certificates while GAO’s 2021 report provided a better understanding of many of the challenges potentially faced by employers in transitioning from section 14(c) subminimum wage employment to an alternative model. The Department’s proposed phaseout approach, discussed in greater detail below, is intended to 250 Id. at 19. 251 Id. 252 Id. 253 Id. 254 Id. Sfmt 4702 96487 E:\FR\FM\04DEP2.SGM at 20. at 25–27. 04DEP2 96488 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules mitigate against such potential transition difficulties. 2. Non-Governmental Assessments of Certificate Issuance Under Section 14(c) ddrumheller on DSK120RN23PROD with PROPOSALS2 In recent years, not-for-profit, academic, and advocacy organizations have also issued many reports and shared public comments on the payment of subminimum wages to individuals with disabilities.255 This proposed rule does not include a complete survey of these reports and viewpoints. Rather, the reports noted here are a sampling of nongovernmental views on subminimum wage payments under section 14(c). The Department notes that these reports reflect a wide range of the views on the use of section 14(c) certificates and subminimum wage employment of workers with disabilities. In general, most (but not all) organizations that advocate on behalf of individuals with disabilities strongly oppose reliance on the payment of subminimum wages to generate employment opportunities for individuals with disabilities. For example, in 2011, the National Disability Rights Network (NDRN),256 a 255 See, e.g., Nat’l Fed’n of the Blind, Letter to the Secretary of Labor, https://nfb.org/sites/nfb.org/ files/2021-06/Letter%20to%20Secretary %20Walsh%20regarding%2014c.pdf (June 21, 2021) (‘‘We believe Section 14(c) of the FLSA is a discriminatory practice and we have long been fighting to end it . . . 14(c) certificates have been a source of systemic abuse and corruption . . . [and] can no longer be justified, even under the FLSA’s own terms . . .’’); Minn. Disability Law Ctr., ‘‘Ending the Subminimum Wage in Minnesota: A Report from the Minnesota Disability Law Center,’’ https://mylegalaid.org/wp-content/ uploads/2024/03/Ending-the-Subminimum-Wagein-Minnesota_October-2022_Text-Version.pdf (October 2022) (among other findings, recommending the State government ‘‘[pa]ss legislation to phase out the payment of subminimum wages in Minnesota by a specific date with funding to implement the phase out.’’); Association of People Supporting Employment First (APSE), ‘‘Trends and Current Status of 14(c),’’ https://apse.org/wp-content/uploads/2021/10/10_ 20_21-APSE-14c-Update-REV.pdf (October 2021) (presenting data in support of APSE’s call for complete phase out of the use of 14(c) certificates); Jean Winsor, Cady Landa, Cady, Andrew Perumal, and John Butterworth, ‘‘The Power of Disability Employment: The Impact to Arizona’s Economy,’’ ThinkWork!, https://www.thinkwork.org/sites/ default/files/files/Arizona_whole%20report_ Final.pdf (October 2019) (finding that increasing the number of workers with disabilities will positively impact Arizona’s economy). 256 On December 13, 2021, the Department’s WHD and NDRN renewed a memorandum of understanding (MOU) establishing a collaborative relationship to promote compliance with laws of common concern. See https://www.dol.gov/ agencies/whd/workers-with-disabilities/nationaldisability-rights-network-mou. This MOU built upon the foundation established by a prior MOU entered into between WHD and NDRN in December 2015. Although WHD and NDRN collaborate on certain enforcement and training-related matters, VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 non-profit membership organization for the federally mandated State Protection and Advocacy Systems and Client Assistance Programs for individuals with disabilities, issued a report detailing their review of ‘‘segregated work, sheltered environments, and the sub-minimum wage to determine whether they meet the needs of people with disabilities and whether they comply with federal law.’’ 257 NDRN found that workers with disabilities in ‘‘sheltered workshops’’ using section 14(c) certificates are often ‘‘stuck’’ indefinitely, without a meaningful option of other employment, because workers under section 14(c) certificates are not provided with effective, transferable skills training in such settings.258 Among many recommendations to Congress, States, and Federal agencies, NDRN called for the cessation of section 14(c) certificate issuance.259 NDRN explained that ‘‘[i]n the best of situations, sheltered environments, segregated work, and the sub-minimum wage does not truly provide a meaningful experience for workers with disabilities. Workshop tasks are often menial and repetitive, the environment can be isolating, and the pay is often well below the Federal minimum wage. In the worst situations, the segregated and sheltered nature of the lives of workers with disabilities leaves them vulnerable to severe abuse and neglect.’’ 260 Conversely, some organizations and individuals vigorously support the continued issuance of section 14(c) certificates. For example, the non-profit organization A Voice of Reason (VOR), which is a grassroots advocacy organization that consists primarily of families of individuals with I/DD, posted a public letter in 2021 opposing the elimination of section 14(c) certificates. In the letter, VOR stated that it is important to preserve ‘‘opportunities for those who can succeed in competitive integrated employment as well as those who cannot.’’ 261 VOR elaborated that section the Department did not independently consult with NDRN about the development of this proposed rule. 257 Nat’l Disability Rights Network, ‘‘Segregated and Exploited: The Failure of the Disability Service System to Provide Quality Work,’’ 2011, A Letter from the Executive Director, https://www.ndrn.org/ wp-content/uploads/2019/03/Segregated-andExploited.pdf at 7. 258 Id. at 32–33. 259 Id. at 46. 260 Id. at 7. 261 A Voice of Reason, ‘‘In Support of Protecting Vocational Centers and 14(c) Wage Certificates,’’ https://vor.net/images/stories/2020-2021/VOR_-_ In_Support_of_Protecting_Vocational_Centers_and_ 14c_Wage_Certificates_2-4-21.pdf; see also Coalition for Preserving 14(c) White Paper (2022), PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 14(c) gives ‘‘thousands of individuals with I/DD the opportunity to work in a specialized environment that nurtures them and fits their abilities.’’ 262 VOR asserted that for these individuals ‘‘[w]ithout 14(c) certificates, they would lose any opportunity to work.’’ 263 The Department received similar feedback in its listening sessions from parents and other proponents of section 14(c). While acknowledging dissenting views, the Department relies on the significant quantitative and qualitative evidence discussed throughout these third-party reports that supports the preliminary conclusion that section 14(c) certificates are no longer necessary to prevent curtailment of opportunities for employment for workers with disabilities. The Department welcomes comments on its review and analysis of the reports mentioned in this section or other recent reports that consider the role of section 14(c) certificates and subminimum wages in the employment of workers with disabilities. D. State Elimination of Subminimum Wages and Other Relevant Data 1. State Elimination of Payments of Subminimum Wages to Individuals With Disabilities An increasing number of States and localities 264 have prohibited, limited, or plan to phase out the payment of subminimum wages to workers with disabilities, suggesting that these States and localities have reached the conclusion that such certificates are no longer necessary or appropriate in their jurisdictions.265 https://employmentchoice.org/protectingemployment-for-individuals-with-i-dd-coalitionwhite-paper-2022/. 262 Id. 263 Id. 264 At the local level, Chicago, Seattle, Denver, and Reno are among the localities that have passed city-specific bans on the payment of subminimum wages. See APSE ‘‘Trends and Current Status of 14(c)’’ at 8 (July 2023), https://apse.org/wp-content/ uploads/2023/09/APSE-14c-Update-REV-0723.pdf. 265 It bears mentioning that there have also been litigation and consent decrees aimed at the enforcement of Olmstead’s integration mandates that have resulted in States eliminating the payment of subminimum wages. For example, as discussed in greater detail in section III above, following a settlement agreement (see Settlement Agreement, Lane v. Brown,, No. 3:12–cv–00138, https:// www.justice.gov/media/1237561/dl), Oregon transitioned many workers from sheltered workshops to CIE. An important part of Oregon’s progress was investing in the employment support agencies to learn how to properly implement CIE programs. ‘‘Oregon’s efforts have resulted in the state being recognized in 2020 by the U.S. Commission on Civil Rights as a leader in eliminating subminimum wage and in transitioning to integrated employment.’’ Or. Dep’t Hum. Servs., ‘‘Lane v. Brown Settlement Agreement Report,’’ at 2 (Jan. 2022), https://www.oregon.gov/odhs/ employment-first/Documents/lane-v-brownsettlement-message-2022-06-21.pdf. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules i. Legal Developments at the State Level Eliminating or Curtailing Subminimum Wage Payments ddrumheller on DSK120RN23PROD with PROPOSALS2 A number of States have statutes, regulations, or other guidance regarding the payment of subminimum wages to workers with disabilities, further narrowing the universe of workers being paid below the Federal minimum wage. Significantly, nearly one-third of States have already passed laws entirely prohibiting (or planning to prohibit through a phase out) the payment of subminimum wages to workers with disabilities. To date, Alaska,266 California,267 Colorado,268 Delaware,269 Hawaii,270 Maine,271 Maryland,272 266 As of December 2022, no employer in Alaska is permitted to pay an individual with a disability less than the State minimum wage, due to the repeal of the State statute which previously allowed for the use of subminimum wage certificates. See Alaska Stat. Ann. sec. 23.10.070 (2022). 267 In 2021, California enacted Senate Bill 639, implementing a multi-year phaseout of the use of licenses authorizing a subminimum wage. See Cal. Lab. Code. sec. 1191 (2022). 268 On June 29, 2021, Colorado enacted Senate Bill 21–039, which was designed to phase out the use of subminimum wages for employees with disabilities by 2025. See Colo. Rev. Stat. Ann. sec. 8–6–108.7 (2021). As of July 2023, 2 years sooner than initially contemplated by the legislation, employers in Colorado are prohibited from paying an individual with a disability less than the State minimum wage. See Press Release, Polis-Primavera Administration Eliminates Subminimum Wages for People with Disabilities Two Years Ahead of Schedule (Oct. 31, 2023), https:// www.colorado.gov/governor/news/10901-polisprimavera-administration-eliminates-subminimumwages-people-disabilities-two-years. 269 In 2021, Delaware enacted the Jamie Wolfe Employment Act, which repealed the State statutory provision permitting the payment of subminimum wages and prohibited the payment of subminimum wages after January 31, 2024. See Del. Code. Ann. tit. 19 sec. 905 (2024); Del. Code. Ann. tit. 19 sec. 752 (2024). 270 In 2021, Hawaii enacted Senate Bill 793, which immediately repealed the authority of the Director of Labor and Industrial Relations to permit the employment of individuals with disabilities at a subminimum wage. See Hawaii Rev. Stat. Ann. sec. 387–9 (2021). 271 In 2020, Maine enacted Legislative Document 1874, which, effective June 16, 2020, amended its minimum wage law to state that the Director of Labor Standards ‘‘may not’’ issue a certificate authorizing an employer to pay a subminimum wage to an employee with a disability. See Me. Rev. Stat. Ann. tit. 26, sec. 666 (2020). 272 In 2016, Maryland enacted the Ken Capone Equal Employment Act, which amended its minimum wage law to abolish the payment of subminimum wages to persons with disabilities after October 1, 2020. See Md. Code Ann., Lab. & Empl. sec. 3–414 (2016). VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 Nevada,273 New Hampshire,274 Oregon,275 Rhode Island,276 South Carolina,277 Tennessee,278 Virginia,279 and Washington 280 have all passed legislation or executive orders prohibiting (or planning to prohibit through a phase out) the payment of subminimum wages to at least some workers with disabilities in their State. These bills were often passed with bipartisan support and with the support of broad coalitions of stakeholders. Several additional States are considering similar legislation.281 Other 273 In 2023, Nevada enacted Assembly Bill 259, which phases out the use subminimum wages in Nevada by January 1, 2028, see Assemb. 259, 82d Sess. sec. 12 (Nev. 2023), and prohibits providers of jobs and training services from entering into new contracts that included the payment of subminimum wages on or after January 1, 2025. See id., sec. 8 (amending Nev. Rev. Stat. secs. 608.250 and 435.305). 274 In 2015, New Hampshire enacted Senate Bill 47, which generally prohibited the payment of subminimum wages to workers with disabilities as of July 6, 2015. See N.H. Rev. Stat. Ann. sec. 279:22 (2024). 275 In 2019, Oregon enacted Senate Bill 494, which banned the payment of subminimum wages to workers with disabilities after June 30, 2023. See Or. Rev. Stat. Ann. sec. 653.033 (2019). 276 In 2022, Rhode Island enacted Senate Bill 2242, which banned the payment of subminimum wages to workers with disabilities after June 15, 2022. See R.I. Gen. Laws Ann. sec. 28–12–9 (2022). 277 In 2022, South Carolina enacted Senate Bill 533, which phases out the use of section 14(c) certificates which allow the payment of subminimum wages in the State by August 1, 2024. See S.C. Code Ann. sec. 41–6–10 (2022); 2022 S.C. Act No. 209, sec. 3(C)(1). 278 In 2022, Tennessee enacted the Tennessee Integrated and Meaningful Employment Act, which states that, effective July 1, 2022, Tennessee employers must pay at least the Federal minimum wage to all workers with disabilities. See Tenn. Code Ann. sec. 50–2–114 (a). 279 In 2023, Virginia enacted House Bill 1924 to phase out the use of the subminimum wages by 2030. As part of the phase out, no new authorizations were permitted after July 1, 2023; however, any employer that was certified prior to July 1, 2023, is permitted to continue paying employees pursuant to section 14(c) until 2030. See Va. Code Ann. sec. 40.1–28.9(A)(9) (2023) 280 In 2021, Washington enacted Senate Bill 5284 which phases out the use of subminimum wage certificates for private employers. See Wash. Rev. Code Ann. sec. 49.46.170(2) (2021). For private employers, no new certificates were issued after July 31, 2023, and the last potential date a certificate can remain valid under the law is July 30, 2026. See id. sec 49.46.170(2)–(3); see also Wash. Dep’t of Labor & Indus. & Wash. Dep’t of Social & Health Servs., ‘‘Subminimum Wage Certificates’’ at 2 (2023), https://www.lni.wa.gov/ agency/_docs/2023SubMinimumWageCertificates Report.pdf. As to State employers, ‘‘no state agency’’ is permitted to ‘‘employ an individual to work under a special certificate . . . for the employment of individuals with disabilities at less than the minimum wage’’ as of July 1, 2020. Id. sec. 49.46.170(1) (2021). Any certificate issued to a State agency expired on June 30, 2020. Id. 281 For example, House Bill 793 in Illinois, which would ban the payment of subminimum wages to workers with disabilities by 2030, passed the Illinois House in May 2024 and is currently pending in the Illinois Senate. See Illinois General PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 96489 States have limited or restrained the payment of subminimum wages in various ways, such as Texas (prohibiting payment of subminimum wages by CRPs participating in State use contracts, with limited exceptions),282 Illinois (executive order prohibiting payment of subminimum wages for work performed by employees of State not-for-profit vendors, including subcontractors),283 Kansas (limiting payment of subminimum wages to no less than 85 percent of the State minimum wage),284 Minnesota (limiting payments to no less than 50 percent of the State minimum wage, with some exceptions) and New Mexico (limiting payment of subminimum wages to no less than 50 percent of the State minimum wage),285 West Virginia, Nebraska, and New York (subminimum wages only permissible in certain Assembly-Bill Status, https://ilga.gov/legislation/ billstatus.asp?DocNum=793&GAID=17&GA=103& DocTypeID=HB&LegID=142668&SessionID=112. 282 In 2019, Texas enacted Senate Bill 753, which ended the use of subminimum wages in its State Use Program. See Tex. Hum. Res. Code Ann. sec. 122.0076(a) (2019). A community rehabilitation program may not participate in the program administered under this chapter ‘‘unless each worker with a disability employed by the program is paid at least the federal minimum wage . . .’’; the provision, however, contains an exceptions clause. See id. sec. 122.0076(a), (b). 283 On October 4, 2021, Illinois Governor JB Pritzker issued Executive Order 2021–26, which required that contracts and sub-contracts with State agencies that participate in the State Use Program must pay ‘‘no less than the applicable local, if higher, or Illinois minimum wage for all employees performing work on the contract, notwithstanding any provision that would permit payment of a lower wage rate.’’ See Ill. Exec. Order 2021–26, https://www.illinois.gov/government/executiveorders/executive-order.executive-order-number26.2021.html. 284 See Kan. Admin. Regs. 49–31–5(b) (2024). Additionally, on February 8, 2024, Kansas enacted the Disability Employment Act, which incentivizes employers to pay employees with disabilities the State minimum wage. The Act established the ‘‘sheltered workshop transition fund,’’ in order to ‘‘facilitate[ ] transitions by Kansas sheltered workshop employers away from employing individuals with disabilities under a certificate issued by the United States Secretary of Labor under 29 U.S.C. [ ] 214(c) and toward paying all such employees at least the minimum wage,’’ by providing matching grants to sheltered workshops that commit to paying at least the minimum wage. See 2024 Kan. Sess. Laws Ch. 1, sec. 2(a). The Act also provides a tax incentive for purchases of goods and services from ‘‘qualified vendors,’’ which include vendors that do ‘‘not employ individuals under a certificate issued by the United States Secretary of Labor under 29 U.S.C. [ ] 214(c).’’ Kan. Stat. Ann sec. 79–32,273(b) & (e)(1)(A)(iv) (2024). 285 See Minn. Stat. Ann. sec. 177.28, subd. 5 (2007); Minn. R. 5200.0030 (2008); N.M. Stat. Ann. sec. 50–4–23. Additionally, from 2021–24 Minnesota established a task force ‘‘to develop a plan and make recommendations to phase out payment of subminimum wages to people with disabilities on or before August 1, 2025.’’ See 2021 Minn. Laws, First Spec. Sess., ch. 7, art. 17, sec. 14. E:\FR\FM\04DEP2.SGM 04DEP2 96490 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules settings or by certain employers),286 and Arizona (pursuant to a policy statement, an employer must pay an ‘‘employee’’ with a disability at least the State minimum wage; however under Arizona’s guidance, a worker in a CRP, vocational training program or service recipient program may not be an employee in certain circumstances under Arizona state law).287 Additionally, although Vermont does not have any formal legislation 288 specifically to disallow the payment of subminimum wages to workers with disabilities, the Vermont Division of Disability and Aging Services does ‘‘not support center-based or group supported employment services’’ and there have been no active section 14(c) certificate holders in Vermont for many years.289 USCCR notes in its 2020 Report that ‘‘Vermont achieved an end to subminimum wage and segregated employment by ending funding for new entrants into sheltered workshops in 2000, which also began a three year phase-out of all subminimum wage, sheltered employment.’’ In sum, 15 states have laws that prohibit or are in the process of prohibiting subminimum wage payments, and an additional nine states have limited or restrained the payment of subminimum wages, resulting in nearly half of the States eliminating or restricting such payments. As discussed below, the Department’s analysis yields no statistical evidence that employment or the labor force participation rate of individuals with cognitive disabilities, such as I/DD, differed in states that have adopted laws, policies, or regulations that end the payment of subminimum wages relative to states that do allow subminimum wages.290 ddrumheller on DSK120RN23PROD with PROPOSALS2 286 W. Va. Code Ann. sec. 21–5C–1(f)(8) (limited to non-profit sheltered workshops); Neb. Rev. Stat. Ann. sec. 48–1202(3)(i) (limited to rehabilitation programs receiving public funding); N.Y. Lab. Law secs. 651(5)(i); 655(5)(c)(2) (limited to charitable, educational, or religious employers). 287 Indus. Comm’n of Ariz., ‘‘Substantive Policy Statement Regarding Application of Arizona Minimum Wage Act to Work Activities Performed by Individuals with Disabilities,’’ (Mar. 29 2007), https://www.azica.gov/sites/default/files/migrated_ pdf/Labor_MinWag_SubstantivePolicyDisabilities_ 32907-2.pdf. State laws do not affect whether an individual is an employee under the FLSA. 288 2020 USCCR Report at 181 (noting that Vermont eliminated the payment of subminimum wages in practice in 2002 but did not pass legislation banning subminimum wages at that time). The District of Columbia and Wyoming similarly do not have any formal legislation in place, yet do not report any workers receiving subminimum wages under section 14(c) certificates. See https://www.dol.gov/agencies/whd/workerswith-disabilities/section-14c/certificate-holders. 289 See id. 290 See e.g., preliminary regulatory impact analysis discussion in section VII.E (‘‘Transfers’’). The Department further notes that nationwide and VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 ii. Data From Vermont Regarding LongTerm Impacts of Elimination of Subminimum Wage Payments While many States have moved away from subminimum wage payments relatively recently, data and studies regarding Vermont’s decision to end funding for sheltered workshops and phase out all subminimum wage employment offer insight into how elimination of the payment of subminimum wages to individuals with disabilities impacted the long-term employment opportunities of those workers. Despite this longstanding absence of the payment of subminimum wages under section 14(c) certificates in Vermont, that absence does not appear to have negatively impacted employment rates of workers with I/DD when compared with national employment rates. Instead, as observed by the USCCR in its 2020 report, from 2008 to 2016–2017, the rate of employment for workers with I/DD in Vermont rose from 35.8 percent to 42 percent, more than double the national average employment rate in 2016–2017 for this group.291 Additionally, academic research from Vermont also shows that workers’ transitions away from a sheltered workshop, subminimum wage model are often positive, despite those workers’ (and their families’) initial opposition to such changes. For example, years after Vermont eliminated subminimum wage employment, a researcher at the University of Vermont published a case study based on extensive interviews with individuals with I/DD and their family members.292 Some of the individuals had previously worked for subminimum wages, and for decades, there has been growth in the number of individuals with disabilities who participate in State-funded non-work supportive rehabilitation programming (such programs, which offer both enrichment to individuals with disabilities and respite to caregivers, often consist of activities such as taking adult education classes, support for daily activities, and participating in social activities). See 2023 Thinkwork Report at 3. This broader trend appears to be unrelated to State action related to the cessation of subminimum wage employment under section 14(c) certificates. As discussed above, in Oregon, the overwhelming majority of former sheltered workshop employees transitioned to fullwage jobs, exceeding the goal for the numbers of individuals entering into CIE placement set forth in the settlement agreement. See Oregon Dep’t of Human Servs., ‘‘Lane v. Brown Settlement Agreement Report,’’ https://www.oregon.gov/odhs/ employment-first/Documents/lane-v-brownsettlement-message-2022-06-21.pdf. 291 Id. at 180–81 (citing Univ. Mass. Boston, Inst. for Community Inclusion, StateData.info, ‘‘State Employment Snapshot: Vermont,’’ https:// www.statedata.info/statepages/Vermont). 292 Bryan Dague, ‘‘Sheltered Employment, Sheltered Lives: Family Perspectives of Conversion to Community-Based Employment,’’ 37 J. of Vocational Rehab. 1 (Jan. 2012). PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 their interviews speak to deep anxieties about the elimination of subminimum wages.293 At the beginning of the transition in Vermont, parents of workers with disabilities expressed fear of the future, with particular emphasis on issues of safety where an adult child was leaving a sheltered workshop setting.294 However, parents reported that as their children with disabilities ‘‘spent more time in the community, the fears of abuse and ridicule did not materialize[.]’’ 295 Moreover, the workers with disabilities generally reported positive feelings about their new jobs.296 As discussed above, the USCCR made similar findings based on its case studies in Vermont.297 E. Summary of Analysis and Conclusion Congress gave the Secretary the authority to issue certificates allowing employers to pay subminimum wages to individuals with disabilities but not without restriction and not in perpetuity. Instead, Congress included a significant statutory limitation on the Department’s authority, allowing the issuance of certificates only to the extent ‘‘necessary to prevent curtailment of opportunities for employment,’’ and conferred authority upon the Department to determine whether that standard has been met. Given the expanded legal protections and opportunities for employment of individuals with disabilities available today, to comply with the terms of the statute, the Department must determine whether the FLSA’s standard continues to be met. When Congress first enacted the subminimum wage provision of the FLSA in what is now known as section 14(c), the employment opportunities available to individuals with disabilities were a fraction of what they are today. Through the Department’s comprehensive review culminating with this rulemaking, the Department has reflected on the substantial progress, resources, and supports for workers with disabilities that have emerged over the last several decades. After extensively reviewing and analyzing the issues, developments, and reports discussed in this proposed rule, holding listening sessions, and partnering closely with agencies within and outside of the Department, as well as the Department’s extensive experience administering and enforcing section 14(c) certificates, the Department preliminarily finds that subminimum 293 Id. at 4–5. at 5–7. 295 Id. at 7. 296 Id. at 8. 297 See, e.g., 2020 USCCR Report at 198. 294 Id. E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules wages are no longer necessary to prevent curtailment of employment opportunities for individuals with disabilities. Accordingly, the Department proposes to amend 29 CFR part 525 to phase out the issuance of section 14(c) certificates. Under the Department’s current regulation at 29 CFR 525.9, ‘‘in order to determine that special minimum wage rates are necessary in order to prevent the curtailment of opportunities for employment,’’ the Administrator considers whether a certificate applicant has satisfied the standards set forth in other regulatory provisions governing the proper computation and payment of subminimum wages. The current regulations thus focus on whether a certificate applicant has properly evaluated and calculated productivitybased wage rates for workers with disabilities at specific jobs (and under the specific conditions) offered by the employer. The statute does not require the framework currently in place, however and this regulatory methodology, now 35 years old, could not have taken into account today’s more structural, comprehensive strategies for preventing curtailment of employment opportunities for individuals with disabilities. However, the Secretary now has the benefit of being able to take such strategies and developments into account. Thus, to comply with the terms of the statute, the Department must determine whether the statute’s prerequisite—that payment of subminimum wages be necessary to prevent the curtailment of employment opportunities—can be met given the current demonstrated systemic and nationwide advances in employment opportunities for individuals with disabilities. In the introductory section of the ADA Amendments Act of 2008, Congress states that ‘‘in enacting the ADA, Congress recognized that physical and mental disabilities in no way diminish a person’s right to fully participate in all aspects of society, but that people with physical or mental disabilities are frequently precluded from doing so because of prejudice, antiquated attitudes, or the failure to remove societal and institutional barriers.’’ 298 With this context in mind, the Department takes note of the historical evolution of the use of section 14(c) certificates. When first enacted, Congress focused significantly on private industry and small businesses,299 and a far broader swath of 298 42 U.S.C. 12101 note (2008). Record, Vol. 82, Part I, 75th Cong. 2d Sess., p. 88. 299 Congressional VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 U.S. workers were being paid subminimum wages based on age, disability, or injury.300 Over time, the use of section 14(c) certificates has narrowed to almost exclusively one setting—CRPs rather than private sector opportunities—and has constricted to consist almost exclusively of workers with I/DD. As other groups experiencing different disabilities (e.g., age-related, addiction-related, those experiencing blindness) have already generally moved away from working for subminimum wages to employment at or above the full minimum wage, so too now are workers with I/DD. Specifically, as to these workers, reports show, among the general population of workers with I/DD, working in integrated settings for at least the minimum wage is now far more common than working for subminimum wages.301 At the same time, the number of section 14(c) certificates has dwindled, with a decades-long downward trend and with the vast majority of certificates now being renewals, with only a few new applications. Today, the issuance of section 14(c) certificates may be self-reinforcing, with the continued use of certificates facilitating workers continuing to only receive subminimum wages despite the potential to engage in other full-wage employment opportunities, which is contrary to the statute’s intent of providing for certificates only when necessary.302 As noted by NDRN, 300 For example, in the 1967 report to Congress, the Department noted that there were sheltered workshops paying subminimum wages for older workers, workers who were blind, workers with tuberculosis, workers who were epileptic, workers with alcoholism, workers who were paraplegic, and workers experiencing mental illness, among others. See generally U.S. Dep’t of Labor, ‘‘Sheltered Workshop Report of the Secretary of Labor and Technical Report on Wage Payments to Handicapped Clients in Sheltered Workshops,’’ September 1967. 301 See, e.g., Agnieszka Zalewska, Jean Winsor, & John Butterworth, ‘‘Intellectual and Developmental Disabilities Agencies’ Employment and Day Services (1988–2021),’’ ThinkWork, Data Note Plus, Issue 87 (2023), at 8, https://www.thinkwork.org/ sites/default/files/2024-01/DN_87_R_0.pdf. See also NLTS2, Exhibit 5–2, noting the vast majority of youths with I/DD having a transition goal of competitive or supported employment (79 percent) compared to sheltered employment (14 percent). 302 See, e.g., ‘‘Legal Foundations for Protection and Advocacy Entities,’’ Part 1 (July 15, 2021) 5, n.22, https://aoddisabilityemploymenttacenter.com/ wp-content/uploads/2021/07/DETAC_BY_ Resource_PA_Legal_Foundations_Pt_1_Final_ 508.pdf (explaining that research demonstrates that a very low percentage of workers—less than 5 percent—transition from sheltered workshops being paid subminimum wages to integrated or community-based employment at full wages) (citations omitted); see also U.S. Dep’t of Justice Civil Rights. Div., ‘‘Questions and Answers on the Application of the ADA’s Integration Mandate and PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 96491 workers with disabilities in sheltered workshops using section 14(c) certificates are often ‘‘stuck’’ indefinitely, without a meaningful option of other employment, because workshop tasks are often menial and repetitive, the environment can be isolating, and workers under section 14(c) certificates are not provided with effective, transferable skills training in such settings.303 DOJ has similarly observed that workers with disabilities in community rehabilitation programs typically have ‘‘no opportunity for advancement’’ and ‘‘often earn extremely low wages when compared to people with disabilities in integrated employment, resulting in stigmatization and a lack of economic independence.’’ 304 Given this, the Department is cognizant that today, the issuance of section 14(c) certificates may, inadvertently and counterintuitively, even contravene the statute’s intent of promoting opportunities for gainful employment.305 In light of these realities, as well as the legal and policy developments discussed above, the Department preliminarily finds that today, the issuance of subminimum wage certificates is no longer necessary to prevent the curtailment of employment opportunities. Moreover, the evidence indicates such certificates themselves may, in fact, sometimes contribute to the curtailment of employment opportunities at or above the full Federal minimum wage for some workers with disabilities. The disability rights movement, led by a broad coalition of stakeholders including self-advocates, has forged a path toward increased equity, selfdetermination, and inclusion, thereby expanding access to and opportunities available for employment. As discussed above, this movement has resulted in a very different—and improved—legal and policy landscape than existed in 1938 or even 1989 when section 14(c) regulations were last substantively updated, reflecting the 1986 amendments to the FLSA. An array of Federal legislation has substantially broadened opportunities Olmstead v. L.C. to Employment and Day Services for People with Disabilities,’’ p.1 (‘‘The work of individuals with disabilities in segregated settings is often highly regimented and typically offers no opportunity for advancement.’’). 303 Nat’l Disability Rights Network, ‘‘Segregated and Exploited: The Failure of the Disability Service System to Provide Quality Work,’’ 2011, A Letter from the Executive Director, https://www.ndrn.org/ wp-content/uploads/2019/03/Segregated-andExploited.pdf at 32–33. 304 See DOJ ADA Integration Mandate Q&As. 305 See Portland Terminal, 330 U.S. at 151. E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 96492 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules and access, while legal precedent has bolstered these nationwide laws. Most significantly, over the past several decades, the ADA and the Supreme Court’s Olmstead decision have profoundly impacted the rights and employment opportunities available to individuals with disabilities. These legal developments have resulted in changes to workforce development and vocational rehabilitation systems that provide more support to individuals with disabilities in achieving and maintaining employment at or above the full minimum wage, as discussed above. While the ADA has been the catalyst for substantial change and progress in the legal landscape affecting workers with disabilities, the section 14(c) regulations could not have contemplated this progress or incorporated the fundamental anti-discrimination and reasonable accommodation protections of the ADA. Additionally, the ADA’s broad legal protections (made more broadly applicable through the ADAA 306), coupled with Olmstead’s integration mandate and the array of employment-related programs, and supports for workers with disabilities discussed in this proposed rule, fundamentally alters the assessment as to whether subminimum wages are necessary to prevent curtailment of employment opportunities. The Department is also cognizant of the Department of Justice’s conclusion that public entities (i.e., state and local governments) may be in violation of the ADA’s integration and equal employment opportunity mandates if they plan, administer, operate, fund, or implement any services—including employment or day services—in a way that unjustifiably segregates individuals with disabilities. The Department also takes notice of the multitude of Federal and State programs encouraging CIE that do not rely on the payment of subminimum wages to workers. There is now an extensive and continually growing network of supports for workers with disabilities to access full-wage employment opportunities in a variety of ways, as evidenced by the fact that all States and the District of Columbia have taken Employment First actions. The opportunities available to workers with intellectual or developmental disabilities have been fundamentally changed by these laws, regulations, executive orders, and policy initiatives. As a result, more than ever before, these workers have the chance to ‘‘move 306 Supra note 110. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 proudly into the economic mainstream of American life.’’ 307 The Department is further persuaded by the overwhelming evidence and arguments put forward by the majority of disability-focused government, academic, and advocacy organizations illustrating that section 14(c) certificates are no longer necessary. Non-partisan Federal agencies that have studied the issue in depth, such as the USCCR and NCD, have published detailed reports concluding that the payment of subminimum wages is unnecessary to create employment opportunities for individuals with disabilities, including individuals with I/DD, and that section 14(c) certificates may actually be detrimental to the population they are intended to help. Indeed, as noted above, the USCCR found there is little distinction among characteristics of the I/DD workforce that receives at least the full Federal minimum wage and the characteristics of the I/DD workforce that receives subminimum wages. The Department finds it particularly noteworthy that, as evidenced in the USCCR findings, workers with disabilities being paid at least the full minimum wage experience similar disabilities and have similar support needs as workers with disabilities being paid subminimum wages, and finds this compelling evidence to preliminarily conclude that section 14(c) certificates are no longer necessary to prevent the curtailment of employment opportunities. Indeed, individual experiences of workers in States where subminimum wages have been phased out also demonstrate that there are not insurmountable barriers to transitioning to employment at or above the full Federal minimum wage, as evidenced by the experience of the lead plaintiff in Lane v. Brown. Prior to filing her suit, Paula Lane worked on an assembly line packaging gloves for 66 cents an hour.308 Subsequently, Lane found work at full wages in a community setting.309 Nearly half of U.S. States have now prohibited or limited the payment of subminimum wages. Additionally, as further discussed in section VII, although the unemployment rate for individuals with disabilities remains relatively high compared to the entire population (though it is trending in a favorable direction), the available data demonstrates that there is a strong 307 President George H.W. Bush, Remarks at the Signing of the Americans with Disabilities Act (July 26, 1990), https://perma.cc/VNU4-HR7P. 308 Disability Rights Oregon, ‘‘Lawsuit: State Required to Limit Use of Sheltered Workshops,’’ https://www.droregon.org/litigation-resources/lanev-brown. 309 Id. PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 demand for CIE opportunities, that subminimum wage employment does not typically lead to competitive integrated employment, and that the States that have abolished subminimum wages have not, in general, seen a comparative decrease in employment opportunities for individuals with disabilities. The Department finds that Oregon’s experiences—and the amount of data available due to the Lane v. Brown settlement agreement, discussed above—are especially instructive in considering why subminimum wages are no longer necessary. In a relatively short time period, Oregon was able to meet or exceed the numerical metrics of the Lane v. Brown settlement agreement regarding, among other things, the reduction in sheltered workshop hours, the provision of supported employment services, and achieving competitive integrated employment for the numbers of individuals specified in the settlement agreement.310 The Department notes that the Oregon example sheds light on the fact that current employers of workers receiving subminimum wages are usually publicly funded, and that States which have stopped the payment of subminimum wages can achieve positive outcomes in part by redirecting these funds away from sheltered workshops or other jobs where subminimum wages are being paid toward full wage employment opportunities.311 Similarly, nearly 25 years ago, Vermont achieved an end to subminimum wage by, in part, ending funding for new entrants into sheltered workshops.312 These examples also highlight the shift in employer demographics for certificate holders— from the ‘‘industry,’’ ‘‘manufacturers,’’ and ‘‘small businessmen’’ who were the potential section 14(c) employers discussed during the floor debate in 1937 to the vast majority of certificate holders today being CRPs, many of whom receive some type of public funding. While most of the employers envisioned in 1937 were market-driven private sector employers, today’s section 14(c) employers are commonly enmeshed with public funding streams 310 Final Report to the Court of the Independent Reviewer, Lane v. Brown, Civil Action No. 3:12–cv– 00138–ST (D. Or.), https:// www.centerforpublicrep.org/wp-content/uploads/ FINALLaneIRFinalReporttotheCourt6.30.22.pdf. 311 Id. Specifically, Oregon ceased funding and closed all sheltered workshops within a matter of a few years, and instead increased access to supported employment services and CIE for workers with I/DD, expanded evidence-based transition practices, developed an agency infrastructure across State agencies, and, critically, enhanced Federal and State funding to support access to CIE. 312 USCCR Report at 180. E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules that may be able to be redirected, as several States such as Oregon and Vermont have already demonstrated. The Department finds that the evidence from Oregon and Vermont’s experiences further supports its preliminary conclusion that payment of subminimum wages is no longer necessary to prevent the curtailment of employment opportunities for workers with disabilities. As described in Section VII, the Department’s analysis yields no statistical evidence that employment or the labor force participation rate of individuals with cognitive disabilities differed in States that have adopted laws, policies, or regulations that do not allow the payment of subminimum wages. However, the Department’s analysis did show a statistically significant increase in average hourly wage rates of such individuals. The Department believes the results of this analysis, while not dispositive, further support its preliminary conclusion that employment opportunities exist for workers with disabilities that are independent from section 14(c) certificates. The Department welcomes comments on States’ experiences in prohibiting or limiting the payment of subminimum wages to workers with disabilities. The Department recognizes and deeply values the lived experiences of workers as well as families who may have a loved one working under a section 14(c) certificate and who may wish to continue in their current positions under which they are paid subminimum wages. The Department welcomes public comment on this proposed rule. The Department also emphasizes that nothing in this proposal would require existing section 14(c) certificate holders to amend the services they currently provide, including employment services, other than by paying all workers the full required minimum wage for all covered work, as of the phaseout effective date, as explained below. The Department notes that, as a general matter, the empirical evidence reviewed does not indicate that workers transitioning from subminimum wage employment have had negative outcomes. As outlined above and discussed in a number of reports referenced herein, many more workers with disabilities are working in competitive integrated employment and workers and their families have expressed positive feelings about new opportunities and spending more time in the community, as noted, for example, by families in Vermont who have experienced this transition. Congress has directed that employment VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 of workers with disabilities at subminimum wages may occur only if the Secretary determines it is necessary to prevent the curtailment of employment opportunities for workers with disabilities. Thus, in considering its obligations under the section 14(c) provisions to evaluate opportunities for employment for workers with disabilities, it is appropriate for the Department to consider how the evolution described above impacts whether the payment of subminimum wages to workers with disabilities is necessary to prevent the curtailment of employment opportunities for workers with disabilities. The Department must also enforce this statutory mandate in the broader context of the FLSA generally, including the fundamental principle that FLSA rights cannot be waived by workers or employers, and consider whether, even if workers would agree to work for subminimum wages, it is necessary to continue granting certificate authority permitting payment of wages below the current Federal minimum wage of $7.25 per hour. The Department’s analysis as set forth in this proposed rule preliminarily indicates workers with disabilities— including workers with I/DD—no longer need subminimum wages for employment opportunities. With expanded opportunities and legal protections, both compared to the enactment of section 14(c) in 1938 and the last substantive update to the section 14(c) regulations in 1989, and with opportunities for full-wage employment now substantially more common than subminimum wage employment, the Department proposes to phase out issuance of section 14(c) certificates based on its tentative conclusion that these certificates are no longer necessary to prevent the curtailment of employment opportunities for workers with disabilities. IV. Discussion of Proposed Regulatory Changes The Department proposes to revise 29 CFR 525.1 to explain that, as evidenced by the analysis set forth above in the Need for Rulemaking section, the Secretary has preliminarily determined that section 14(c) certificates are no longer necessary to prevent the curtailment of opportunities for employment of individuals with disabilities. The Department further proposes to revise that regulation to explain, in light of this determination, that the Secretary will cease issuing new certificates immediately as of the effective date of a final rule and that PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 96493 certificates will only be available to renewing applicants for a limited phaseout period ending 3 years after the effective date of a final rule. The Department further proposes to revise 29 CFR 525.1 to clarify that this part remains in effect during the phaseout period. The contours of the Department’s proposed certificate phaseout are explained below in greater detail. The Department seeks comments on the structure of the proposed phaseout, including the proposed length of the phaseout period and any potential extensions to the defined phaseout period, factors affecting the sufficiency of any phaseout period, and states’ and organizations’ experience with phasing out the use of subminimum wages. A. Phaseout The Department proposes that WHD would no longer issue new section 14(c) certificates in response to initial applications postmarked or submitted online on or after the effective date of the final rule because the Department preliminarily finds such certificates are no longer necessary to prevent the curtailment of employment opportunities for individuals with disabilities. Employers that do not hold a valid section 14(c) certificate or that have not timely and properly filed a renewal application as of the effective date of the final rule would not have authority to pay subminimum wages and neither they nor the workers whom they employ would be actively utilizing a section 14(c) certificate for their respective operations or jobs. Accordingly, proposed 29 CFR 525.7 states that only applicants who are seeking to renew a certificate pursuant to proposed 29 CFR 525.13, but not initial applicants, may apply for certificates. The Department also proposes to amend 29 CFR 525.7 to provide minor clarifying edits regarding the certificate application process. For employers who hold a valid section 14(c) certificate at the time of the effective date of a final rule and seek to renew that certificate, the Department proposes, at 29 CFR 525.13, that it would continue to process renewal applications for such existing certificate holders for a 3-year period beginning on the effective date of a final rule, with all renewals granted within that period expiring no later than the date that is 3 years after the effective date of a final rule. The Department proposes that a phaseout period would allow those employers to prepare and transition to the payment of minimum wages required under the law. Based on the Department’s experience, the Department preliminarily finds this E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 96494 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules multi-year phaseout period would provide time for employers who are paying subminimum wages pursuant to section 14(c) certificates, if needed, to make necessary adjustments to their operation and funding models. Likewise, affected workers with disabilities who would be due higher wages under the Department’s proposed rule may, for example, use the phaseout period to explore new workplace accommodations, participate in additional job training or vocational services, or receive counseling about public benefits and income. Finally, the proposed phaseout period would also provide time for States and other entities to adjust budget allocations, staffing, and disability service delivery programs, as needed, to continue to support workers with disabilities and service providers after the phaseout period ends and the payment of subminimum wages is prohibited for workers with disabilities. As discussed below in section V., State statutes containing multi-year phaseouts have phaseout periods that range from 2 years to 7 years, with many states opting for a 2- or 3-year phaseout. The Department proposes that 3 years should be sufficient to allow for transitions away from subminimum wage employment but seeks comments on the need for, length of, and factors affecting any phaseout period. As specified at proposed 29 CFR 525.13(b), all section 14(c) certificates renewed on or after a final rule’s effective date would expire at or before the end of that phaseout period, and under the proposed rule, if finalized, the Department would no longer issue any section 14(c) certificates after the last day of that phaseout period. The Department proposes to make conforming edits to 29 CFR 525.2, 525.9, and 525.11(c) to ensure that stakeholders understand the proposed phaseout. The Department also notes that, as discussed above, many oversight and advocacy reports that recommend an end of the payment of subminimum wages concluded that such plans should include a phaseout period but varied in providing recommendations concerning the length of the phaseout period. For example, NCD recommended a gradual phaseout of the use of subminimum wages to allow time for modernization of employment service systems that would promote successful transitions for people currently working under section 14(c) certificates.313 In another example, the USCCR also recommended a multi-year phaseout ‘‘to allow transition among service providers and 313 2018 NCD Report at 99–100. VerDate Sep<11>2014 19:32 Dec 03, 2024 people with disabilities to alternative service models . . . .’’ but did not specify a length for the phaseout period.314 The Department further notes that many such reports recommend that a gradual end of subminimum wages should be accompanied by simultaneous movement of workers with disabilities into integrated employment. However, the Department’s authority and its proposed rule do not require any change to employment settings during the phaseout period or anytime thereafter. In accordance with this phaseout proposal, the Department proposes to modify 29 CFR 525.7 to reflect that the Department would no longer accept initial applications for a section 14(c) certificate as of the effective date of a final rule. Moreover, the Department proposes in 29 CFR 525.11 that section 14(c) certificate holders, assuming all legal requirements are met, may continue to operate under section 14(c) certificate authority for up to 3 years after the effective date of a final rule. Because the Department proposes that this phaseout would lead to a cessation of all certificate issuance, the Department does not propose any changes to the operational requirements of the section 14(c) regulations, such as the procedures for determining a commensurate wage, for employers who hold a valid certificate during the phaseout period. The Department requests comments on the length and structure of the proposed phaseout period and any evidence that supports those comments, including data, case studies, explanations of program or funding structures, and the personal experiences of employers and employees. The Department’s proposal to phase out section 14(c) over several years is intended to avoid disruptions to services, supports, and funding streams needed to transition workers from being paid subminimum wages while still timely phasing out subminimum wage payments to individuals with disabilities. The Department specifically invites comment on how it may implement any proposed phaseout in a manner that further reduces potential disruptions. The Department also invites comment on how State and publicly funded entities may be impacted by a phase out of section 14(c), including comments relevant to the length of the phase-out period. Finally, the Department proposes to revise 29 CFR 525.18, which sets forth an administrative appeal process for any person aggrieved by any action of the 314 USCCR Jkt 265001 PO 00000 Report at 223. Frm 00030 Fmt 4701 Sfmt 4702 Administrator taken pursuant to the regulations, to explain that any administrative review granted cannot result in section 14(c) certificate authority being extended beyond the phaseout period. B. Request for Comments Related to Potential Extensions In reviewing phaseouts of subminimum wages, the Department observes that the State of Washington allowed for a one-time extension period of up to 12 months in its phaseout of subminimum wages.315 Similarly, the AbilityOne Commission granted limited extensions no longer than 12 months when it phased out subminimum wages.316 The Department has not proposed such an extension framework in this proposed rule. As discussed above, the Department proposes that a 3-year phaseout period should be sufficient for most, if not all, employers that currently hold section 14(c) certificates to adjust their operations and funding structures such that they can transition away from subminimum wages by the end of that period. However, if the Department finalizes the proposal herein that current section 14(c) certificate holders may renew their certificates to allow payment of subminimum wages until 3 years from the effective date of a final rule, the Department anticipates considering whether any potential extension framework should be added to the final rule, and seeks comments accordingly. The Department requests comments on all aspects of a possible limited 315 Wash. Rev. Code Sec. 49.46.170, [Washington Minimum Wage Act; Minimum Wage and Labor Standards; State Agencies Prohibited From Employing Individuals With Disabilities At Less Than Minimum Wage Beginning July 1, 2020; No New Special Certificates May Be Issued After July 31, 2023], Wages & Hours P 50–41016; see also Washington Department of Labor and Industries, 2023 Annual Report to the Legislature, p.2, https:// www.lni.wa.gov/agency/_docs/ 2023SubMinimumWageCertificatesReport.pdf (Most private certificate holders were subject to a two-year phaseout, with a possible one-time, one-year extension for a total of three years). 316 Prohibition on the Payment of Subminimum Wages Under 14(c) Certificates as a Qualification for Participation as a Nonprofit Agency Under the Javits Wagner O’Day Act, 87 FR 43427, 43428 (July 21, 2022) (codified at 41 CFR part 51) (‘‘However, an [non-profit agency] may apply for an extension for up to 12-months in order to come into compliance if it can provide evidence for why it cannot make the wage adjustments by the effective date (due to budgetary limitations, because doing so will necessarily harm employees, or for other good cause) and if it provides a corrective action plan describing the steps it intends to take to achieve compliance within the approved extension period.’’). The Commission noted, in implementing a 90-day effective period for its rule, that its position on phasing out use of section 14(c) had been announced in a 2019 notification and resources supporting transition were invested even prior to the rulemaking. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 extension provision beyond the end of the proposed 3-year phaseout period, including whether an extension provision would be appropriate, the duration of any such extension(s), the showing (including any documentation) an employer must make to receive an extension, the criteria by which requests for extension should be reviewed, and the procedures by which employers apply for extension(s). For example, the Department requests comments as to the length of time any extension might extend (including whether any potential extension should be limited to a maximum of 3, 6, 12, or 18 months, or some other period). The Department further requests comment as to whether any employer should be able to receive more than one extension, and if multiple extensions are allowed, whether there should be a maximum limit on the total number of extensions granted to a certificate holder (e.g., each certificate holder would only be entitled to two time-limited extensions). Similarly, the Department requests comments on whether there should be a maximum time limit on the total number of extensions granted to a certificate holder (e.g., each certificate holder would be eligible for multiple extensions, but not to exceed a total extension period of 12 months). Likewise, the Department also seeks comments on whether, if extensions were to be available, certificate holders should be required to demonstrate good cause for any extension request. The Department welcomes public comment on what a certificate holder might need to present to demonstrate such good cause as well as the specific documentation needed to support such cause. For example, the Department welcomes comment on whether, if an extension were to be available, it should be granted only when there are unique factual circumstances outside of an employer’s control, a need for additional time for the employer to complete an orderly transition from the payment of subminimum wages, and a need to avoid undue disruptions impacting workers with disabilities currently employed at subminimum wages. C. Severability The Department proposes that the regulatory text include a severability provision in part 525 so that if one or more of the provisions in part 525 is held invalid or stayed pending further agency action, the remaining provisions would remain effective and operative. The Department proposes to add this provision as § 525.25. The proposed provision explains that each provision VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 is capable of operating independently from one another, and that if any provision of part 525 is held to be invalid or unenforceable by its terms, or as applied to any person or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, unless such holding shall be one of utter invalidity or unenforceability, in which event the provision shall be severable from the regulation and shall not affect the remainder thereof. 96495 V. Alternatives to the Proposed Rule In developing this proposed rule, the Department considered a wide range of alternative regulatory approaches. For example, the Department considered whether to allow workers with disabilities who are currently paid subminimum wages to ‘‘opt out’’ of the proposed phaseout of section 14(c) certificates set forth in this proposed rule. In other words, the Department evaluated whether to permit such workers to choose to continue receiving subminimum wage payments where they believe such continuity would be beneficial. However, after consideration and analysis, the Department has determined that such a regulatory alternative would not be legally permissible or advisable as a policy matter. In this proposed rule, the Department has preliminarily concluded that payment of subminimum wages is not necessary to prevent curtailment of opportunities for employment. In the absence of such need, an opt-out provision would be akin to allowing a waiver of the FLSA’s requirement to pay minimum wages. As discussed in section II.D. above, it is well-established that the right to the full Federal minimum wage cannot be waived by individual workers or employers. The Supreme Court has consistently and explicitly held that ‘‘FLSA rights cannot be . . . waived because this would ‘nullify the purposes’ of the statute and thwart the legislative policies it was designed to effectuate.’’ 317 The Department is foreclosed, as a legal matter, from allowing workers with disabilities, or their families or guardians, to ‘‘opt out’’ of receiving the full Federal minimum wage on an individual basis. Rather, the FLSA is clear that an employer may only pay subminimum wages to workers with disabilities after obtaining a certificate from the Department and that such certificates can only be issued when the Department decides that they are necessary to prevent the curtailment of employment opportunities. Congress did not grant the Department unconditional authority to issue subminimum wage certificates, or to permit subminimum wage payments based on such workers’ preferences. Finally, the Department rejected this alternative because it would likely result in formidable administrative challenges for both WHD and employers, as well as confusion on the part of workers. The Department also considered alternative regulatory approaches to the proposed phaseout of section 14(c) certificates. As detailed above, the Department proposes to: (1) cease issuance of new section 14(c) certificates to employers submitting an initial application on or after the effective date of a final rule and (2) permit existing section 14(c) certificate holders, assuming all legal requirements are met, to continue to operate under section 14(c) certificate authority for up to 3 years after the effective date of a final rule. Among the alternative approaches that were considered the Department also considered whether to use a different phaseout period. The Department declined to propose a shorter phaseout period (or no phaseout period) because, as explained in this proposed rule, individuals with disabilities who have been working for employers holding a section 14(c) certificate, employers who have held a section 14(c) certificate, and government entities may need time to transition to the payment of the full minimum wage in order to mitigate disruptions that might potentially otherwise cause curtailment of employment opportunities. At the same time, the Department also declined to propose a longer phaseout period. As discussed in section III.D.1.i., many States have already passed laws prohibiting (or planning to prohibit) the payment of subminimum wages through a phase out.318 State statutes containing multiyear phaseouts range from 2 years to 7 years, with many states opting for a 2or 3-year phaseout. In view of this, the Department thus believes that 3 years should be sufficient to allow for transitions away from subminimum wage employment. Furthermore, the Department is concerned that a longer period might incentivize delay of effective transition measures. 317 Barrentine, 450 U.S. at 740 (quoting Brooklyn Sav., 324 U.S. at 707). 318 See section III.D.1.i. for a fuller discussion of State phaseout periods. PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 96496 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules The Department also considered revising its existing regulations to change the process and evidence employers would need to provide in order to demonstrate that the payment of a subminimum wage is necessary to prevent the curtailment of employment opportunities. The Department did not propose such changes because, as explained elsewhere in this proposal, given the statutory legal authority requiring the Department to determine the necessity of certificates (to the extent necessary to prevent the curtailment of opportunities for employment), the best approach is to examine the standard based on a comprehensive consideration of how employment opportunities are both currently curtailed and created across the employment market rather than on the framework set out in the 1989 regulations reflecting the presumption that subminimum wages are necessary where productivity measures are satisfied. As this proposal explains, the Department’s preliminary findings are that employment opportunities exist sufficiently apart from section 14(c) certificates to justify the proposed determination to stop issuing certificates through a multi-year phaseout. Given this belief and the Department’s proposed determination, a change to only alter the requirements of holding a certificate may not fully meet the Department’s statutory obligation under the curtailment clause given the changed opportunities for employment currently. The Department also considered proposing an additional extension period beyond the 3-year phaseout period. However, as stated above, the Department proposes that a 3-year phaseout period should be sufficient for most, if not all, employers that currently hold section 14(c) certificates, to adjust their operations and funding structures such that they can transition away from subminimum wages by the end of that period. Furthermore, any extension option increases the risk of use of certificates beyond an actual period of demonstrated need for orderly transition, and might undercut the incentive for those employers to make efficient and timely plans to move away from subminimum wages. However, as noted above, the Department seeks comments about a potential extension option. VI. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., and its attendant regulations, 5 CFR part 1320, require the Department to consider the agency’s need for its information VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 collections, their practical utility, the impact of paperwork and other information collection burdens imposed on the public, and how to minimize those burdens. The PRA typically requires an agency to provide notice and seek public comments on any proposed collection of information contained in a proposed rule. See 44 U.S.C. 3506(c)(2)(B); 5 CFR 1320.8. This rulemaking would revise the burdens for the existing information collection previously approved under Office of Management and Budget (OMB) control number 1235–0001, Fair Labor Standards Act Special Employment Provisions. The 1235–0001 information collection encompasses information collected pursuant to FLSA sections 11(d), 14(a), and 14(b), as well as section 14(c). As required by the PRA, the Department has submitted information collections as revisions to existing collections to OMB for review to reflect changes to existing burdens that will result from and are limited to the implementation of this section 14(c) rulemaking. Summary: FLSA section 14(c) authorizes the Department to issue certificates permitting employers to pay workers whose disabilities impair their earning or productive capacity at wage rates below the Federal minimum wage. The Department has promulgated regulations at 29 CFR 525 to administer and enforce section 14(c) of the FLSA. This NPRM, if finalized, would impose new information requirements revising an existing information collection. Purpose and use: This proposed rule, which would revise 29 CFR part 525, would result in the Department no longer issuing new section 14(c) certificates in response to initial applications postmarked or submitted online on or after the effective date of a final rule. Pursuant to the proposed rule, the Department would permit existing section 14(c) certificate holders, assuming all legal requirements are met, to continue to operate under section 14(c) certificate authority and re-apply for continued certificate authority for up to 3 years after the effective date of a final rule. In addition, as discussed above, the Department proposes that a 3-year phaseout period should be sufficient for most, if not all, employers that currently hold section 14(c) certificates to adjust their operations and funding structures such that they can transition away from subminimum wages by the end of that period. However, the Department also requests comments on all aspects of a possible limited extension provision beyond the end of the proposed 3-year phaseout period. PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 This proposed rule, if finalized, would impact the collection by reducing the number of employers that hold section 14(c) certificates throughout the phaseout period, and thereby also reduce employees employed under section 14(c) certificates. However, ultimately, 3 years from the effective date of a final rule, there would be no section 14(c) certificates and no employees employed under section 14(c) certificates, which would eliminate the burden associated with this collection. WHD obtains PRA clearance under OMB control number 1235–0001 for an information collection with respect to subminimum wage employment. An Information Collection Request (ICR) has been submitted to revise the approval and adjust the burdens for this collection. Information and technology: There is no particular order or form of records prescribed in the current regulations or in the proposed rule. An employer may meet the requirements of this proposed rule using paper or electronic means. The Department has enhanced the section 14(c) certificate application process by implementing an online electronic application platform to submit Forms WH–226 and WH–226A; this platform can be found on the Department’s website at: https:// section14c.dol.gov/. The Department also makes Forms WH–226 and WH– 226A and instructions for completing them available in a fillable Adobe PDF format for downloading and printing from the Department’s website at: https://www.dol.gov/agencies/whd/ forms/wh226. Respondents currently have the option of either mailing the form(s) or completing and submitting an application using the section 14(c) online application system. Minimizing Small Entity Burden: While information collections, i.e., WH– 226 and WH–226A, may involve a substantial number of small businesses or non-profit agencies, the collections do not have a significant impact on those small entities. Forms WH–226 and WH–226A collect information necessary for the Department to determine if an employer qualifies for a certificate. The data collection gathers additional information on individual workers to better assist the agency in preventing abuse of a vulnerable worker population. The Department has provided detailed item-by-item instructions and online tools such as wage calculators to assist all employers, including small entities, in completing these forms and complying with the statutory and regulatory requirements. The Department also has an online E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules electronic platform for submission of the information. Public comments: As part of its continuing effort to reduce paperwork and respondent burden, the Department conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the PRA. This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. The Department seeks comments on this NPRM and its potential impact to public burdens associated with ICR 1235–0001, Fair Labor Standards Act Special Employment Provisions. Detailed calculations indicating respondents, responses, burden hours, and burden costs are contained in the supporting statement found at www.reginfo.gov. Commenters may send their views on the Department’s PRA analysis in the same way they send comments in response to the NPRM as a whole (e.g., through the www.regulations.gov website), including as part of a comment responding to the broader NPRM. Alternatively, commenters may submit a comment specific to this PRA analysis by sending an email to WHDPRAComments@dol.gov. While much of the information provided to OMB in support of the information collection request appears in the preamble, interested parties may obtain a copy of the supporting statements for the affected ICR by sending a written request to the mail address shown in the ADDRESSES section at the beginning of this preamble. Alternatively, a copy of the ICR with applicable supporting documentation, including a description of the likely respondents, proposed frequency of response, and estimated total burden, may be obtained free of charge from the RegInfo.gov website by visiting https://www.reginfo.gov/public/ do/PRAMain. OMB and the Department are particularly interested in comments that: • Evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; • Evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information, VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 including the validity of the methodology and assumptions used; • Enhance the quality, utility, and clarity of the information to be collected; and • Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. Total burden for the affected information collection, including the burdens that will be affected by this proposed rule and any changes are summarized as follows: Type of review: Revision to currently approved information collections. Agency: Wage and Hour Division, Department of Labor. Title: Fair Labor Standards Act Special Employment Provisions. OMB Control Number: 1235–0001. Affected public: Private sector, notfor-profits, businesses or other forprofits, and Individuals or Households. Estimated number of respondents: 335,167 (0 from this rulemaking). Estimated number of responses: 1,338,561 (0 from this rulemaking). Frequency of response: On occasion. Estimated annual burden hours: 671,464 (0 from this rulemaking). Estimated annual burden costs (capital/startup): $0 ($0 from this rulemaking). Estimated annual burden costs (operations/maintenance): $2,284 ($0 from this rulemaking). Estimated annual burden costs: $32,404,730 ($0 from this rulemaking). VII. Analysis Conducted in Accordance With Executive Order 12866, Regulatory Planning and Review, Executive Order 13563, Improving Regulation and Regulatory Review, and Executive Order 14094 Under Executive Order 12866 (as amended by Executive Order 14094), OMB’s Office of Information and Regulatory Affairs (OIRA) determines whether a regulatory action is significant and, therefore, subject to the requirements of the Executive order and OMB review. As amended by Executive Order 14094, section 3(f) of Executive Order 12866 defines a ‘‘significant regulatory action’’ as a regulatory action that is likely to result in a rule that may: (1) have an annual effect on the economy of $200 million or more; or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 96497 state, local, territorial, or Tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees or loan programs or the rights and obligations of recipients thereof; or (4) raise legal or policy issues for which centralized review would meaningfully further the President’s priorities or the principles set forth in the Executive order. OIRA has determined that this proposed rule is a ‘‘significant regulatory action’’ under section 3(f)(1) of Executive Order 12866, as amended. Executive Order 13563 directs agencies to, among other things, propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; that it is tailored to impose the least burden on society, consistent with obtaining the regulatory objectives; and that, in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits. Executive Order 13563 recognizes that some costs and benefits are difficult to quantify and provides that, when appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts. The analysis below outlines the impacts that the Department anticipates may result from this proposed rule and was prepared pursuant to the above-mentioned executive orders. A. Background and Need for Rulemaking The FLSA generally requires that employees be paid at least the Federal minimum wage, currently $7.25 per hour, for every hour worked and at least one and one-half times their regular rate of pay for each hour worked over 40 in a single workweek.319 Since its enactment in 1938 through today, section 14 of the FLSA has included a provision authorizing the Department to issue certificates permitting employers to pay workers whose disabilities impair their earning or productive capacity at wage rates below the Federal minimum wage. That statutory provision, however, has always provided a significant condition precedent: such certificates may only be issued to the extent ‘‘necessary to prevent curtailment of opportunities for employment.’’ 320 319 29 320 29 E:\FR\FM\04DEP2.SGM U.S.C. 206(a), 207(a). U.S.C. 214(c)(1). 04DEP2 96498 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules Since the Department first promulgated regulations governing the issuance of section 14(c) certificates in 1938, and even since the Department last substantively updated those regulations more than 35 years ago, opportunities for employment have dramatically changed for individuals with disabilities. In recent years, the employment rate for individuals with disabilities has generally climbed (Figure 1, Panel A). During the same time period, the estimated number of individuals working under section 14(c) certificates has declined (Figure 1, Panel B). Figure 1. Employment and Section 14(c) Workers 2014 -2024 Panel 8: Estimated Number of 14(c) Workers, 2010 -- 2024 Panel A: Employment-Population Ratio - With a Disability, 16 Years and Over, 2014 - 2024 300,000 25 lS0,000 20 200,000 1S0,llO0 100,GOO 5 50,000 0 "' .-i N N N N Notes: Employment-population ratios calculated using the average monthly ratios for the year ending in May of each year to align with Panel B. Ratios are based on data from the Current Population Survey (CPS), which is the primary source for labor force statistics. CPS tends to estimate a lower number of disabled workers compared to other nationally representative surveys, such as the American Community Survey (ACS), which is more commonly used for population estimates. However, the changes in trends over time are similar across both surveys. Sources: Panel A: U.S. Bureau of Labor Statistics, EmploymentPopulation Ratio—With a Disability, 16 Years and over [LNU02374597], retrieved from https://data.bls.gov/ timeseries/LNU02374597, September 30, 2024; Panel B: WH–226A form data of issued and pending certificates, May 1 (2014 through 2024). Fueled by the disability rights movement, societal and cultural assumptions, beliefs, and expectations regarding the employment of individuals with disabilities have evolved, and opportunities for individuals with disabilities have dramatically expanded. Federal legislation and judicial precedent have established and enshrined fundamental legal protections requiring equal access, opportunities, and respect for individuals with disabilities in both education and employment. Of these legislative and judicial developments, the landmark Americans with VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 Disabilities Act (ADA), enacted in 1990, the year after the section 14(c) regulations were last substantively updated, has had a profound impact on employment opportunities for individuals with disabilities. In addition, the President and executive agencies have taken steps to end the payment of subminimum wages to workers with disabilities on certain government contracts. Numerous States and localities have prohibited or limited the payment of subminimum wages to workers with disabilities within their jurisdictions. Although it is widely acknowledged that individuals with disabilities continue to face challenges in obtaining equal opportunity and treatment, the extent of legal protections, opportunities, resources, training, technological advancements, and supports has dramatically expanded since regulations were first promulgated over 85 years ago, and since 1989, when the Department’s regulations were last substantively updated, to assist individuals with disabilities both in obtaining and maintaining employment at or above the full Federal minimum wage. Employers similarly have substantially more resources and training available to recruit, hire, and retain workers with disabilities in employment at or above the full Federal minimum wage. Recognizing the expansion of full-wage employment options for individuals with disabilities, an increasing number of oversight and advisory reports have vigorously called PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 0 for a ‘‘phase out’’ of section 14(c) certificates. As another indication that subminimum wages are not necessary to prevent the curtailment of employment opportunities, an increasing number of States and localities, including many jurisdictions with higher minimum wages than the FLSA minimum wage, have prohibited or limited the payment of subminimum wages in their respective jurisdictions. Furthermore, an increasing number of employers themselves are voluntarily opting out of paying subminimum wages, as is reflected in the rate at which the number of section 14(c) certificate holders has substantially declined in recent years, while at the same time the employment rate for people with disabilities has generally climbed. Due to expanded opportunities both compared to the enactment of the section 14 provisions and promulgation of initial regulations in 1938 and the last substantive update to the section 14(c) regulations in 1989, with opportunities for full-wage employment now substantially more common than subminimum wage employment, the Department preliminarily concludes that the issuance of section 14(c) certificates is no longer necessary to prevent the curtailment of employment opportunities for individuals with disabilities. Accordingly, the Department proposes to phase out the issuance of section 14(c) certificates. The Department specifically proposes to: (1) cease issuance of new section 14(c) E:\FR\FM\04DEP2.SGM 04DEP2 EP04DE24.034</GPH> ddrumheller on DSK120RN23PROD with PROPOSALS2 0 96499 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules certificates to employers submitting an initial application on or after the effective date of a final rule and (2) permit existing section 14(c) certificate holders, assuming all legal requirements are met, to continue to operate under section 14(c) certificate authority for up to 3 years after the effective date of a final rule. The Department requests comments on all aspects of a possible limited extension provision beyond the end of the proposed 3-year phaseout period, including whether an extension provision would be appropriate, the duration of any such extension(s), the showing (including any documentation) an employer must make to receive an extension, the criteria by which requests for extension should be reviewed, and the procedures by which employers apply for extension(s). ddrumheller on DSK120RN23PROD with PROPOSALS2 B. Number of Affected Workers and Employers The entities that will be directly affected by this proposed rule are section 14(c) certificate holders and workers with disabilities being paid a subminimum wage by a certificate holder. According to WHD’s data on section 14(c) certificate holders as of May 1, 2024, there were 801 employers who had certificates that were either issued or pending.321 Employers holding issued certificates reported paying approximately 40,579 workers at subminimum wages in their previously completed fiscal quarter.322 The Department has provided additional data below about the hours, earnings, and primary disability of 321 WHD, 14(c) Certificate Holders, May 1, 2024, https://www.dol.gov/agencies/whd/workers-withdisabilities/section-14c/certificate-holders. Note that some of these entities (34 employers) report having zero workers paid a subminimum wage, so this may be an overestimate of the actual number of affected entities. Based on this list, employers operate in the following 38 States: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Wisconsin, and West Virginia. The remaining 12 States, plus the District of Columbia, had no section 14(c) employers on the list. 322 Id. Note that the number of workers paid subminimum wages are only reported for entities that have issued certificates and does not represent workers that may be employed by employers with subminimum wage payment authority listed as pending. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 workers reported by employers on applications for section 14(c) certificates. In addition to these workers, there may be other categories of workers affected by this proposed rule, such as youth with disabilities looking to enter employment, or nonworking individuals with disabilities who may choose to enter the labor force if there is an increase in full-wage employment options (see section VII.D.4. for an additional discussion on this population). The Department welcomes comments regarding other types of workers who may be affected by the proposed rule. on section 14(c) certificates is $4.08, and the median ‘‘average hourly earnings’’ is $3.46. These workers work a mean of 11.45 hours per week. Form WH–226A also asks certificate holders about the primary disability that affects each subminimum wage worker’s productivity for the job at which they have worked the most number of hours over the most recently completed fiscal quarter. As shown in Table 1, the vast majority (about 91 percent) of workers being paid subminimum wages under section 14(c) certificates have I/DD reported as their primary disability. 1. Form WH–226A—Information Collected When applying for a section 14(c) certificate to employ workers with disabilities at subminimum wages, employers must fill out form WH–226A, which asks for information about workers who were paid subminimum wages at each job site, including the type of work being performed, average hourly earnings, average weekly hours worked, and the primary disability that affects the worker’s productivity for the job most performed.323 The data discussed here reflects what employers have entered on their application forms.324 Data is for May 1, 2024, and reflects the applicant’s most recently completed fiscal quarter at the time they applied.325 According to this data, the mean ‘‘average hourly earnings’’ for workers TABLE 1—WORKERS ON SECTION 14(c) CERTIFICATES BY PRIMARY DISABILITY 323 The information collected from the form WH– 226A is submitted by applicants and may include inaccuracies, such as instances when an employer reports a piece rate instead of an hourly wage rate or miscalculates the wage. Inaccuracies may also be the result of data entry errors. The Department presents this information to provide context for the general status of workers on section 14(c) certificates. The summary data presented here does not reflect any changes an employer made after submission of its application, including those based upon the Department’s oversight of section 14(c) through its application processes and enforcement actions. 324 WHD collects this data for the purpose of processing applications to provide employers with certificates authorizing the payment of subminimum wages to workers with disabilities under section 14(c). Although the data from the application forms is not collected for comprehensive statistical analysis, it is the best data that the Department has on the population of workers paid subminimum wages under section 14(c) certificates and is useful to provide context for purposes of this analysis. 325 In this data set, the effective dates for the certificates range from July 2022 to the present. PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 Primary disability Share of workers on section 14(c) certificates Age Related Disability .......... Hearing Impairment .............. Intellectual/Developmental Disability ............................ Neuromuscular Disability ...... Psychiatric Disability ............. Substance Abuse ................. Visual Impairment ................. Other ..................................... 0.09% 0.14 90.96 0.68 4.34 0.02 0.21 3.41 2. Section 14(c) Workers Demographics—Race, Age, and Ethnicity The WHD section 14(c) application form does not ask for any other demographic data on section 14(c) certificate workers. For their 2023 report, GAO surveyed community rehabilitation program (CRP) employers to estimate the percentage of section 14(c) workers employed by CRPs in August 2021 by race and ethnicity and by age. As shown in Table 2, GAO estimated that a large share of these workers are White and fall between the ages of 25 and 54, which aligns with demographic breakdowns found in the overall employed population.326 326 For example, in the overall employed population in the U.S., White workers represent 76.5 percent of all employed persons, and workers ages 25 to 54 represent 64 percent of all employed persons. U.S. Dep’t of Labor, Bureau of Labor Statistics, BLS Current Population Survey, Employment Status of the Civilian Population by Age, Sex, and Race, 2023, https://www.bls.gov/cps/ cpsaat03.htm. E:\FR\FM\04DEP2.SGM 04DEP2 96500 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules TABLE 2—ESTIMATED PERCENTAGE OF SECTION 14(c) WORKERS REPORTED TO BE EMPLOYED BY COMMUNITY REHABILITATION PROGRAMS IN AUGUST 2021, BY RACE/ETHNICITY AND AGE Estimated share of workers on section 14(c) certificates (%) Racial/ethnicity Category: White (Not Hispanic or Latino) ............................................................................................................................................. Black or African American (Not Hispanic or Latino) ............................................................................................................ Asian (Not Hispanic or Latino) ............................................................................................................................................. Native American or Alaska Native (Not Hispanic or Latino) ................................................................................................ Hispanic or Latino ................................................................................................................................................................. All other race/ethnicity categories ........................................................................................................................................ Age: 18–24 years old .................................................................................................................................................................... 25–54 years old .................................................................................................................................................................... 55 years old or older ............................................................................................................................................................ 78 14 1 1 5 2 4 70 26 Source: GAO Survey of Community Rehabilitation Program employers, 2023 GAO Report ddrumheller on DSK120RN23PROD with PROPOSALS2 Aside from the information discussed in this section, the Department is unaware of any data source that regularly publishes additional up-todate demographic information specifically on workers employed by section 14(c) certificate holders. The Department’s Bureau of Labor Statistics (BLS) publishes data on all workers with a disability, including sex, race, age, and educational attainment.327 However, workers who are currently employed under section 14(c) certificates are only a small subset of all workers with a disability. The Department welcomes comments and data on the demographics of workers with disabilities employed under section 14(c) certificates. 3. Affected Employers As discussed in section II.C.2., WHD issues section 14(c) certificates to business establishments, community rehabilitation programs (CRPs), hospitals/patient worker facilities, and school-work experience programs (SWEPs). The overwhelming majority of current certificate holders are CRPs, representing approximately 93 percent of current certificate holders as of May 1, 2024. In the context of section 14(c), WHD defines CRPs as ‘‘not-for-profit agencies that provide rehabilitation and employment for people with disabilities.’’ 328 Such establishments are sometimes referred to as ‘‘sheltered workshops’’ as they typically are facility-based and often serve workers 327 U.S. Dep’t of Labor, Bureau of Labor Statistics, BLS Current Population Survey, ‘‘Employment status of the civilian noninstitutional population by disability status and selected characteristics, 2023 annual averages,’’ https://www.bls.gov/ news.release/disabl.t01.htm. 328 WHD Field Operations Handbook (FOH) 64k00, https://www.dol.gov/agencies/whd/fieldoperations-handbook/Chapter-64. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 with disabilities in sheltered or segregated settings. At the time of drafting, only 30 private-sector, forprofit businesses hold certificates for the payment of subminimum wages, representing 4 percent of total certificate holders. Apart from CRPs and business establishments, the remaining certificates are held by hospitals or residential care facilities that employ patients, representing 3 percent of total certificate holders, and ‘‘school work experience programs’’ that represent less than half of one percent of total certificate holders. In the WHD data reviewed, the expiration dates for certificates fall between May 2024 and early 2026. The Department assumes that a share of the certificate holders with certificates expiring before the publication of the final rule would reapply and be granted new certificates with later expiration dates (no later than 3 years after the effective date of a final rule). The Department does not have information to estimate exactly how many certificate holders will choose to reapply. As of May 1, 2024, 779 of the 801 employers holding or seeking a certificate (97 percent) were renewals, but the overall trend of certificate holders has been in a steady decline over the past decade (the number of pending and issued certificate holders was 2,820 in April 2015 and has declined every year since). If this trend continues, fewer certificate holders may choose to reapply in the future even absent any regulatory action. Furthermore, the publication of the proposed rule may impact certificate holders’ choices if they anticipate that certificates are going to be phased out if the rule is finalized as proposed. There may also be changes to State or local laws during this time period that may affect whether certificate holders PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 operating in those states or localities reapply for a certificate. Similarly, employers in States that have already begun a phaseout of subminimum wages may choose not to reapply before expiration of the phaseout period. As of May 1, 2024, there are 53 certificate holders located in States that are in the process of phasing out the payment of subminimum wages.329 The number of certificate holders has declined over recent years, and the Department expects that trend to continue. In 2001, the GAO estimated that approximately 424,000 workers with disabilities were paid subminimum wages while working for 5,612 employers holding section 14(c) certificates.330 As mentioned above, as of May 1, 2024, that number dropped to approximately 40,579 workers with disabilities being paid subminimum wages to employers with issued certificates, while 801 employers held or were seeking section 14(c) certificates, representing a decline in certificate holders of almost 86 percent.331 All impacts discussed in this 329 California (38), Colorado (1), Nevada (4), and South Carolina (10). WHD, 14(c) Certificate Holders, May 1, 2024, https://www.dol.gov/agencies/whd/ workers-with-disabilities/section-14c/certificateholders. 330 U.S. Gov’t Accountability Office, GAO–01– 886, ‘‘Special Minimum Wage Program: Centers Offer Employment and Support Services to Workers with Disabilities, But Labor Should Improve Oversight’’ (2001) (2001 GAO Report) at 10, 18. 331 The Department notes that data collected by the Department from section 14(c) applications is not census data. Data is derived from information received by WHD during the certificate application process, which is used for the purposes of determining whether to issue a certificate. The application requires the employer to provide a snapshot of its operations and workforce that is paid a subminimum wage during its most recently completed fiscal quarter at the time of its renewal application, and the submission date varies per applicant. Because certificates are issued to the employer, not individuals employed at E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules regulatory impact analysis use the current number of certificate holders at the time of drafting, but the Department expects this may be an overestimate, as the number of certificate holders could likely decline by the time of publication of the final rule given the overall trends in the number of certificate holders. For example, as of May 1, 2023, the number of employers holding or seeking a section 14(c) certificate was 931, meaning that the number of certificate holders declined by almost 14 percent over the year. If a similar decline were to occur over the forthcoming year, the number of certificate holders could be below 700 by May 2025. Additionally, the data includes certificate holders in states that have plans to phase out the payment of subminimum wages for workers with disabilities in the near future, which could also result in a lower number of certificate holders at the time of the final rule. C. Costs ddrumheller on DSK120RN23PROD with PROPOSALS2 1. Regulatory Familiarization Costs This proposed rule would impose direct costs on section 14(c) certificate holders by requiring them to review the regulation. To estimate these ‘‘regulatory familiarization costs,’’ three pieces of information must be estimated: (1) the number of affected certificate holders; (2) a wage level for the employees reviewing the rule; and (3) the amount of time spent reviewing the rule. As discussed above, WHD data shows that there are 801 employers who had certificates that were either issued or pending as of May 1, 2024.332 The Department assumes that each of these entities would incur some regulatory familiarization costs, and that each certificate holder would spend an average of 2 hours reviewing this proposed rule. The Department assumes that each reviewer will spend 1 minute per page reviewing the regulatory text,333 which is equivalent to 5 doublespaced pages at the time of publication. subminimum wages, the specific number of employees may change over the duration of the certificate. The certificate application data is selfreported by employers and does not reflect any changes made by the employer after its submission. Additionally, the data provided reflects active certificates as of the date that the Department’s website list was revised and does not include the number of employees on ‘‘pending’’ section 14(c) certificates. 332 As discussed above, this may be an overestimate of the number of employers who will review the final rule, as some of these certificate holders operate in States that are phasing out the payment of subminimum wages to workers with disabilities in the near future. 333 Brysbaert, Marc (April 12, 2019), ‘‘How many words do we read per minute? A review and metaanalysis of reading rate,’’ https://doi.org/10.31234/ osf.io/xynwg. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 They will also review sections of the preamble and any compliance assistance materials as appropriate, so the Department has added significant additional time for that review. The Department assumes that a Compensation, Benefits, and Job Analysis Specialist (SOC 13–1141) with a median hourly wage of $35.83 will review the rulemaking.334 The Department also assumes that benefits are paid at a rate of 45 percent of the base wage 335 and overhead costs are paid at a rate of 17 percent of the base wage, resulting in an hourly rate of $58.04 in 2023 dollars. Therefore, the total regulatory familiarization cost to employers is $92,980 (801 entities × 2 hours × $58.04). Although the issuance of section 14(c) certificates would be phased out over multiple years under this proposal, the Department assumes that most affected entities will review the rule when it is published.336 Therefore, all regulatory familiarization costs are assumed to occur in Year 1 following publication of the rule. Total annualized rule familiarization costs over the first 10 years are estimated to be $12,373, assuming a 7 percent discount rate. 96501 2. Adjustment Costs As discussed further in Section VII.D., if the issuance of section 14(c) certificates is phased out, employers who are certificate holders might choose to respond in a few different ways. If certificate holders only serve workers with disabilities who are paid the subminimum wage, they might choose to continue operations as they are but pay at least the full Federal minimum wage to those workers. These certificate holders may instead choose to close their organization.337 Certificate holders who employ other workers (at or above minimum wage) might choose to replace affected workers with disabilities with the other workers; or they might choose to no longer employ workers with disabilities who had been paid subminimum wages under section 14(c), spread the work of those workers to other employees, and not hire any new workers. If certificate holders are already providing rehabilitation or other non-work services to individuals with disabilities, they may alternatively decide to discontinue the employment of these workers while still providing them with those services. Certificate holders will likely incur some adjustment costs under each of these scenarios. If they choose to transition all workers with disabilities to at least the full minimum wage, the increased wage cost would be considered a transfer (discussed below), but they could still incur some adjustment costs associated with updating payroll systems, etc. If entities choose to hire new workers or spread work to existing workers, they may incur hiring costs or adjustment costs associated with these activities. The Department assumes that these costs would likely be incurred by each certificate holder at different points in time prior to when their current certificate expires, so the total costs would be spread out over multiple years. Because there are many uncertainties in exactly how each certificate holder would respond to this proposed rule, and how the costs would be spread over the proposed phaseout period, the Department has not provided a definitive estimate of adjustment costs. However, as an example, if all certificate holders incurred an average of 1 hour of adjustment costs, the total cost would be $46,490 (801 entities × 1 hour × $58.04). These costs would be spread over multiple years as employers transition their pay practices or change their operation models. The Department welcomes comments and data from certificate holders that would help inform an estimate of adjustment costs. 334 U.S. Dep’t of Labor, Bureau of Labor Statistics, Occupational Employment and Wage Statistics survey (OEWS), May 2023, https://www.bls.gov/ news.release/ocwage.t01.htm. 335 The benefits-earnings ratio is derived from BLS’s Employer Costs for Employee Compensation (ECEC) data using variables CMU1020000000000D and CMU1030000000000D. The Department averaged the four quarters of 2023 to get a full-year 2023 ratio. 336 There may be some certificate holders who rereview the regulations if/when they decide to reapply for their certificate during a phaseout period. However, the Department has not estimated rule familiarization costs in future years. The Department welcomes comments that would help inform this estimate. 337 The Department does not have data to estimate how many certificate holders would close their organization following the changes proposed in this rule but welcomes comments from certificate holders to help inform this estimate. 3. Costs to Workers Employed Under Section 14(c) Certificates The Department acknowledges that this rule may also result in some costs to workers currently paid subminimum wages under section 14(c) certificates. Although any changes in the wages they receive, the hours they work, or their employment status would be considered a transfer and are discussed below, there could be follow-on effects that would lead to costs for these workers. For example, if a certificate holder does not retain its section 14(c) workers at the full minimum wage, the worker may need to spend time looking for employment at or above the full Federal minimum wage or may need to obtain PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 E:\FR\FM\04DEP2.SGM 04DEP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 96502 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules additional support services or other meaningful non-work activities to replace the time previously spent in subminimum wage employment. They could incur transition and job search costs associated with these activities. These transition costs include the cost of time spent learning about available resources, time for eligibility determinations, time spent on waitlists, training costs, etc. There may be some employers who will choose not to retain the workers working under section 14(c) certificates; a subset of those workers may be unable to find replacement employment or support services. For this group of workers, they may incur costs associated with reduced wellbeing from no longer being employed or due to a reduction in hours worked. Some of their families may also incur increased care costs, if they need to find or provide care for their family member for the time that was previously spent working at subminimum wages. However, as discussed throughout this rulemaking, the Department believes that a wide range of strategies, opportunities, and supports exist that can minimize this outcome. Although there may be time required for workers to transition from subminimum wage jobs, the Department believes that the phaseout approach proposed in this rule would help ensure that workers will ultimately be able to make this transition. Additionally, the Department acknowledges workers may also have concerns about potential limitations on their disability benefits due to an increase in their wages. In response to such concerns, some workers with disabilities may choose to leave the workforce or limit the number of hours they work. The Department is unable to specifically quantify these potential cost impacts but notes workers receiving Supplemental Security Income or Disability Insurance have access to free employment support resources, such as the Social Security Administration’s ‘‘Ticket to Work’’ program, that allows enrolled workers with disabilities to improve their earning potential. Likewise, as addressed in the preamble, the availability of resources such as ABLE accounts, allow workers with disabilities to accumulate savings without jeopardizing access to certain public benefits, thus minimizing this concern. The Department does not have data to quantify costs to workers currently employed under section 14(c) certificates but welcomes comments and input to help inform this estimate, including comments on available resources that address the impacts that VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 earnings may have on disability benefits. D. Cost Savings Any increased costs for certificate holders could be balanced out, in part, by the cost savings of no longer applying for section 14(c) certificates and no longer participating in the activities required to maintain their certificate and determine appropriate commensurate subminimum wage rates for workers. Currently, employers who wish to apply for a section 14(c) certificate may submit their application to WHD in one of two ways: completing their application online or submitting completed forms WH–226 and WH– 226A. When applying for a certificate, applicants are responsible for providing information related to their employment operations and the subminimum wage workers employed during the applicant’s most recently completed fiscal quarter, including details on hours, wages, job descriptions, and primary disability. Any affected entity that would have renewed their application in absence of this rule could likely experience some cost savings following this rule, since they no longer would be filling out an application for and maintaining a section 14(c) certificate. As an example, in the Paperwork Reduction Act Supporting Statement for these regulations, the Department estimates that for employers who are renewing their application for a section 14(c) certificate, it will take them 75 minutes to fill out form WH– 226 and 2 hours to fill out form WH– 226A, for a total of 3.25 hours. If these forms are filled out by a Compensation, Benefits, and Job Analysis Specialist (SOC 13–1141) with a full-loaded wage of $58.04, each employer who was planning to renew their section 14(c) certificate application would save $188.63 per application cycle. In order to calculate an illustrative estimate of the potential total maximum cost savings, the Department assumes all 447 certificate holders with certificates expiring in the next year (between the dates of May 1, 2024, and May 1, 2025) would decide to renew their application for a section 14(c) certificate in absence of this proposed rulemaking. If these certificate holders no longer have to fill out the application following the rule, the total potential annual cost savings would be $84,318 ($188.63 × 447). The true cost savings is likely somewhat lower, because all certificate holders may not choose to re-apply when their certificate expires, due to both overall downward trends in the number of certificate holders and potential expectations of a phasing out of section PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 14(c) certificates based on the publication of this proposed rule. Employers who no longer hold a section 14(c) certificate to pay subminimum wages would also be relieved of several operations costs required to remain in compliance with the section 14(c) provisions. For example, employers would no longer conduct prevailing wage surveys used to determine worker commensurate wage rates for each type of work paid at a subminimum wage. This would relieve the employer of their at least annual task of ascertaining the wage rates paid to the experienced nondisabled workers of other employers in the vicinity, usually obtained by surveying comparable firms in the area that employ primarily nondisabled workers doing similar work. The appropriate size of such a survey sample depends on the number of firms doing similar work but generally would include at least three firms. Employers would also be relieved of conducting time studies of both hourly paid workers as well as staff that do not have disabilities for the work being performed (‘‘standard setters’’). To maintain compliance with section 14(c), employers must review the wages of all subminimum wage employees at least once every 6 months. The work measurement or time study process involves a review with respect to the quantity and quality of work of each hourly-rated worker with a disability as compared to that of workers engaged in similar work or work requiring similar skills that do not have a disability for the work performed. With the prevailing wage rate for each job and the productivity measurement of each individual worker, the employer must calculate the commensurate wage rate for each worker and implement that wage rate no later than the first complete pay period following the evaluation. These steps would have to be repeated more frequently if an employee changes jobs or the job’s structure is changed. Section 14(c) certificate holders also have compliance responsibilities under section 511 of the Rehabilitation Act that require them to obtain, review, and maintain certain documentation of services provided to youth employees prior to subminimum wage employment as well as services required for all subminimum wage employees every 6 months for the first year of employment and annually thereafter. Also, employers must inform each worker paid subminimum wages of local training opportunities for selfadvocacy, self-determination, and peer mentoring. (See section III.B.2.ii. for an overview of these requirements.) E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules Therefore, section 14(c) certificate holders would no longer be conducting many hours of work for each worker that was previously employed under their certificate. While the Department does not require a specific method for employers to conduct time studies and therefore does not have definitive data on how long it takes employers to complete all these activities, a common method for performing time studies is for the employer to conduct at least 3 separate 25-minute time studies for both the standard setter and hourly paid worker with a disability, which would be at least 75 minutes per typical time study per job worked for each worker.338 Because time studies of workers with disabilities must occur at least every 6 months, this cost could be 2.5 hours per year per worker. If we were to attribute this cost savings to all current employers with pending or issued certificates (801), and assuming even only 1 employee per each employer, the total cost savings could be at least $116,225 (801 employers × 2.5 hours × $58.04), spread over multiple years as certificates expire. Given that, at the time of drafting, WHD data shows employers with issued certificates employed approximately 40,579 workers under section 14(c) certificates,339 the Department anticipates the cost savings would be significantly greater. The Department welcomes comments and data to help inform an estimate of cost savings to certificate holders, including data specific to section 511 compliance responsibilities. E. Transfers and Other Aspects of Changing Employment Arrangements The Department expects that if the issuance of section 14(c) certificates is phased out as discussed in this proposed rule, workers currently paid subminimum wages under these certificates would be impacted in various ways. Some of these workers will transition to employment at the full minimum wage while others may lose their subminimum wage employment but will be able to transition to other vocational rehabilitation services and ddrumheller on DSK120RN23PROD with PROPOSALS2 338 Guidance based on WHD Section 14(c) Online Calculators User Guide, https://www.dol.gov/sites/ dolgov/files/WHD/legacy/files/calculatorGuide.pdf. 339 WHD, 14(c) Certificate Holders, May 1, 2024, https://www.dol.gov/agencies/whd/workers-withdisabilities/section-14c/certificate-holders. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 supports available to them. Workers may observe impacts on their earnings, employment status, or hours worked. In this section, the Department discusses a full range of potential transfer impacts associated with this proposed rule and presents evidence to help narrow that potential range. Because of the many uncertainties discussed throughout this section, the Department has not provided quantitative estimates but has instead provided information to help illustrate the potential impact. The Department welcomes comments providing additional data that would help inform an estimate of transfers or other effects not already quantified. 1. Potential Range of Effects The Department acknowledges that workers employed under section 14(c) certificates may be affected differently by this proposed rule and, therefore, has presented a range of effects here to provide context on potential transfers. The highest potential transfers to workers would be if 100 percent of current workers employed under section 14(c) certificates transition to full-wage employment for the same number of hours they are currently working following the phaseout of section 14(c) certificates, resulting in all affected workers receiving wage increases to the full minimum wage.340 The other end of the range of possible impacts would occur if only a fraction of workers currently employed under section 14(c) certificates transition to full-wage employment, resulting in a significant loss of earnings (some portion of which would be lost surplus, or the value of the earnings above and beyond the value of leisure). To provide points of reference, the Department has conducted a sensitivity analysis using the following assumptions of the percentage of section 14(c) workers who transition to full-wage employment: 100 percent, 75 percent, 50 percent, and 25 percent. In order to calculate the upper bound of transfers for the sensitivity analysis, the Department calculated the difference between each worker’s reported average hourly earnings and 340 Workers receiving wage increases as a result of the proposed rule would be subject to both Federal and State minimum wage requirements. Estimates of transfers in States with minimum wage rates higher than the Federal minimum wage incorporated the cost increase to the higher State minimum wage rate. PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 96503 the greater of the Federal minimum wage or State minimum wage for the State in which their employer operates.341 If all workers on section 14(c) certificates receive wage increases to minimum wage (either as a result of wage increases from their current employer or if they find new employment at the minimum wage) while maintaining their current hours, the total gain in annual earnings would be $174.8 million.342 This annual estimate would likely take multiple years to phase in as employers make changes leading up to the expiration of their certificate. For additional potential transfer estimates (i.e., total increased earnings to workers who keep their job at a higher wage, accompanied by loss in earnings to those workers who lose their job), the Department assumed that a percentage (75 percent, 50 percent, and 25 percent) of randomly selected workers would remain employed and be paid the minimum wage. See Table 3. If 75 percent of current workers under section 14(c) certificates remain employed and are paid the minimum wage, the Department estimates that transfers from employers to workers would be $131.7 million (additional wages to the workers remaining employed), and the changes from workers to employers would be $27.1 million in wages no longer being paid to the quarter of workers who are no longer employed. With 50 percent or 25 percent of workers remaining employed, transfers (i.e., decrease in wage costs to still-employed workers) and changes (i.e., wages lost by newly-unemployed workers) would be as shown in Table 3, below. 341 Due to difficulties in assessing each certificate holder’s local area, the analysis did not take into account that some localities may have minimum wages that are higher than the State minimum wage. The differences between a worker’s average hourly earnings and local minimum wage could be greater than the difference calculated here, leading to an underestimate of transfers. Additionally, some workers may find new employment at a wage rate above their State or local minimum wage, which could also lead to an underestimate of transfers. 342 The average of the difference between the applicable minimum wage and the section 14(c) wage is $6.49 and the average of the reported average number of hours worked per week is 11.45. Multiplying the increase in weekly earnings when section 14(c) workers earn the applicable minimum wage by the number of workers by 52 weeks ($76.86 × 43,748 × 52) equals $174.8 million per year. E:\FR\FM\04DEP2.SGM 04DEP2 96504 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules Percentage of workers who lose employment (%) Percentage of workers in minimum wage employment (%) 100 ......................................................................................................................................... 75 ........................................................................................................................................... 50 ........................................................................................................................................... 25 ........................................................................................................................................... ddrumheller on DSK120RN23PROD with PROPOSALS2 The Department requests comments providing quality empirical research on the effects of phasing out the payment of wages below the Federal minimum wage on employment, earnings, or other outcomes for workers with disabilities. 2. Illustrative Analysis To Help Inform Estimates In order to help narrow the range of potential effects, the Department has performed an illustrative analysis to help assess the impact of phasing out section 14(c) certificates on labor force outcomes for workers with disabilities. As discussed above in section III.D., in recent years, an increasing number of States and localities have prohibited, limited or planned to phase out the payment of subminimum wages to workers with disabilities. The Department conducted an analysis looking at employment and earnings outcomes for individuals with I/DD in states that have phased out the issuance of section 14(c) certificates compared to the states that continue to allow the payment of subminimum wages to workers with disabilities. If, as the Department has stated, the cessation of section 14(c) certificates does not lead to adverse labor market outcomes for workers currently employed under these certificates, then one would expect to find no statistically significant difference between the employment and labor force participation outcomes for workers with disabilities in states that have phased out the payment of subminimum wages for workers with disabilities compared to those that have not. Thus, the Department used data from the American Community Survey (ACS) from 2013 to 2023 in regression analyses to look at employment and labor force status for workers with cognitive difficulties in states that have banned the payment of subminimum wages for workers with disabilities versus those that have not.343 343 ACS identifies other groups of individuals with disabilities, such as hearing and visual disabilities, independent living difficulties, selfcare difficulties, and ambulatory disabilities. This analysis focuses on individuals with cognitive difficulties, as this group would be more directly affected by the proposed rule due to its larger participation in section 14(c) certificate VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 The Department notes that there may be some uncertainties in the data that prevent the conclusions of the analysis from being applied to a definitive transfer estimate. First, phaseouts of the payment of subminimum wages were implemented gradually in many states and in some instances are still ongoing. This phased elimination complicates the measurement of the timing of the effect of disallowing subminimum wages because it is unclear how much of the impact will occur immediately versus what will occur over time as current certificates expire. Second, multiple states have prohibited the payment of subminimum wages to individuals with disabilities in recent years; thus, state data representing their prohibition are not yet fully represented in the ACS.344 Third, complete ACS data on disability status and other variables is not available for the year 2020 due to data collection issues during the COVID–19 pandemic. Lastly, the overall population of workers with cognitive difficulties in the ACS is not a perfect representation of the specific population of workers employed under section 14(c) certificates.345 employment. For purposes of this analysis, the Department assumes that the ACS category of cognitive difficulties is most similar to the population of interest, workers with I/DD. As noted above, based on WHD section 14(c) certificate data as of May 1, 2024, individuals with I/DD comprised about 91 percent of the workers with disabilities being paid subminimum wage. 344 For a fuller discussion of the States that have enacted legislation prohibiting or limiting the payment of subminimum wages, see section III.D. of this proposal. 345 As noted in section VII.B.1., most workers employed under 14(c) certificates have I/DD listed as their primary disability. The disability questions in the ACS are much more general than the specific requirements of an I/DD diagnosis. Thus, it is likely that respondents with cognitive difficulties in the ACS include individuals who do not meet the definition for having I/DD. It is uncertain how well the ACS respondents with cognitive difficulties represent the labor market behaviors of individuals working under section 14(c) certificates, but the Department believes that there is no clearly better data available. For a more detailed discussion, see Havercamp, S.M., Krahn, G., Larson, S., Weeks, J.D. and the National Health Surveillance for IDD Workgroup (2019), ‘‘Working Through the IDD Data Conundrum: Identifying People with Intellectual Disability and Developmental Disabilities in National Population Surveys,’’ Washington, DC: Administration on Intellectual and Developmental Disabilities, https://acl.gov/sites/default/files/ PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 Total transfers from employers to workers (in millions) 0 25 50 75 $174.8 131.7 87.7 43.8 Newlyunemployed workers’ lost wages (in millions) $0 27.1 54.7 81.7 The Department conducted an analysis comparing the change in labor force outcomes for workers with disabilities in states that stopped the payment of subminimum wages with the changes in outcomes for workers with disabilities in states that did not. Specifically, the Department looked for differences in employment status (measured by the variable asking if an individual worked last week) and labor force status (whether an individual was in the labor force).346 In the regression model, the Department used year fixed effects to control for any common factors that affected all states equally in each year, such as the business cycle or the COVID–19 pandemic. The Department used state fixed effects to control for any unobserved characteristics that are specific to each State and do not vary over time, such as the relative size of the population of individuals with disabilities or the availability of social services. The Department also controlled for observable factors that vary by State and year and could affect the outcomes of interest, such as the labor market outcomes for workers with no cognitive disabilities, since that could reflect overall labor market conditions. Despite including year fixed effects to account for common yearly shocks, analyzing workforce trends by State and year highlights a potential pitfall in using 2020 data. The differences-indifferences approach assumes that Statespecific trends in the relevant labor force measures prior to the change in subminimum wage laws are similar across all States, known as the ‘‘parallel trends’’ assumption. The pandemic caused significant disruptions in each State’s labor markets, which are reflected in the outcomes for that year. As a result, the assumption of parallel trends is less likely to hold as systemic changes such as the pandemic may have disproportionately affected different Aging%20and%20Disability%20in%20America/ National_Data_Paper_AIDD-ACL_ 09.25.2019%20508%20compliant.pdf. 346 The Department used a differences-indifferences approach to compare changes in these measures before and after payments were stopped to States that did not stop payment of subminimum wages. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 groups in each State’s labor force. Moreover, the ACS was also heavily affected in 2020, leading the data to fail the Statistical Data Quality Standard from the Census Bureau for that year.347 Given these concerns, the 2020 data were excluded from the analysis. To check the validity of the parallel trend assumption, the Department visually inspected these States’ trends from 2010 to 2022, which indicated that the pretreatment trends were largely parallel despite variation around each State’s average that makes the visual interpretation less clear. These findings remain consistent when controlling for State- and year-fixed effects.348 While it is impossible to completely ascertain the validity of the parallel trend assumption because it relates to a counterfactual world where the policy change did not occur, this evidence suggests that the estimation assumption is reasonable in this context. The Department performed two different analyses, one focusing on the States that enacted an immediate transition away from the payment of subminimum wages, and one including states that gradually phased out the policy. The Department did not find significant differences in the results of these two analyses on employment or labor force participation. The Department’s analysis yields no statistical evidence that employment or the labor force participation rate of individuals with cognitive disabilities differed in States that stopped the payment of subminimum wages.349 The 347 According to Census documentation, ‘‘[B]ecause of the underlying quality concerns, the Census Bureau urges caution in using the experimental estimates as a replacement for standard 2020 ACS 1-year estimates. Users should evaluate the estimates and alternatives to determine if they are suited for their needs.’’ https:// www.census.gov/newsroom/press-releases/2021/ experimental-2020-acs-1-year-data.html. Specifically, ‘‘the Census Bureau does not recommend comparing the 2020 ACS 1-year experimental estimates with our standard ACS estimates or the decennial census, or comparing the 2020 1-year PUMS data with standard pre-tabulated products or PUMS-based estimates from previous years.’’ https://www.census.gov/newsroom/pressreleases/2021/changes-2020-acs-1-year.html. 348 A formal statistical analysis to confirm parallel trends in the pre-treatment period would need to test the divergence in the outcomes before the policy change. However, there are difficulties to applying the test in this context. First, subminimum wage bans were implemented at different times across States, resulting in a staggered treatment period. Second, the partial introduction of the policy in some States introduces further complexity. This makes it challenging to select a single year as the benchmark that applies uniformly to all States, rendering a formal statistical test impractical. 349 The Department notes that, given the nuanced and evolving nature of these State laws, the classification of these States, laws, and relevant enactment dates is complex. The Department VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 findings of this analysis do not support that the changes in this proposed rule would lead to statistically detectable adverse labor force outcomes for workers employed under section 14(c) certificates. Due to the uncertainties discussed above, the Department has not applied the results of this analysis to a definitive transfers estimate. However, these results can help to narrow the range of potential transfer effects, suggesting that the lower loss of employment estimate of transfers may be more likely to be realized than the higher loss of employment.350 3. Additional Evidence In 2015, in response to a class action complaint that was filed on behalf of individuals with I/DD, the State of Oregon entered into a statewide settlement agreement that required, among other things, that Oregon decrease State support of sheltered workshops for individuals with I/DD and expand access to supported employment services that allow the opportunity to work in CIE settings. Oregon implemented competitive and supported employment strategies, ultimately ending the payment of subminimum wages to workers with disabilities in Oregon. A 2022 report on the changes made following the settlement agreement reported that in 2016—the year the settlement was reached and approved by the court, there were 1,405 people working in sheltered workshops in Oregon, and by 2021, that number had declined to zero.351 This report also noted that Oregon placed 1,138 individuals from the class who had previously worked for subminimum wages into CIE.352 This data shows that it is possible, with the right supports, for large numbers of workers with disabilities earning the subminimum wage to transition to fullwage employment opportunities. Although the evidence comes from just one State, the Department believes that the results could be scalable, and that it further serves to narrow our estimated impacts in the direction of more affected workers finding employment at the full Federal minimum wage. See discussion in section VII.B.; Figure 1, Panel A welcomes comment and data from the public on this analysis and the Department’s preliminary conclusion that there is no statistical evidence that employment or the labor force participation rate of individuals with cognitive disabilities differed in States that stopped the payment of subminimum wages. 351 Oregon Department of Human Services, ‘‘Lane v. Brown Settlement Agreement Report,’’ https:// www.oregon.gov/odhs/employment-first/ Documents/lane-v-brown-settlement-message-202206-21.pdf. 352 Id. PO 00000 Frm 00041 Fmt 4701 Sfmt 4702 96505 (Employment-Population Ratio—With a Disability, 16 Years and Over, 2014— 2024). As discussed in section III, legislative, policy, and programmatic changes have broadly influenced available options for workers with disabilities today. Because of these changes, and the evidence discussed above, the Department believes that this proposed rule would not result in widespread negative labor force outcomes for individuals with disabilities. 4. Other Transfers or Behavior-Change Effects The Department also considered additional impacts that may occur as a result of this proposed rule. For example, it could be possible for some affected workers to see a reduction in hours worked. If the certificate holder chooses to retain the section 14(c) workers and pay them the full Federal minimum wage, they may also choose to offset increased labor costs by providing fewer hours of work for these workers. The Department has not estimated a change in hours that may result from this rule but believes that the change could be minimal given that the current average number of hours worked by workers on section 14(c) certificates is very low (as discussed in section VII.B., the mean number of hours worked by this population is 11.45 hours per week.) Nevertheless, the Department welcomes comments on the extent to which this could occur. Following the changes proposed in this rule, some workers who were previously employed under section 14(c) certificates could also experience a change in eligibility for certain entitlement programs, and therefore a change in the public benefits that they receive. Any change in benefits would depend on a number of factors, including whether each individual finds employment at or above the full minimum wage following the phaseout of section 14(c) certificates, the number of hours they work, and other factors. The Department has not quantified this change in benefits, because there is no data available on all of the benefits currently received by workers under section 14(c) certificates, and any change in benefits depends heavily on the situation of each individual. However, the Department welcomes comments or data to better understand this potential transfer. Additionally, there may be some impacts that go beyond the affected workers employed under section 14(c) certificates. For example, some certificate holders employ support staff to assist the workers with disabilities E:\FR\FM\04DEP2.SGM 04DEP2 96506 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 being paid subminimum wages. These support staff generally provide job coaching, assist the worker with their tasks, and may perform portions of the job, if necessary. They may also assist in communicating on behalf of the employee or providing necessary training including job-related and soft skills. If a certificate holder chooses to no longer employ workers with disabilities, they may also no longer require the services of the support staff, potentially leading to a reduction in employment for the support staff workers. Conversely, if a certificate holder chooses to transition by providing non-work rehabilitation services to individuals with disabilities, they may need to increase their support staff to help with these activities. Even if an employer chooses to transition workers with disabilities to full-wage employment, they may also choose to retain existing support staff, increase these staff, or hire other support staff to assist workers. The Department welcomes comments and data on additional impacts that could occur following this rule. F. Benefits As discussed above, the Department expects that, following the changes proposed in this rule, many current workers with disabilities paid subminimum wages under a section 14(c) certificate will transition to fullwage employment opportunities. The increased wages could improve the financial strength and personal wellbeing of these workers, while also enhancing the overall equity and inclusion of workers with disabilities in the workplace. For example, in a review of 17 studies on the impacts of CIE on economic, psychological, and physical health outcomes for individuals with intellectual and developmental disabilities, researchers found that workers in CIE are paid higher wages and have better career prospects than individuals in sheltered workshops or non-work activities.353 They also found a positive relationship between CIE and health outcomes such as quality of life, self-determination, personal independence, locus of control, autonomy, and reduced support needs. On the other hand, the Department has heard from some individuals with disabilities and their families about the benefits that they have experienced in 353 Taylor, Joshua et al., ‘‘The Impact of Competitive Integrated Employment on Economic, Psychological, And Physical Health Outcomes for Individuals With Intellectual and Developmental Disabilities,’’ Journal of Applied Research in Intellectual Disabilities: JARID vol. 35,2 (2022): pp. 448–459, https://doi.org/10.1111/jar.12974. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 section 14(c) employment. For example, some individuals have explained that they feel safe in their current jobs, view their jobs as providing a secure and stable work community, and feel proud to earn wages, regardless of the amount of those wages. The Department welcomes comments from the public, including individuals with disabilities, their family members, and entities employing workers on section 14(c) certificates, on the benefits of section 14(c) employment. Working in concert with the broader societal shifts in opportunities for workers with disabilities, this proposed rule could also lead to spillover effects for the overall population of individuals with disabilities. In 2023, the labor force participation rate for persons with a disability was 24.2 percent, compared to 68.1 percent for persons with no disability.354 The changes in this proposed rule could help reduce this gap in labor force participation. If individuals with a disability view subminimum wage employment as the only option for them, they may choose to remain out of the workforce. They may be more likely to look for a job if they know that they would be paid at least the full minimum wage. For example, the National Longitudinal Transition Study-2 (NLTS2) found that there was a strong desire among youth with disabilities to participate in competitive employment. Specifically, the NLTS2 found that among the 70 percent of secondary school students with disabilities who identified employment as a goal for the postschool years, 62 percent had a goal to work in competitive employment, while only 3 percent wished to work in ‘‘sheltered’’ employment.355 By phasing out the issuance of section 14(c) certificates and ending subminimum wage employment for workers with disabilities, this rule could lead to an increase in labor force participation among individuals with disabilities more broadly. Businesses may also find it beneficial to integrate workers with disabilities into their workplace. For example, employers working with job coaches can 354 U.S. Dep’t of Labor, Bureau of Labor Statistics Bureau of Labor Statistics, Current Population Survey, Table A–6. Employment status of the civilian population by sex, age, and disability status, not seasonally adjusted, https://www.bls.gov/ webapps/legacy/cpsatab6.htm. 355 Mary Wagner, Lynn Newman, Renee Cameto, Nicolle Garza, and Phyllis Levine, ‘‘After High School: A First Look at the Postschool Experiences of Youth with Disabilities. A Report from the National Longitudinal Transition Study-2 (NLTS2),’’ SRI International, April 2005, pp. 5–3 to 5–4, https://www.nlts2.org/reports/2005_04/nlts2_ report_2005_04_complete.pdf. PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 identify work solutions that will resolve company needs and result in mutually beneficial employment relationships for employers and employees with disabilities. Additional potential benefits to employers are expansion of their talent pool, creation of more inclusive workplaces, and promotion of compliance with EEOC law.356 The Department also welcomes comments providing additional information on the impacts of increasing labor force participation of people with disabilities. As explained throughout this notice of proposed rulemaking, the Department has proposed to phase out section 14(c) certificates because the Department’s preliminary conclusion is that such certificates do not continue to be necessary in order to prevent the curtailment of employment opportunities for individuals with disabilities. The Department also predicts, as evidenced in the transfers analysis above, that a significant share of workers currently employed under section 14(c) certificates will be able to transition to full-wage employment. The Department would welcome additional data to quantify the various benefits of this proposed rule. VIII. Initial Regulatory Flexibility Analysis (IRFA) The Regulatory Flexibility Act of 1980 (RFA) as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), hereafter jointly referred to as the RFA, requires that an agency prepare an initial regulatory flexibility analysis (IRFA) when proposing, and a final regulatory flexibility analysis (FRFA) when issuing, regulations that will have a significant economic impact on a substantial number of small entities. A. Reasons Why Action by the Agency Is Being Considered and Statement of Objectives and Legal Basis for the Proposed Rule The FLSA generally requires that employees be paid at least the Federal minimum wage, currently $7.25 per hour, for every hour worked and at least one and one-half times their regular rate of pay for each hour worked over 40 in a single workweek. 29 U.S.C. 206(a), 207(a). Since its enactment in 1938 through today, section 14 of the FLSA has included a provision authorizing the Department to issue certificates permitting employers to pay workers whose disabilities impair their earning 356 Virginia Commonwealth University, ‘‘Supporting Individuals with Significant Disabilities: The Roles of a Job Coach,’’ https:// dors.maryland.gov/crps/Documents/RSM2_08004.pdf. E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules or productive capacity at wage rates below the Federal minimum wage. That statutory provision, however, has always imposed an important prerequisite: such certificates may only be issued to the extent ‘‘necessary to prevent curtailment of opportunities for employment.’’ 357 Given the profound legal and policy developments that have vastly expanded employment opportunities and rights for individuals with disabilities since the Department last substantively updated regulations governing section 14(c) in 1989, and even more so since the Department first promulgated regulations upon enactment in 1938, the Department preliminarily concludes that subminimum wages are no longer necessary to prevent the curtailment of employment opportunities for individuals with disabilities. The Department specifically proposes to cease issuance of new section 14(c) certificates to employers submitting an initial application on or after the effective date of a final rule and permit existing section 14(c) certificate holders, assuming all legal requirements are met, to continue to operate under section 14(c) certificate authority for up to 3 years after the effective date of a final rule. B. Description of the Number of Small Entities to Which the Proposed Rule Will Apply The proposed rule will impact entities who currently hold a section 14(c) certificate at the time of publication of the final rule. While it could, in theory, also impact those who were previously interested in applying for a section 14(c) certificate, the percentage of applications that WHD receives from initial applicants (i.e., applicants who have not previously applied for a section 14(c) certificate) is very small. From the May 1, 2024, WHD data, only 3 percent of applicants indicated that they were filing an initial application. Both the number of total certificate holders and initial applicants has been trending downward over time and the Department expects that the trend would continue even in absence of this proposed rule. Therefore, the Department does not expect the net number of affected entities to be higher than the number of current certificate holders. The overwhelming majority of current certificate holders are Community Rehabilitation Programs (CRPs), representing approximately 93 percent of current certificate holders as of May 2024. In the context of section 14(c), WHD defines CRPs as ‘‘not-for-profit agencies that provide rehabilitation and employment for people with disabilities.’’ Only a small percentage of current certificate holders are privatesector, for-profit businesses, as discussed in section VII.B. To estimate the impact of eliminating section 14(c) certificates on small entities, the Department first determined whether current section 96507 14(c) certificate holders were ‘‘small’’ as defined by the SBA. SBA broadly defines an entity (whether a ‘‘business’’ or a nonprofit ‘‘organization’’) as ‘‘small’’ if it is ‘‘independently owned and operated’’ and is ‘‘not dominant in its field of operation.’’ More concretely, SBA defines an entity as small if its employees or annual revenues are less than the threshold published in its Table of Size Standards.358 Although affected entities fall under different NAICS, for the vast majority of section 14(c) certificate holders, the applicable size standard is $20 million in revenues. To perform this task, the Department began with the list of entities currently holding a valid section 14(c) certificate, then used the entity’s name, IRS Employer Identification Number (EIN), and address to ascertain the primary NAICS code, sales/revenue, and number of employees in business databases and other online searches.359 The Department determined that 636 of these firms, which consists of both nonprofit and for-profit entities, are small using the SBA size standard based on the primary NAICS code of each entity, which represent the Department’s best estimate given inherent uncertainties in publicly available data, especially for for-profit organizations. Table 4 contains the number of and percentage of small entities by major industry NAICS code. Table 5 contains the distribution of these small entities by NAICS code and entity type, as reported on form WH–226. ddrumheller on DSK120RN23PROD with PROPOSALS2 TABLE 4—NUMBER AND PERCENTAGE OF SMALL ENTITIES BY NAICS Number of small entities Percentage of small entity certificate holders (%) 6-digit NAICS NAICS description 623220 ....................... 624120 ....................... 624190 ....................... 624310 ....................... 813319 ....................... Other NAICS a ........... Residential Mental Health and Substance Abuse Facilities ............................................ Services for the Elderly and Persons with Disabilities .................................................... Other Individual and Family Services .............................................................................. Vocational Rehabilitation Services .................................................................................. Other Social Advocacy Organizations ............................................................................. .......................................................................................................................................... 29 39 68 277 20 203 4.6 6.1 10.7 43.6 3.1 31.9 All ....................... .......................................................................................................................................... 636 100 Note: a The five most frequent NAICS codes within the ‘‘Other NAICS’’ category are 611110 (Elementary and Secondary Schools), 621420 (Outpatient Mental Health and Substance Abuse Centers), 623990 (Other Residential Care Facilities), 621498 (All Other Outpatient Care Centers), and 623110 (Nursing Care Facilities (Skilled Nursing Facilities)). Of the 203 entities in the ‘‘Other NAICS’’ category, 66 entities are in one of these five NAICS codes. 357 29 U.S.C. 214(c). size standards by NAICS code are available at https://www.sba.gov/document/ support-table-size-standards. SBA guidance defines both small businesses and small non-profit organizations as entities that are ‘‘independently owned and operated and not dominant in its field, with no indication that the size standards for businesses are not applicable to organizations.’’ See 358 SBA VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 ‘‘How to Comply with the Regulatory Flexibility Act,’’ https://advocacy.sba.gov/wp-content/ uploads/2019/07/How-to-Comply-with-the-RFAWEB.pdf. SBA defines a governmental jurisdiction as ‘‘small’’ if it has a population of less than 50,000 residents. 359 The IRS Tax Exempt Organization Search Tool, https://apps.irs.gov/app/eos/, was used to obtain revenue from tax-exempt filings, which PO 00000 Frm 00043 Fmt 4701 Sfmt 4702 includes all public support. DemographicsNow and AtoZdatabases were also used to obtain more recent revenue than available on the IRS Tax Exempt Organization Search Tool, to collect information on the number of employees, and for revenues of forprofit entities. E:\FR\FM\04DEP2.SGM 04DEP2 96508 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules TABLE 5—DISTRIBUTION OF SMALL ENTITIES, BY ENTITY TYPE AND NAICS CODE Businesses CRPs Hospitals or residential care facilities that employ patients 6-Digit NAICS NAICS description SWEPs Total 623220 .............................. 2 27 0 0 29 624120 .............................. 624190 .............................. 624310 .............................. 813319 .............................. Other NAICS b .................. Residential Mental Health and Substance Abuse Facilities. Services for the Elderly and Persons with Disabilities Other Individual and Family Services ......................... Vocational Rehabilitation Services ............................. Other Social Advocacy Organizations ........................ ..................................................................................... 0 2 8 0 15 39 66 267 19 180 0 0 0 1 6 0 0 1 0 2 39 68 276 20 203 All a ............................ ..................................................................................... 27 589 7 3 635 Note: ‘‘Entity Type’’ is as designated based on the ‘‘Certificate Type’’ listed in the current section 14(c) certificate holders list, available at https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders/archive. If an entity lists more than one certificate type, and one of those types is Community Rehabilitation Program, the entity is categorized as a CRP. Entities with certificate types of ‘‘Business Establishment’’ only are categorized as Businesses and entities with certificate types of ‘‘Hospital/Patient Worker Facility’’ only are categorized as Hospitals or Residential Care Facilities that Employ Patients. a One entity has a Certificate Type of ‘‘Unknown’’ in NAICS code 624310 (Vocational Rehabilitation Services) and is excluded from this table. b The five most frequent NAICS codes within the ‘‘Other NAICS’’ category are 611110 (Elementary and Secondary Schools), 621420 (Outpatient Mental Health and Substance Abuse Centers), 623990 (Other Residential Care Facilities), 621498 (All Other Outpatient Care Centers), and 623110 (Nursing Care Facilities (Skilled Nursing Facilities)). Of the 203 entities in the ‘‘Other NAICS’’ category, 66 entities are in one of these five NAICS codes. C. Projected Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule There are no reporting or recordkeeping requirements associated with this proposed rule. Thus, the direct costs to affected entities would be rule familiarization costs, adjustment costs, and potential payroll increases if they choose to retain their workers currently employed under section 14(c) certificates and pay the full minimum wage. As discussed in section VII.C.1, total rule familiarization costs are $92,980 (801 employers × 2 hours × $58.04), and the per entity cost is $116 ($58.04 × 2 hours) in Year 1. As discussed in section VII.C.2., the Department did not provide a definitive estimate of adjustment costs, because of the uncertainties of how and when each certificate holder would respond to the rule. However, as an example, if certificate holders incurred an average of 1 hour of adjustment costs, their per entity cost would be $58.04.360 Using aggregate data on workers employed under section 14(c) certificates as submitted by employers on form WH–226A, the Department calculated the mean increase in wage cost per employee and the total number of section 14(c) workers by State. These additional wage costs represent the maximum transfers from employers to workers because they are calculated based on each section 14(c) worker being paid the applicable minimum wage (i.e., the greater of the State or Federal minimum wage) and working for the same number of hours as they currently work. The Department calculated total wage cost by multiplying the mean increase in wage cost per employee in each State by the sum of the number of section 14(c) workers for all certificate holders in the state. The Department added the upper bound of wage costs, regulatory familiarization cost, and adjustment additional discussion of adjustment costs, see section VII.C.2. ddrumheller on DSK120RN23PROD with PROPOSALS2 360 For VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 PO 00000 Frm 00044 Fmt 4701 Sfmt 4702 costs to estimate the total cost of the rule for small entities. The Department calculated the sum of the revenue of the small entities holding section 14(c) certificates by state using the revenues associated with each small entity identified in the business databases as described in the previous section.361 The Department then divided total cost to small section 14(c) certificate holders by aggregated revenues to yield the estimated cost to revenue ratios by NAICS code as shown in Table 6. Many of these ratios of cost to revenue are greater than the generally accepted threshold of one percent that indicates a significant impact. The results presented in this table assume that public funding streams to nonprofit CRPs remain constant. To the extent that public funding streams change as a result of implementation of this proposal, nonprofit revenues from that source will directly increase or decrease. 361 The Department imputed revenue using the number of employees for five entities for which revenue was not found. E:\FR\FM\04DEP2.SGM 04DEP2 96509 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules TABLE 6—ESTIMATED RATIOS OF COMPLIANCE COST TO REVENUE FOR SMALL ENTITIES CURRENTLY HOLDING VALID SECTION 14(c) CERTIFICATES, BY NAICS CODE Proportion of revenue impacted 6-Digit NAICS a <1% 5%–10% ≥10% 1%–2% 2%–3% 3%–4% 4%–5% 623220 .......................................... 624120 .......................................... 624190 .......................................... 624310 .......................................... 813319 .......................................... Other NAICS b ............................... 15 10 13 51 7 68 51.7% 25.6% 19.1% 18.4% 35.0% 33.5% 4 4 13 30 1 21 13.8% 10.3% 19.1% 10.8% 5.0% 10.3% 2 7 10 28 5 18 6.9% 17.9% 14.7% 10.1% 25.0% 8.9% 5 3 5 30 1 14 17.2% 7.7% 7.4% 10.8% 5.0% 6.9% 1 2 2 16 1 14 3.4% 5.1% 2.9% 5.8% 5.0% 6.9% 2 6 12 45 1 24 6.9% 15.4% 17.6% 16.2% 5.0% 11.8% 0 7 13 77 4 44 .......... 17.9% 19.1% 27.8% 20.0% 21.7% Total 29 39 68 277 20 203 Total ....................................... 164 25.8% 73 11.5% 70 11.0% 58 9.1% 36 5.7% 90 14.2% 145 22.8% 636 Note: a NAICS descriptions are 623220 (Residential Mental Health and Substance Abuse Facilities), 624120 (Services for the Elderly and Persons with Disabilities), 624190 (Other Individual and Family Services), 624310 (Vocational Rehabilitation Services), and 813319 (Other Social Advocacy Organizations). b The five most frequent NAICS codes within the ‘‘Other NAICS’’ category are 611110 (Elementary and Secondary Schools), 621420 (Outpatient Mental Health and Substance Abuse Centers), 623990 (Other Residential Care Facilities), 621498 (All Other Outpatient Care Centers), and 623110 (Nursing Care Facilities (Skilled Nursing Facilities)). Of the 203 entities in the ‘‘Other NAICS’’ category, 66 entities are in one of these five NAICS codes. c Of the 636 small entities affected, 598 (or 94%) are Community Rehabilitation Programs (CRPs), the majority of which are non-profit. As discussed in the preamble, many CRPs provide employment and other services, such as rehabilitation and training, and receive public funding. Such entities also often pay their operating costs through a mix of public funding and public and private contracts for goods or services. CRPs generally operate differently than private, for-profit small businesses and do not focus on earning profit through their operations. For the cost-revenue ratio calculations of the 598 CRPs, the Department used their total receipts, which includes grants and donations, instead of just revenue. Therefore, the cost-revenue ratios in Table 6 may not accurately reflect the cost impact on their operational continuity. TABLE 7—ESTIMATED RATIOS OF COMPLIANCE COST TO REVENUE FOR SMALL ENTITIES CURRENTLY HOLDING VALID SECTION 14(c) CERTIFICATES, BY ENTITY TYPE Proportion of revenue impacted Entity type <1% 1%–2% 2%–3% 3%–4% 4%–5% 5%–10% ≥10% All entities Businesses .............................................. CRPs ....................................................... Hospitals or Residential Care Facilities that Employ Patients ........................... School Work Experience Program (SWEP) ................................................ 8 147 29.6% 24.6% 1 72 3.7% 12.0% 4 66 14.8% 11.0% 1 57 3.7% 9.5% 1 34 3.7% 5.7% 4 86 14.8% 14.4% 8 136 29.6% 22.7% 27 598 7 100.0% 0 .......... 0 .......... 0 .......... 0 .......... 0 .......... 0 .......... 7 2 66.7% 0 .......... 0 .......... 0 .......... 0 .......... 0 .......... 1 33.3% 3 Total a ............................................... 164 25.8% 73 11.5% 70 11.0% 58 9.1% 35 5.5% 90 14.2% 145 22.8% 635 ddrumheller on DSK120RN23PROD with PROPOSALS2 Note: ‘‘Entity Type’’ is as designated based on the ‘‘Certificate Type’’ listed in the current section 14(c) certificate holders list, available at https:// www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders/archive. If an entity lists more than one certificate type, and one of those types is Community Rehabilitation Program, the entity is categorized as a CRP. Entities with certificate types of ‘‘Business Establishment’’ only are categorized as Businesses and entities with certificate types of ‘‘Hospital/Patient Worker’’ only are categorized as Hospitals or Residential Care Facilities that Employ Patients. a One entity has a Certificate Type of ‘‘Unknown’’ with a proportion of revenue impacted of 4%–5% but is excluded from this table. The Department has concerns about the accuracy of the underlying data used to calculate these ratios. For example, although the Department was able to verify revenue data for most nonprofit organizations using Form 990 filings with the IRS, other entities’ revenue data listed in the business databases may be inconsistent with other company data. Business database listings for other affected section 14(c) certificate holders may show reasonable values for revenue compared to employees but list a number of section 14(c) workers on their form WH–226A that is many times larger than the total number of employees listed in the business database.362 Finally, some 362 Some examples of certificate holders for which the respective number of section 14(c) employees greatly exceeds the business database VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 entities appear to have multiple conflicting records in the same database. The Department considered using other data sources to estimate the impact of this proposed rule on small listing for total employees are: 182 versus 2, 102 versus 1, 42 versus 4, and 51 versus 2. Of the 655 small entities, 66 have data values such that the number of section 14(c) workers is at least five times greater than the total number of employees listed in a business database. The WHD application for a section 14(c) certificate requires employers to provide data about the workers with disabilities employed at each separate work site or location. Applicants must include workers corresponding to each work site, and therefore, summary data may count workers multiple times if that worker works for the employer at multiple locations. However, these potential duplicates likely do not account for the large differences noted. Moreover, as explained above in section VII.B.1, the information collected from the form WH–226A is submitted by applicants and may include inaccuracies, such as instances when an employer reports a piece rate instead of an hourly wage rate or miscalculates the wage. PO 00000 Frm 00045 Fmt 4701 Sfmt 4702 entities. One option is to use revenue data from the Statistics of U.S. Businesses (SUSB).363 However, to estimate revenues from SUSB data would require determining the appropriate employment size class of the entity. As described above, due to the prevalence of part-time employment, and duplication in counting the number of employees using section 14(c) certificates, strong assumptions would be required to assign each entity to an employment size class. Furthermore, SUSB only publishes revenue data every 5 years (the Economic Census years and has not yet published revenue data from the 2022 Economic Census). While it is 363 United States Census Bureau, Statistics of U.S. Businesses, https://www.census.gov/programssurveys/susb.html. E:\FR\FM\04DEP2.SGM 04DEP2 96510 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 possible to inflate 2017 revenues to represent 2022 dollars, that again requires a strong assumption given the impact of COVID on the economy between 2017 and 2022. The Department welcomes comments and data that could provide a more accurate measure of the costs of this proposed rule relative to revenues of affected small entities. As discussed in section VII.E.1., the Department estimated payroll costs 364 as an upper bound corresponding to a scenario in which all workers on section 14(c) certificates were to find employment at the full minimum wage. However, actual costs are likely to be somewhat lower, as it is possible not all affected subminimum wage workers will transition to employment at the full minimum wage for the same number of hours worked at subminimum wages. For those employers that choose to do so, their increased payroll costs will depend on the number of current workers they have employed under section 14(c) certificates, and their current wages. In addition, the Department expects costs could be offset by cost savings for affected employers. These cost savings consist of no longer applying for section 14(c) certificates and no longer participating in the activities required to maintain their certificate and determine appropriate commensurate subminimum wage rates for workers. As discussed in section VII.D., the cost savings of no longer filling out the application forms for a section 14(c) certificate could save employers $188.63 annually, while the cost savings of no longer performing time studies of the work of a ‘‘standard setter’’ and the hourly paid worker with a disability could save employers, at least, $116.08 (2.5 hours × $58.04) annually. The Department welcomes comments and data that could help refine the estimates of payroll costs for affected small employers. D. Alternatives to the Proposed Rule The Department considered various regulatory alternatives in the formation of this proposed rule. For example, the Department also considered proposing different phaseout periods. As detailed above, the Department proposes that WHD will no longer issue new section 14(c) certificates for initial applications postmarked or submitted online on or after the effective date of the final rule. For employers who seek to renew a section 14(c) certificate, the Department proposes a phaseout period of 3 years 364 For additional discussion of payroll costs, see section VII.E. VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 from the effective date of the final rule during which those employers may continue to hold a valid section 14(c) certificate (provided that they comply with the statutory and regulatory requirements for certificate holders) and WHD will continue to process renewal applications. The Department considered proposing both a shorter and longer phaseout period. However, the Department declined to propose a shorter phaseout period (or no phaseout period) because some individuals with disabilities who have been working for employers holding a section 14(c) certificate, employers who have held a section 14(c) certificate, and government entities may need more time to mitigate potential disruptions that might otherwise cause curtailment of employment opportunities. A shorter phaseout period would also be more burdensome on small entities. The Department also declined to propose a longer phaseout period because, in most cases, 3 years should be sufficient to allow for such transitions, and because a longer period might incentivize delay of effective transition measures. As explained above, States that enacted laws containing multi-year phaseouts ranged from 2 years to 7 years, with many States adopting a 2- or 3-year phaseout. The Department has also considered proposing an extension period but instead asks stakeholders to comment on the necessity of any extensions and if so, their scope, structure, and length. E. Relevant Federal Rules Duplicating, Overlapping, or Conflicting With the Proposed Rule The Department is unaware of any Federal rules which duplicate, overlap, or conflict with the proposed rule. IX. Unfunded Mandates Reform Act of 1995 The Unfunded Mandates Reform Act of 1995 (UMRA),365 requires agencies to prepare a written statement for rulemaking that includes any Federal mandate that may result in increased expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $200 million ($100 million in 1995 dollars adjusted for inflation to 2023) or more in at least one year. This rulemaking is not expected to exceed that threshold. See section VII. for an assessment of anticipated costs, transfers, and benefits. 365 2 PO 00000 U.S.C. 1501 et seq. Frm 00046 Fmt 4701 Sfmt 4702 X. Executive Order 13132, Federalism The Department has (1) reviewed this proposed rule in accordance with Executive Order 13132 regarding federalism and (2) determined that it does not have federalism implications. The proposed rule would not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. XI. Executive Order 13175, Indian Tribal Governments This proposed rule would not have tribal implications under Executive Order 13175 that would require a tribal summary impact statement. The proposed rule would not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. List of Subjects in 29 CFR Part 525 Administrative practice and procedure, Equal employment opportunity, Individuals with disabilities, Minimum Wages, Reporting and recordkeeping requirements, Vocational rehabilitation, Wages. ■ 1. The authority citation for part 525 continues to read as follows: Authority: 52 Stat. 1060, as amended (29 U.S.C. 201–219); Pub. L. 99–486, 100 Stat. 1229 (29 U.S.C. 214). ■ 2. Revise § 525.1 to read as follows: § 525.1 Introduction. The Fair Labor Standards Act (FLSA) authorizes the Secretary of Labor, to the extent necessary to prevent curtailment of opportunities for employment, to issue certificates to employers to pay workers whose disabilities impair their earning or productive capacity at commensurate wage rates below the Federal minimum wage rate. In view of the legal and policy developments that have expanded access to employment opportunities for individuals with disabilities since Congress first included the provision for subminimum wages in 1938 and since the Department last substantively updated its regulations in 1989, the Secretary has determined that subminimum wages are no longer necessary to prevent the curtailment of opportunities for employment for individuals with disabilities, see § 525.9. In light of this determination, the Secretary will cease issuing new certificates immediately as of [EFFECTIVE DATE OF FINAL RULE] E:\FR\FM\04DEP2.SGM 04DEP2 Federal Register / Vol. 89, No. 233 / Wednesday, December 4, 2024 / Proposed Rules and certificates will be available only to renewing applicants for a limited phaseout period ending [DATE 3 YEARS AFTER THE EFFECTIVE DATE OF FINAL RULE]. See § 525.13. ■ 3. Revise § 525.2 to read as follows: § 525.2 Purpose and scope. The regulations in this part govern the issuance and cessation of all certificates authorizing the employment of workers with disabilities at special minimum wages pursuant to section 14(c) of FLSA. ■ 4. Revise § 525.7 to read as follows: § 525.7 Application for certificates. (a) As of [EFFECTIVE DATE OF FINAL RULE], an application for a certificate may be filed only by an applicant seeking to renew a certificate pursuant to § 525.13. An applicant seeking to renew a certificate may do so by completing an online application or submitting paper application forms provided by the Wage and Hour Division. For more information and to access the online application system or download forms, see the Wage and Hour Division website at https:// www.dol.gov/agencies/whd/workerswith-disabilities/section-14c/apply, or its successor website. (b) The employer must provide answers to all of the applicable questions contained in the application. (c) The application must be signed by the employer or the employer’s authorized representative. ■ 5. Revise § 525.9 to read as follows: § 525.9 Criteria for employment of workers with disabilities under certificates at special minimum wage rates. ddrumheller on DSK120RN23PROD with PROPOSALS2 (a) As of [EFFECTIVE DATE OF FINAL RULE], the Secretary has determined that certificates allowing for the payment of subminimum wage rates for workers with disabilities are no longer necessary to prevent the curtailment of opportunities for employment. (b) Pursuant to the regulations set forth above related to certificate phaseout, in order to be granted a VerDate Sep<11>2014 19:32 Dec 03, 2024 Jkt 265001 renewal certificate authorizing the employment of workers with disabilities at special minimum wage rates during the phaseout period, the employer must provide the following written assurances concerning such employment: (1) In the case of individuals paid hourly rates, the special minimum wage rates will be reviewed by the employer at periodic intervals at a minimum of once every six months; and, (2) Wages for all employees will be adjusted by the employer at periodic intervals at a minimum of once each year to reflect changes in the prevailing wages paid to experienced nondisabled individuals employed in the locality for essentially the same type of work. ■ 6. Revise § 525.11 to read as follows: § 525.11 Issuance of certificates. (a) Upon consideration of the criteria cited in these regulations, a special certificate may be issued. (b) If a special minimum wage certificate is issued, a copy will be sent to the employer. If denied, the employer will be notified in writing and told the reasons for the denial, as well as the right to petition under § 525.18. (c) Certificates will not be issued to any employer after [3 YEARS FROM THE EFFECTIVE DATE OF FINAL RULE]. ■ 7. Revise § 525.13 to read as follows: § 525.13 Renewal of special minimum wage certificates. (a) Applications may be filed for renewal of special minimum wage certificates. (b) If an application for renewal has been properly and timely filed, an existing special minimum wage certificate will remain in effect until the application for renewal has been granted or denied. No certificate will be valid as of [DATE 3 YEARS AFTER EFFECTIVE DATE OF FINAL RULE] regardless of any pending renewal application. (c) Workers with disabilities may not continue to be paid special minimum PO 00000 Frm 00047 Fmt 4701 Sfmt 9990 96511 wages after notice that an application for renewal has been denied. (d) Except in cases of willfulness or those in which the public interest requires otherwise, before an application for renewal is denied facts or conduct which may warrant such action shall be called to the attention of the employer in writing and such employer shall be afforded an opportunity to demonstrate or achieve compliance with all legal requirements. ■ 8. Revise § 525.18 to read as follows: § 525.18 Review. Any person aggrieved by any action of the Administrator taken pursuant to this part may, within 60 days or such additional time as the Administrator may allow, file with the Administrator a petition for review. Such review, if granted, shall be made by the Administrator. Other interested persons, to the extent it is deemed appropriate, may be afforded an opportunity to present data and views. Any review granted cannot result in section 14(c) certificate authority being extended beyond [DATE 3 YEARS AFTER THE EFFECTIVE DATE OF FINAL RULE]. ■ 9. Add § 525.25 to read as follows: § 525.25 Severability. The provisions of this part are separate and severable and operate independently from one another. If any provision of this part is held to be invalid or unenforceable by its terms, or as applied to any person or circumstance, or stayed pending further agency action, the provision must be construed so as to continue to give the maximum effect to the provision permitted by law, unless such holding will be one of utter invalidity or unenforceability, in which event the provision will be severable from this part and will not affect the remainder thereof. Jessica Looman, Administrator, Wage and Hour Division. [FR Doc. 2024–27880 Filed 12–3–24; 8:45 am] BILLING CODE 4510–27–P E:\FR\FM\04DEP2.SGM 04DEP2

Agencies

[Federal Register Volume 89, Number 233 (Wednesday, December 4, 2024)]
[Proposed Rules]
[Pages 96466-96511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27880]

[[Page 96465]]

Vol. 89

Wednesday,

No. 233

December 4, 2024

Part III

Department of Labor

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Wage and Hour Division

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29 CFR Part 525

Employment of Workers With Disabilities Under Section 14(c) of the Fair
Labor Standards Act; Proposed Rule

Federal Register / Vol. 89 , No. 233 / Wednesday, December 4, 2024 /
Proposed Rules

[[Page 96466]]

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DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Part 525

RIN 1235-AA14

Employment of Workers With Disabilities Under Section 14(c) of
the Fair Labor Standards Act

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Fair Labor Standards Act (FLSA or Act) authorizes the
Secretary of Labor to issue certificates allowing employers to pay
productivity-based subminimum wages to workers with disabilities, but
only where such certificates are necessary to prevent the curtailment
of opportunities for employment. Employment opportunities for
individuals with disabilities have vastly expanded in recent decades,
in part due to significant legal and policy developments. Based on that
evidence, the Department has tentatively concluded that subminimum
wages are no longer necessary to prevent the curtailment of employment
opportunities for individuals with disabilities and thus proposes to
phase out the issuance of section 14(c) certificates.

DATES: Interested persons are invited to submit written comments on
this notice of proposed rulemaking (NPRM) on or before January 17,
2025.

ADDRESSES: You may submit comments, identified by Regulatory
Information Number (RIN) 1235-AA14, by either of the following methods:
Electronic Comments: Submit comments through the Federal
eRulemaking Portal at https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Address written submissions to: Division of
Regulations, Legislation, and Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
Washington, DC 20210.
Instructions: Response to this NPRM is voluntary. The Department
requests that no business proprietary information, copyrighted
information, or personally identifiable information be submitted in
response to this NPRM. Commenters submitting file attachments on
https://www.regulations.gov are advised that uploading text-recognized
documents--i.e., documents in a native file format or documents which
have undergone optical character recognition (OCR)--enable staff at the
Department to more easily search and retrieve specific content included
in your comment for consideration.
Anyone who submits a comment (including duplicate comments) should
understand and expect that the comment, including any personal
information provided, will become a matter of public record and will be
posted without change to https://www.regulations.gov. The Department
posts comments gathered and submitted by a third-party organization as
a group under a single document ID number on https://www.regulations.gov. All comments must be received by 11:59 p.m. ET on
January 17, 2025, for consideration in this rulemaking; comments
received after the comment period closes will not be considered.
The Department recommends that commenters submit their comments
electronically via https://www.regulations.gov to ensure timely receipt
prior to the close of the comment period. Please submit only one copy
of your comments by only one method.
Docket: For access to the docket to read background documents or
comments, go to the Federal eRulemaking Portal at https://www.regulations.gov. In accordance with 5 U.S.C. 553(b)(4), a summary
of this rule may also be found at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Daniel Navarrete, Director, Division
of Regulations, Legislation, and Interpretation, Wage and Hour Division
(WHD), U.S. Department of Labor, Room S-3502, 200 Constitution Avenue
NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a
toll-free number). Alternative formats are available upon request by
calling 1-866-487-9243. If you are deaf, hard of hearing, or have a
speech disability, please dial 7-1-1 to access telecommunications relay
services.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at https://www.dol.gov/agencies/whd/contact/local-offices for a nationwide listing of WHD district and area
offices.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

The FLSA generally requires that employees be paid at least the
Federal minimum wage, currently $7.25 per hour, for every hour worked
and at least one and one-half times their regular rate of pay for each
hour worked over 40 in a single workweek. 29 U.S.C. 206(a), 207(a).
Since its enactment in 1938 through today, section 14 of the FLSA has
included a provision authorizing the Department to issue certificates
permitting employers to pay workers at wage rates below the Federal
minimum wage when the worker's disabilities impair their earning or
productive capacity. The section 14 statutory provision, however, has
always provided that such certificates may only be issued to the extent
``necessary to prevent curtailment of opportunities for employment.''
\1\ As the Supreme Court explained in 1947, the language and
legislative history of the section show that its purpose is to prevent
the imposition of a full minimum wage from depriving those with
``physical handicaps'' of ``all opportunity to secure work.'' \2\
However, as the Court emphasized, ``to have written a blanket exemption
of all [such workers] from the Act's provisions might have left open a
way for wholesale evasions. Flexibility of wage rates for them was
therefore provided under the safeguard of administrative permits.'' \3\
Hence, section 14(c) authorizes the Secretary to issue certificates
allowing payment of subminimum wages to individuals with disabilities
only when conditions make it ``necessary'' to do so.
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\1\ 29 U.S.C. 214(c)(1).
\2\ Walling v. Portland Terminal Co., 330 U.S. 148, 151 (1947).
The Department notes that some terminology used in this NPRM
reflects the terms used in the statute and regulations at the time
of their issuance or quotations from various sources. Quotations are
attributable to the sources indicated and do not necessarily reflect
the current views or terminology of the Department. Since the early
1990s, the government has replaced outdated and offensive terms like
``the handicapped'' with more respectful, person-first terminology,
such as ``individuals with disabilities.'' Throughout this NPRM, the
Department references outdated terms only when necessary to
accurately reflect quoted sources or to illustrate changes that have
occurred.
\3\ Id.
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The Department first promulgated regulations governing the issuance
of these ``administrative permits'' in 1938, and last substantively
updated them in 1989, more than 35 years ago. Since 1989 (and
profoundly more so since the time the statutory provision was enacted
and its implementing regulations were promulgated nearly 85 years ago),
opportunities for employment have dramatically changed for individuals
with disabilities. Fueled by the disability rights movement, societal
and cultural assumptions, beliefs and expectations regarding the
employment of individuals with disabilities have evolved, and
opportunities for individuals with disabilities have

[[Page 96467]]

dramatically expanded. Federal legislation and judicial precedent have
established and enshrined fundamental legal protections requiring equal
access, opportunities, and respect for individuals with disabilities in
both education and employment. Of these legislative and judicial
developments, the landmark Americans with Disabilities Act (ADA) of
1990,\4\ enacted the year after the section 14(c) regulations were last
substantively updated, has had a profound impact on employment
opportunities for individuals with disabilities. In addition, the
President and executive agencies have taken steps to end the payment of
subminimum wages to workers with disabilities on certain government
contracts. Numerous States and localities have prohibited or limited
the payment of subminimum wages to workers with disabilities within
their jurisdictions. In short, employment opportunities for individuals
with disabilities have advanced significantly since the FLSA's
enactment in 1938, when it was much more difficult for individuals with
disabilities to secure employment at the full minimum wage.\5\
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\4\ The ADA was subsequently amended by the ADA Amendments Act
of 2008, 42 U.S.C. 12111 et seq. As discussed in section III.B, the
ADA mandates equal employment opportunity for individuals with
disabilities by prohibiting discrimination and requiring reasonable
accommodation.
\5\ Id.
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Although it is widely acknowledged that individuals with
disabilities continue to face challenges in obtaining equal opportunity
and treatment, the extent of legal protections, opportunities,
resources, training, technological advancements, and supports has
dramatically expanded since 1989, when the Department's regulation was
last substantively updated, to assist individuals with disabilities
both in obtaining and maintaining employment at or above the full
minimum wage.\6\ Employers similarly have substantially more resources
and training available to recruit, hire, and retain workers with
disabilities in employment at or above the full minimum wage. This
comprehensive system of new approaches has rendered it unnecessary to
depend upon subminimum wages to secure employment opportunities for
individuals with disabilities and, given the enhanced opportunities for
employment since the Department last substantively updated its
regulations in 1989, vastly more individuals with disabilities--
including intellectual or development disabilities (I/DD)--work at
full-wage employment than work under section 14(c) certificates.
Recognizing the expansion of full-wage employment options for
individuals with disabilities, an increasing number of oversight and
advisory reports, such as those published by the U.S. Commission on
Civil Rights (USCCR) and the National Council on Disability (NCD), have
vigorously called for a ``phase out'' of section 14(c) certificates. As
another indication that subminimum wages are not necessary to prevent
the curtailment of employment opportunities, an increasing number of
States and localities, including many jurisdictions with higher minimum
wages than the FLSA minimum wage, have prohibited or limited the
payment of subminimum wages in their respective jurisdictions, and an
increasing number of employers themselves are voluntarily opting out of
paying subminimum wages, as is reflected in the rate at which the
number of section 14(c) certificate holders has substantially declined
in recent years.
---------------------------------------------------------------------------

\6\ This expansion of employment opportunities, resources,
training, and supports is applicable for all individuals with
disabilities, including individuals with intellectual and
developmental disabilities who comprised about 90 percent of the
workers with disabilities still being paid subminimum wages as of
August 2021. See U.S. Gov't Accountability Office, GAO-23-105116,
``Subminimum Wage Program: DOL Could Do More to Ensure Timely
Oversight'' (2023) (2023 GAO Report), at 24, https://www.gao.gov/products/gao-23-105116.
---------------------------------------------------------------------------

Against this backdrop, the Department must fulfill its statutory
mandate of assessing whether section 14(c) certificates continue to be
necessary in order to prevent the curtailment of employment
opportunities for individuals with disabilities. After careful review,
consideration of input from stakeholders with a wide variety of
viewpoints, and for the reasons discussed in this notice of proposed
rulemaking, the Department preliminarily concludes that section 14(c)
certificates that allow employers to pay subminimum wages to workers
with disabilities are no longer necessary and thus proposes to amend 29
CFR part 525 to phase out the issuance of such certificates.
Accordingly, the Department proposes to stop issuance of new
section 14(c) certificates and to phase out existing certificates over
several years. At the conclusion of the phaseout period, this proposal
would require only that subminimum wages no longer be paid to workers
with disabilities. This proposed rule would not require workers to
leave their current places of employment, where they often also receive
a number of services, such as rehabilitation and training, nor would it
require current section 14(c) certificate holders to amend the type of
services that they currently provide or to modify the settings in which
work is performed.\7\
---------------------------------------------------------------------------

\7\ For example, if an employer currently employs a worker with
disabilities to perform an assembly line job for 2 hours per day and
then provides rehabilitation services to that same individual for 6
hours per day, this proposed rule would require only that the
employer pay at least the full Federal minimum wage for the 2 hours
of work performed by the worker. This proposed rule would not
require any changes be made to the setting or rehabilitation
services offered.
---------------------------------------------------------------------------

The Department specifically proposes to cease issuance of new
section 14(c) certificates to employers submitting an initial
application on or after the effective date of a final rule and permit
existing section 14(c) certificate holders, assuming all legal
requirements are met, to continue to operate under section 14(c)
certificate authority for up to 3 years after the effective date of a
final rule. The Department is also requesting comment as to whether, if
this proposed rule is finalized, it would be appropriate to grant an
extension for existing section 14(c) certificate holders who
demonstrate a need and seeks comments on the need for such an extension
period, and, if needed, its scope, structure and length.

II. Background

A. Introduction

The FLSA provides basic labor protections including Federal minimum
wage and overtime compensation requirements. Section 6 of the FLSA
establishes that the Federal minimum wage for covered employees is
currently $7.25 per hour, ``except as otherwise provided'' in the
Act.\8\ Since its enactment in 1938, the FLSA has authorized the
Department to issue certificates permitting the employment of certain
workers with disabilities at wage rates lower than the otherwise
applicable Federal minimum wage ``to the extent necessary to prevent
curtailment of opportunities for employment.'' \9\ To provide
appropriate contextual information about section 14(c), this section of
the proposed rule provides a high-level summary of the Department's
legal authority regarding the issuance of section 14(c) certificates,
the relevant statutory and regulatory history pertaining to FLSA
section 14(c), an overview of how the Department's Wage and Hour
Division (WHD) administers section 14(c) certificates and enforces the
section 14(c) provisions, and a description of how

[[Page 96468]]

employers are currently using certificates. The Department then
discusses its recent review of section 14(c) and addresses the current
need for rulemaking.
---------------------------------------------------------------------------

\8\ 29 U.S.C. 206.
\9\ 29 U.S.C. 214(c)(1).
---------------------------------------------------------------------------

B. Statutory Authority

Section 14(c)(1) of the FLSA provides that the ``Secretary, to the
extent necessary to prevent curtailment of opportunities for
employment, shall by regulation or order provide for the employment,
under special certificates, of individuals . . . whose earning or
productive capacity is impaired by age or physical or mental
deficiency'' at productivity-based subminimum wages.\10\ The FLSA
explicitly authorizes the Secretary to issue regulations governing the
issuance of subminimum wage certificates.
---------------------------------------------------------------------------

\10\ 29 U.S.C. 214(c)(1).
---------------------------------------------------------------------------

In authorizing the Secretary to issue certificates allowing
employers to pay subminimum wages, Congress included a significant
statutory limitation by permitting the issuance of certificates only
``to the extent necessary to prevent curtailment of opportunities for
employment.'' At the same time, Congress determined that the Secretary
``shall by regulation or order'' provide for subminimum wage
certificates, thereby conferring authority upon the Department to
determine whether that standard has been met and under what
circumstances subminimum wages should be paid. To best implement the
statute at this point in time, the Department proposes to exercise its
authority to find that subminimum wages are no longer necessary to
prevent the curtailment of employment opportunities for workers with
disabilities and to phase out the issuance of section 14(c)
certificates.\11\
---------------------------------------------------------------------------

\11\ WHD has legal authority to require payment of the full
Federal minimum wage for all hours worked by covered, non-exempt
employees. As previously noted, this proposed rule would not require
workers to leave their current places of employment, nor would it
require current section 14(c) certificate holders to amend the type
of services that they currently provide or to modify the settings in
which work is performed.
---------------------------------------------------------------------------

The Secretary's issuance of certificates prior to permitting
employers to pay a subminimum wage acts as a ``safeguard'' against
widespread abuse.\12\ Section 14(c) requires the curtailment clause
determination to be made by the Secretary prior to permitting employers
to pay a subminimum wage because the right to a minimum wage under the
FLSA is not waivable. The provision places this obligation on the
Secretary to safeguard the program against abuse and ensure that no
individual employer or employee can effect a waiver of their rights,
contrary to the FLSA.
---------------------------------------------------------------------------

\12\ Portland Terminal, 330 U.S. at 151.
---------------------------------------------------------------------------

It is a fundamental principle of FLSA jurisprudence that the Act's
rights, including the right to the Federal minimum wage, cannot be
waived. The Supreme Court's ``decisions interpreting the FLSA have
frequently emphasized the nonwaivable nature of an individual
employee's right[s] . . . under the Act'' and ``have held that FLSA
rights cannot be abridged by contract or otherwise waived.'' \13\ The
Supreme Court has identified at least three reasons for this nonwaiver
rule. First, the Court has determined that the Act constituted ``a
recognition of the fact that due to the unequal bargaining power as
between employer and employee, certain segments of the population
required federal compulsory legislation to prevent private contracts on
their part which endangered national health and efficiency.'' \14\
According to the Court, the protective purposes of the Act thus
``require that it be applied even to those who would decline its
protections''; otherwise, ``employers might be able to use superior
bargaining power to coerce employees to . . . waive their protections
under the Act.'' \15\ Second, the FLSA sought to establish a ``uniform
national policy of guaranteeing compensation for all work'' performed
by covered employees.\16\ Third, the Court has held that permitting
employees to waive their FLSA rights is inconsistent with the explicit
purpose of the Act to protect employers against unfair methods of
competition.\17\
---------------------------------------------------------------------------

\13\ Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S.
728, 740 (1981) (listing cases).
\14\ Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 706 (1945).
\15\ Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290,
302 (1985) (citing Barrentine, 450 U.S. 728 and Brooklyn Sav., 324
U.S. 697).
\16\ Jewell Ridge Coal Corp. v. Local No. 6167, UMWA, 325 U.S.
161, 167 (1945).
\17\ See 29 U.S.C. 202(a); Brooklyn Sav., 324 U.S. at 710.
---------------------------------------------------------------------------

Accordingly, just as employees cannot choose to forego overtime
compensation due, employees cannot choose to be paid subminimum wages.
Rather, an employer may only pay subminimum wages to workers with
disabilities after obtaining a certificate from the Secretary. In turn,
the Secretary may only issue such certificates when the threshold
statutory requirement is met, that is, the Secretary determines that
such certificates are necessary to prevent the curtailment of
employment opportunities.
Recognizing the uniqueness of the certificate process for
subminimum wages, the Supreme Court has observed that in enacting the
FLSA, Congress wished to increase opportunities for gainful employment,
and not impose requirements that would deprive any worker of ``all
opportunity to secure work.'' \18\ The Court further recognized,
however, that a ``blanket exemption'' of workers with disabilities from
the minimum wage could have invited ``wholesale evasions'' and
accordingly subminimum wages could only be paid under the very specific
``safeguard of administrative permits.'' \19\ Thus, the Secretary
continues to be responsible for monitoring the payment of subminimum
wages and ensuring that the statutory prerequisites for both
certificate issuance and use of such certificates have been met.
---------------------------------------------------------------------------

\18\ See Walling v. Portland Terminal, 330 U.S. at 151-52.
\19\ Portland Terminal, 330 U.S. at 151-52.
---------------------------------------------------------------------------

The FLSA expressly confers authority to the Department to make the
determination under the curtailment clause that certificates are
necessary to prevent the curtailment of employment opportunities prior
to issuing certificates.\20\ The most logical reading of the statutory
phrase ``opportunities for employment'' is that the term
``opportunities'' refers to ``a time or place favorable for executing a
purpose'' or ``a suitable combination of conditions.'' \21\ Thus, the
statutory language does not require a particular employment outcome for
a worker with a disability being paid subminimum wages pursuant to a
section 14(c) certificate. Rather, the statute requires the Department
to evaluate the necessity of issuing section 14(c) certificates to
prevent the curtailment of employment opportunities. In other words,
the Department must consider whether the payment of subminimum wages is
necessary to prevent the curtailment of ``a suitable combination of
conditions,'' for employment opportunities, advancement, or progress
broadly, not whether all workers attain a particular employment
outcome, or a specific worker attains a particular job in a particular
setting.
---------------------------------------------------------------------------

\20\ The Secretary has exercised this authority in various ways.
Although the statutory language states that a certificate for
subminimum wages may be issued when productive capacity is impaired
by ``age, physical or mental deficiency, or injury,'' the granting
of certificates has historically focused on disability, and today
employers are paying subminimum wages almost exclusively to workers
with I/DD. As an example of the Department's exercise of its
authority, the Department promulgated regulations in 1939 which
stated that workers with ``temporary, or readily correctible,
disabilities,'' and those ``where age alone is cited as a disability
for a worker under 65,'' would be ineligible for a certificate. 29
CFR 524.7(a), (c) (1939).
\21\ See ``Opportunity,'' Webster's New International Dictionary
1709 (1938 ed.).

---------------------------------------------------------------------------

[[Page 96469]]

The statute gives the Department discretion to determine whether
the curtailment standard has been met, and the Department proposes
that, at this time, the issuance of certificates does not appear to be
necessary to prevent the curtailment of employment opportunities for
individuals with disabilities. Today, the Department is proposing to
find that, due to the legal, social, and technological changes since
that determination was made in 1989, subminimum wage certificates are
unnecessary to prevent employment curtailment. This proposed rule
considers the framework that the Department's current section 14(c)
regulations, last substantively revised in 1989, uses to determine
whether subminimum wages are necessary to prevent curtailment of
employment opportunities. The current regulations (explained in more
detail below) presume, without further analysis, that subminimum wages
are necessary to prevent the curtailment of employment opportunities
provided that (i) an individual has a disability that impacts their
productivity in performing a particular job offered by a single
certificate-holding employer and (ii) the employer can demonstrate it
has calculated a productivity-based wage rate in accordance with the
regulations for that particular job. In adopting this approach, the
1989 regulations collapse the statutory curtailment clause requirement
into the statutory requirement that any commensurate wage for a
particular job must be ``related to the individual's productivity'' at
that job. The regulatory framework from 1989 thus rests on an implicit
assumption that the two statutory requirements are the same, that
disability-related impacts on an individual's productivity at a
particular task means that a subminimum wage was necessary in order to
prevent the curtailment of employment opportunities. Given the
substantial developments in law and policy that have occurred since the
regulations were last updated nearly 35 years ago and the expansion of
opportunities now available to individuals with disabilities, the
Department proposes to take into account the current scope of those
employment opportunities instead of assuming that certificates are
necessary to prevent the curtailment of employment opportunities for
individuals with disabilities.
Given this, the proposed rule proposes to fulfill the curtailment
clause requirement by assessing whether subminimum wages are still
necessary based on a comprehensive consideration of how employment
opportunities are both curtailed and created across the employment
market. In assessing the statutory curtailment clause requirement, the
Department today has more tools at its disposal than ever before--such
as, for example, information from the nearly half of States that have
prohibited or limited the use of subminimum wages--to make a
preliminary determination that the payment of subminimum wages is not
necessary to prevent the curtailment of employment opportunities.
Particularly in view of the substantial social, structural, and legal
changes that have occurred since 1989 to systemically reshape
employment opportunities for individuals with disabilities (also
discussed in detail below), the Department proposes herein that this
comprehensive approach better fulfills the Secretary's statutory
obligation to provide for the issuance of certificates only when
``necessary.''

C. Overview of Statutory and Regulatory History of FLSA Section 14(c)

The FLSA provision allowing the payment of subminimum wages to
certain workers with disabilities became effective when the FLSA was
signed into law on June 25, 1938. As passed in 1938, section 14 of the
FLSA instructed that the WHD Administrator, ``to the extent necessary
in order to prevent curtailment of opportunities for employment, shall
by regulations or by orders provide for . . . the employment of
individuals whose earning capacity is impaired by age or physical or
mental deficiency or injury, under special certificates issued by the
Administrator, at such wages lower than the minimum wage applicable
under section 6 [of the FLSA] and for such period as shall be fixed in
such certificates.'' \22\ As is plain from the statutory text, the
precondition that certificates may only be issued to the extent
necessary to prevent the curtailment of employment opportunities has
been an essential part of the section 14 provision since enactment.
---------------------------------------------------------------------------

\22\ Fair Labor Standards Act of 1938, Public Law 75-718, 52
Stat. 1060 (1938) (codified at 29 U.S.C. 214). The original version
of the FLSA also provided for subminimum wage rates for learners,
apprentices, and messengers. 29 U.S.C. 214(1).
---------------------------------------------------------------------------

The legislative history shows that Congress intended to limit the
circumstances under which subminimum wage certificates could be issued
so as to avoid undermining the larger purposes of the FLSA and granted
the Department authority to administer these limits. The initial
legislative history of the Act includes statements from the joint
Congressional hearings on the enactment of the FLSA in 1938 which
addressed the purposes of establishing a Federal minimum wage and the
Department's discretion in applying that standard under section 14.
Congress explained that the Act ``provides a floor below which the
hourly wage ought not to fall and a limit beyond which the working week
should not be stretched. These are the rudimentary standards of human
decency at which the relatively automatic provisions of the bill are
directed.'' \23\ Regarding the clause limiting the issuance of
certificates to circumstances where they are ``necessary in order to
prevent curtailment of opportunities for employment'' (the
``curtailment clause''), Congress further explained that ``even in the
application of these rudimentary standards, a certain discretion is
given to the enforcement agency so that it can protect the earning
power of the workers and their opportunities for employment from
unreasonable curtailment.'' \24\ Additionally, Congress advised that,
in considering subminimum wages, the Department was to give ``due
consideration to the maintenance of the minimum standard of living, the
health, efficiency, and well-being of the employees, and the avoidance
of unreasonable curtailment of opportunities for employment and the
earning power of the employees.'' \25\
---------------------------------------------------------------------------

\23\ Fair Labor Standards Act of 1937: Joint Hearings on S. 2475
and H.R. 7200 Before the Senate Comm. on Educ. and Labor, and House
Comm. on Labor, 75th Cong. 1st Sess. Part 1, p. 55 (June 2-5, 1937).
\24\ Id.
\25\ Id. at 57.
---------------------------------------------------------------------------

The Department has exercised the authority Congress gave it to
evaluate the curtailment clause throughout the history of its
administration of section 14. As a reflection of the determination that
payment of subminimum wages was, at that time, necessary under certain
circumstances to prevent the curtailment of employment opportunities,
the Department promulgated its initial regulations implementing section
14 in 1938. Among other matters, the initial regulations established
procedures whereby certificates were issued on an individual basis, set
a general wage floor at 75 percent of the FLSA section 6 minimum wage,
and allowed for a lower wage rate if an investigation showed that it
was justified.\26\ The Department amended its regulations in 1939,
exercising its ``curtailment clause'' authority to limit the issuance
of certificates by specifying that, for

[[Page 96470]]

example, certain groups of workers, including those with ``temporary,
or readily correctible, disabilities,'' those ``where age alone is
cited as a disability for a worker under 65,'' and those ``whose
piecework earnings are generally equal to or above the statutory
minimum [wage],'' would be ineligible for a certificate.\27\ The
Department also amended its regulations in 1940 to provide specific
requirements governing the payment of subminimum wages to individuals
with disabilities working in ``sheltered workshops.'' \28\ The
Department made a number of changes to its regulations implementing
section 14 of the FLSA over the next 25 years, changing how
certificates were issued and how wages were determined for workers.
---------------------------------------------------------------------------

\26\ 29 CFR 524.5 (1938).
\27\ 29 CFR 524.7(a), (c), and (d) (1939).
\28\ 5 FR 655 (Feb. 13, 1940) (defining ``sheltered workshop''
as ``a charitable organization or institution conducted not for
profit, but for the purpose of carrying out a recognized program of
rehabilitation for individuals whose earning capacity is impaired by
age or physical or mental deficiency or injury, and to provide such
individuals with remunerative employment or other occupational
rehabilitating activity of an educational or therapeutic nature.'');
see also 29 CFR 525.1 (1940).
---------------------------------------------------------------------------

In 1966, Congress amended the FLSA to, in relevant part, establish
a wage floor for persons with disabilities in both general employment
and in certain sheltered workshops at not less than 50 percent of the
FLSA minimum wage.\29\ The 1966 statutory amendments also created three
special categories of certificates for workers who were not subject to
the wage floor \30\ and extended FLSA coverage to hospitals and other
institutions as employers.\31\ The statutory language limiting the
issuance of certificates to only circumstances where subminimum wages
were necessary to prevent the curtailment of opportunities for
employment was not changed by these amendments. The 1966 FLSA
amendments also required the Secretary to submit a study to Congress
``of wage payments to handicapped clients of sheltered workshops and of
the feasibility of raising existing wage standards in such workshops.''
\32\
---------------------------------------------------------------------------

\29\ Public Law 89-601, 80 Stat. 830, 843-44 (1966) (29 U.S.C.
214(d)(1)).
\30\ Id. (29 U.S.C. 214(d)(2)(A)-(B), 214(d)(3)). The three
categories of certificates for workers who were not subject to the
wage floor established by the 1966 FLSA amendments included, in
certain specified circumstances, ``handicapped workers engaged in
work which is incidental to training or evaluation programs,''
``multihandicapped individuals and other individuals whose earning
capacity is so severely impaired that they are unable to engage in
competitive employment,'' and ``handicapped clients in work
activities centers.'' Id.
\31\ Id. at 831-32 (29 U.S.C. 203(r), (s)).
\32\ See id. at 845.
---------------------------------------------------------------------------

The 1966 amendments demonstrated Congress' continued intent to give
the Department discretion to issue section 14 certificates based on a
determination of need. In 1967, the Department updated its regulations
based on the 1966 statutory amendments. That same year, the Department
submitted its report to Congress, recognizing that the Congressional
intent of the 1966 FLSA amendments was ``aimed at `improving the
economic circumstances of handicapped workers, speeding their movement
into fully productive private employment, and assuring that such
workers are not exploited through low wages.' '' \33\ Reflecting the
rapidly shifting views on the employment of individuals with
disabilities since the FLSA was passed 28 years earlier, the report
continued by noting that ``it is now clearly the intent of the Congress
that handicapped workers' wages be raised to at least the minimum wage
as soon as feasible.'' \34\
---------------------------------------------------------------------------

\33\ U.S. Dep't of Labor, ``Sheltered Workshop Report of the
Secretary of Labor and Technical Report on Wage Payments to
Handicapped Clients in Sheltered Workshops'' (1967) (1967 DOL
Report) at 1 (quoting Senate Report No. 1487, August 23, 1966, at
23).
\34\ 1967 DOL Report at 1. The report did not explicitly address
the curtailment clause regarding certificate issuance. However, as
evidenced by the quoted passage, lawmakers' understanding of the
potential employment of individuals with disabilities rapidly
evolved since the 1938 passage of the FLSA. In 1938, Congressional
documents were replete with references to individuals with
disabilities as ``subnormal'' and, in contrast to the 1967 report
cited herein, often assumed, without discussion, they were ``unable
to compete with their fellow workers.'' See, e.g., Fair Labor
Standards Act of 1937: Joint Hearings on S. 2475 and H.R. 7200
before the Senate Comm. On Educ. And Labor; House Comm. On Labor,
75th Cong. 1st Sess. Part 1, p. 38 (June 2-5, 1937) (statement of
Robert H. Jackson, Assistant Attorney General, U.S. Dep't of
Justice); Cong. Rec. Vol. 83, Part 6, 75th Cong. 3d Sess. P. 7134
(May 19, 1938).
---------------------------------------------------------------------------

The Department's report made additional observations about
subminimum wage employment and made recommendations on changes needed
to support movement at that time from section 14(c) employment to full
wage employment. In describing sheltered workshops, the Department
observed that while individuals with disabilities being paid subminimum
wages by the workshops (described as ``clients'' in the report) may be
limited in their ability to produce, they were also limited by ``the
frequently obsolete methods of organization and production of the
workshop.'' \35\ The report concluded that ``[t]o measure the `worth'
of a handicapped client by his `productivity' while making him work
with outmoded equipment, or on jobs long ago automated, or with modern
equipment which is not adapted to the individual's needs is to foredoom
the great majority of handicapped clients to subminimum wages.'' \36\
Additionally, of particular note, the Department reported about the
demographics of workers receiving subminimum wages in sheltered
workshops, including by disability. The Department observed that, in
1967, workers with I/DD comprised approximately one-third of all
workshop clients and were paid the lowest wages of any group of workers
with disabilities employed under certificates.\37\
---------------------------------------------------------------------------

\35\ 1967 DOL Report at 2.
\36\ Id.
\37\ Id. at 21.
---------------------------------------------------------------------------

In 1971, the Department again amended its regulations to include,
in part, the introduction of a new 25-50 percent wage floor for
``multi-handicapped and other workers whose earning capacity is
severely impaired'' working under the sponsorship of a public
rehabilitation agency.\38\ In 1974, Congress amended the FLSA by moving
the subminimum wage provision for workers with disabilities to section
14(c) of the Act but yet again left the substantive requirements,
including the statutory ``curtailment clause,'' unchanged.\39\ At this
juncture, Congress's maintenance of the Department's authority, through
the ``curtailment clause,'' to determine the extent to which subminimum
wage certificates were necessary is especially notable in light of the
Department's 1967 report seven years earlier, which, as discussed
above, emphasized the Department's understanding that Congress sought
to have individuals with disabilities earn full minimum wages ``as soon
as feasible.'' \40\
---------------------------------------------------------------------------

\38\ See 36 FR 50-51 (Jan. 5, 1971) (29 CFR 524.1(c)).
\39\ See Public Law 93-259,88 Stat. 55, 72 (1974).
\40\ See n. 34, above.
---------------------------------------------------------------------------

In 1986, Congress amended the FLSA to eliminate the specific types
of certificates and wage floors that previously applied to section
14(c) employment.\41\ These revisions again retained the ``curtailment
clause'' standard as a precondition governing the issuance of
certificates. While the revised statute retained the basic requirement
that workers with disabilities employed under section 14(c)
certificates be paid commensurate wages, it added a requirement that
the wages be ``related to the individual's productivity.'' In full,
section 14(c)(1), which remains in effect today, provides that ``[t]he
Secretary, to the extent necessary to prevent curtailment of
opportunities for employment, shall by regulation or order provide for
the

[[Page 96471]]

employment, under special certificates, of individuals (including
individuals employed in agriculture) whose earning or productive
capacity is impaired by age, physical or mental deficiency, or injury,
at wages which are: (A) lower than the minimum wage applicable under
section 206 of this title, (B) commensurate with those paid to
nonhandicapped workers, employed in the vicinity in which the
individuals under the certificates are employed, for essentially the
same type, quality, and quantity of work, and (C) related to the
individual's productivity.'' \42\ The 1986 statutory amendments also
required that employers provide ``written assurances'' that wages for
hourly workers be reviewed at least every 6 months, and that wages for
all employees be adjusted at least once a year to reflect changes in
the prevailing wages in the locality.\43\ Additionally, the new
language set forth a ``wage petition'' procedure by which an employee
or their parent or guardian can ``petition the Secretary to obtain a
review of'' the subminimum wage rate paid by the employer.\44\ The
revised statute also requires that the appeal process include a hearing
before an Administrative Law Judge (ALJ), placing the burden on the
employer to prove that the subminimum ``wage rate is justified as
necessary in order to prevent curtailment of opportunities for
employment.'' \45\ Since these 1986 amendments, Congress has not
directly amended the statutory text of section 14(c), but, as discussed
in more detail below, Congress has passed several significant laws that
impact employment opportunities for individuals with disabilities.
---------------------------------------------------------------------------

\41\ See Pub. L. 99-486, 100 Stat. 1229 (1986) (29 U.S.C. 214).
\42\ Id. (29 U.S.C. 214(c)(1)).
\43\ Id. (29 U.S.C. 214(c)(2)(A), (B)).
\44\ Id. (29 U.S.C. 214(c)(5)(A)).
\45\ Id. (29 U.S.C. 214(c)(5)(B)-(G)).
---------------------------------------------------------------------------

The Department's section 14(c) regulations have remained
substantively untouched for the last 35 years.\46\ In 1989, the last
time the Department made significant regulatory updates regarding
section 14(c), the Department among other things, amended and
consolidated regulations governing the section 14(c) provisions to 29
CFR part 525 (the regulations had previously existed in three parts:
parts 524, 525, and 529), addressed the 1986 amendments to the FLSA,
and made other administrative changes.\47\ In its 1989 regulations, the
Department defined a ``worker with a disability'' as ``an individual
whose earning or productive capacity is impaired by a physical or
mental disability . . . for the work to be performed,'' and cautioned
that ``a disability which may affect earning or productive capacity for
one type of work may not affect such capacity for another.'' \48\ The
regulations also provide that ``[a]n individual whose earning or
productive capacity is not impaired for the work being performed cannot
be employed under a certificate issued pursuant to this part and must
be paid at least the applicable minimum wage.'' \49\
---------------------------------------------------------------------------

\46\ Since 1989, the only revisions to the section 14(c)
regulations were technical corrections to the recordkeeping
regulation at 29 CFR 525.16. See 82 FR 2221 (Jan. 9, 2017), and non-
substantive updates to the regulation governing the administrative
appeal process at 29 CFR 525.22. See 82 FR at 2228; 86 FR 1772 (Jan.
11, 2021).
\47\ 54 FR 32920 (Aug. 10, 1989) (1989 final rule).
\48\ Id. (29 CFR 525.3(d)).
\49\ Id. (29 CFR 525.5(a). See also 29 CFR 525.12(b) (noting
that a subminimum wage certificate applies only to such workers who
``are in fact disabled for the work they are to perform'')).
---------------------------------------------------------------------------

The Department's 1989 regulations also state that the Department
will consider four criteria in determining whether subminimum wage
rates are necessary in order to prevent curtailment of opportunities
for employment. As set out in the 1989 rule, these criteria, still in
effect today, examine the impact of the worker's disability on their
productivity compared to the earnings and productivity of experienced
workers without disability doing essentially the same type of work and
employed in the vicinity; as previously noted, the criteria do not
include an assessment of the general scope of employment opportunities
available to individuals with disabilities. The specific criteria are:
(1) the nature and extent of the disabilities of the individuals
employed as these disabilities relate to the individuals' productivity;
(2) the prevailing wages of experienced employees not disabled for the
job who are employed in the vicinity in industry engaged in work
comparable to that performed at subminimum wage rates; (3) the
productivity of the workers with disabilities compared to the norm
established for nondisabled workers through the use of a verifiable
work measurement method or the productivity of experienced nondisabled
workers employed in the vicinity on comparable work; and (4) the wage
rates to be paid to the workers with disabilities for work comparable
to that performed by experienced nondisabled workers.\50\ To determine
whether these criteria are met, the Department's regulations also
provide guidance on determining the prevailing wage in a vicinity using
different methods, instructions on establishing piece rates and hourly
rates for workers with disabilities, and procedures to be used in
deciding petitions for review of a subminimum wage rate under section
14(c).\51\ In determining whether subminimum wages are necessary to
prevent curtailment of employment opportunities for individuals with
disabilities, the 1989 regulations do not consider the opportunities
generated by the employment market as a whole, do not contemplate
structural measures such as pre-employment training and skill-matching
job placement services, and, notably, were published a year prior to
the 1990 passage of the original ADA, and thus do not take into account
the fundamental anti-discrimination and reasonable accommodation
protections of the ADA.
---------------------------------------------------------------------------

\50\ Id. (29 CFR 525.9(a)).
\51\ Id.
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D. Administration, Use, and Enforcement of Section 14(c) Certificates
Today

1. Administration and Enforcement of Certificates
The Department's WHD administers and enforces the section 14(c)
provisions.\52\ The administration, use, and enforcement of section
14(c) certificates is governed by the FLSA and WHD's current
regulations at 29 CFR part 525, as explained above. Specifically, the
current Sec. 525.9 identifies the criteria that the Department
considers in determining whether to issue a section 14(c) certificate.
In effect, the current regulation conditions the issuance of a
certificate on satisfaction of the standards set forth in other
regulatory provisions governing the proper computation and payment of
subminimum wages. Section 525.11 likewise provides that ``[u]pon
consideration of the criteria cited in these regulations, a special
certificate may be issued.'' The regulations also outline procedures,
further elaborated upon in subregulatory guidance, that WHD generally
must use to deny or revoke certificates as well as appellate procedures
for stakeholders who may be ``aggrieved'' by any WHD certificate
action.\53\ Employees and their parents or guardians also have the
ability to

[[Page 96472]]

petition for review of their subminimum wage rates.\54\
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\52\ The Secretary has delegated authority to WHD to issue
regulations governing FLSA section 14(c), as well as to administer
and enforce the section 14(c) provisions. See Sec'y of Labor's Order
No. 01-2014, Delegation of Authority and Assignment of
Responsibility to the Administrator, Wage and Hour Division, 79 FR
77527 (Dec. 24, 2014) (Secretary's Order No. 01-2014).
\53\ 29 CFR 525.11(b) and 525.13 (certificate denials), 525.17
(certificate revocations), and 525.18 (administrative review
process).
\54\ 29 U.S.C. 214(c)(5), and 29 CFR 525.22.
---------------------------------------------------------------------------

If an employer applies for and is issued a section 14(c)
certificate, the certificate allows the employer to pay individualized
subminimum wage rates to workers with disabilities whose disabilities
impact their productivity on the work being performed that are
``commensurate'' with the rates paid to workers without a disability
performing the same type of work in the vicinity.\55\ Generally, to
determine the proper commensurate wage rate, an employer must: (1)
identify the prevailing wage rate paid to experienced workers without
disabilities performing essentially the same type, quality, and
quantity of work in the vicinity where the worker with a disability is
employed, often by conducting a prevailing wage survey; (2) determine
the productivity standard for experienced workers without disabilities
(the ``standard setter'') against which the productivity of the worker
with disabilities must be measured; and (3) assess the quality and
quantity of the productivity of the worker with a disability.\56\
Employers generally determine the productivity of both the standard
setter and the worker with a disability on a particular job by
performing an observational stopwatch time study (``time study'').\57\
Employers holding a section 14(c) certificate must also maintain
adequate documentation of each worker's disability that impairs their
productivity for the work performed, each required step that the
employer took in determining the relevant commensurate wage, and time
and pay records. Employers must also conduct periodic evaluations and
make appropriate updates to the wage rates.\58\
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\55\ Although the term ``subminimum wages'' typically refers to
wage rates that are less than the Federal minimum wage, section
14(c) certificates also allow the payment of wages that are less
than the required prevailing wage to workers who have disabilities
for the work being performed on Federal contracts subject to the
McNamara-O'Hara Service Contract Act (SCA) and the Walsh-Healey
Public Contracts Act. See 41 U.S.C. 6701 et seq., 6501 et seq. The
SCA's implementing regulations generally incorporate the
``conditions and procedures'' governing section 14(c) employment set
forth in 29 CFR 525. 29 CFR 4.6(o).
\56\ See 29 CFR 525.10; 29 CFR 525.12; WHD Field Operations
Handbook (FOH) 64g05, https://www.dol.gov/agencies/whd/field-operations-handbook/Chapter-64.
\57\ See FOH 64g06.
\58\ 29 CFR 525.16.
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In 2014, the Workforce Innovation and Opportunity Act (WIOA)
established new limitations on the payment of a subminimum wage in
section 511 of the Rehabilitation Act of 1973 (Rehabilitation Act or
section 511), which became effective in 2016.\59\ As discussed further
in section III.B. below, section 511 prohibits an employer who holds a
section 14(c) certificate from paying a subminimum wage to a worker
with a disability unless the worker receives certain services and
information prior to, and/or during, as applicable, their employment at
subminimum wages.\60\ The Secretary has authority to enforce the terms
under which individuals are employed at a subminimum wage, including
the section 511 provisions, and WHD has issued guidance providing
detailed instructions on the requirements.\61\
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\59\ 29 U.S.C. 794g.
\60\ Section 511 generally requires that youth with disabilities
who are age 24 or younger complete certain activities, including
pre-employment transition services under section 113 of the
Rehabilitation Act or transition services under the Individuals with
Disabilities Education Act (IDEA) (to the extent either of these
services are available to them), an application for vocational
rehabilitation services, and career counseling, information and
referrals, to enable them to explore, discover, experience, and
attain competitive integrated employment before they are employed at
subminimum wage rates. See 29 U.S.C. 794g. Section 511 also requires
that all workers with disabilities who are paid subminimum wages,
regardless of their age, receive regular career counseling
information and referrals and information about self-advocacy, self-
determination, and peer mentoring training opportunities in their
local area, every 6 months during the first year of employment and
annually thereafter. Id.
\61\ See U.S. Dep't of Labor, ``Materials for Employers with
Section 14(c) Certificates,'' April 2024, https://www.dol.gov/agencies/whd/workers-with-disabilities/employers.
---------------------------------------------------------------------------

As previously discussed, an employer must obtain an authorizing
certificate from WHD as a prerequisite to paying subminimum wages to
workers with disabilities. The certificate application requires
employers to provide WHD information about themselves and a snapshot of
information about the way they use or seek to use the subminimum wage
certificate.\62\ WHD reviews each application to determine whether to
issue or deny a certificate. Having an active section 14(c) certificate
does not provide the employer with a good faith defense should
violations of section 14(c) or other provisions of applicable law be
found during an investigation of the employer.
---------------------------------------------------------------------------

\62\ See U.S. Dep't of Labor, ``14(c) Certificate Application,''
April 2024, https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/apply.
---------------------------------------------------------------------------

Certificates issued to employers by WHD have both an effective date
and an expiration date and are generally valid for either 1 or 2 years,
depending on the employer type (discussed in more detail below). To
remain authorized to pay subminimum wages, the employer must properly
and timely file an application for renewal with WHD before the
expiration of its certificate.\63\ Employers submit applications to
renew certificate authority in the same manner as when seeking an
initial application but are required to provide additional information,
including a snapshot of information about the applicant's workforce
paid a subminimum wage during their last completed fiscal quarter. If
an application for renewal has been properly and timely filed with WHD,
the employer's existing subminimum wage certificate remains in effect
and its authority to pay subminimum wages continues while the
application for renewal is under review.\64\
---------------------------------------------------------------------------

\63\ 29 CFR 525.13(b).
\64\ Id.
---------------------------------------------------------------------------

Each year, WHD investigates a number of section 14(c) certificate
holders to determine their compliance with all the provisions and
requirements of section 14(c) as well as their compliance with section
511.\65\ WHD may initiate these cases due to a complaint or based upon
agency selection. In fiscal year 2023, WHD concluded 89 investigations
of employers holding section 14(c) certificates, found violations in
approximately 88 percent of cases, and recovered more than $2 million
in back wages for nearly 3,000 workers.\66\ WHD checks for compliance
with the section 511 requirements in every investigation of an employer
holding a section 14(c) certificate and, since 2016, has identified
violations of these provisions in more than 250 investigations. If WHD
discovers a violation of the section 14(c) or section 511 requirements
during the course of an investigation, WHD can assess back wages in
addition to seeking action by the employer to ensure future compliance
with the applicable laws. In certain circumstances, WHD can also assess
liquidated damages and civil monetary penalties and can also revoke the
employer's section 14(c) certificate.\67\ Certificate revocation is an
enforcement tool that WHD uses in certain circumstances such as
misrepresentations or false statements made in obtaining the
certificate or egregious violations of statutory requirements. In cases
where employers

[[Page 96473]]

do not voluntarily agree to pay back wages and come into compliance,
WHD can also file suit in Federal court to resolve violations of the
law.
---------------------------------------------------------------------------

\65\ Enforcement data collected by the Department's enforcement
agencies can be found at: https://enforcedata.dol.gov/views/data_catalogs.php. The ``Wage and Hour Compliance Action Data''
dataset contains all concluded WHD compliance actions since fiscal
year 2005. The dataset includes whether any violations were found,
the back wage amount, number of employees due back wages, and civil
money penalties assessed.
\66\ Id.
\67\ 29 U.S.C. 214(c), 216(c); 29 CFR 525.17.
---------------------------------------------------------------------------

2. Use of Section 14(c) Certificates
In recent decades, the estimated number of workers with
disabilities paid subminimum wages has dramatically declined, as has
the number of employers holding section 14(c) certificates. In 2001,
the U.S. Government Accountability Office (GAO) estimated that
approximately 424,000 workers with disabilities were paid subminimum
wages while working for 5,612 employers holding section 14(c)
certificates.\68\ As of May 1, 2024, the Department's data shows there
were 801 employers with either an issued certificate or a pending
certificate application.\69\ Employers with an issued certificate
reported paying approximately 40,579 workers at subminimum wages in
their previously completed fiscal quarter.\70\ The number of employers
holding or pursuing a section 14(c) certificate as of May 1, 2024, had
dropped by nearly 86 percent from those in 2001. Further, there were
roughly one-tenth the number of workers being paid subminimum wages
under section 14(c) certificates as there were in 2001--approximately a
90 percent reduction over that 23-year period.\71\ Additionally, very
few employers seek new section 14(c) certificates; over 97 percent of
certificate applications received annually seek renewal of an existing
section 14(c) certificate.\72\
---------------------------------------------------------------------------

\68\ U.S. Gov't Accountability Off., GAO-01-886, ``Special
Minimum Wage Program: Centers Offer Employment and Support Services
to Workers With Disabilities, But Labor Should Improve Oversight''
10, 18 (2001) (2001 GAO Report).
\69\ See U.S. Dep't of Labor, ``14(c) Archive,'' June 2024,
https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders/archive.
\70\ Id. The Department notes that data collected by the
Department from section 14(c) applications is not census data. Data
is derived from information received by WHD during the certificate
application process, which is used for the purposes of determining
whether to issue a certificate. The application requires the
employer to provide a snapshot of its operations and workforce that
is paid a subminimum wage during its most recently completed fiscal
quarter at the time of its renewal application, and the submission
date varies per applicant. Because certificates are issued to the
employer, not individuals employed at subminimum wages, the specific
number of employees may change over the duration of the certificate.
The certificate application data is self-reported by employers and
is not independently verified by WHD. Additionally, the data
provided reflects active certificates as of the date that the
Department's website list was revised and does not include the
number of employees on ``pending'' 14(c) certificates.
\71\ The Department notes that the May 1, 2024, employee count
(40,579) does not reflect any employment changes an employer may
have made subsequent to the data provided to WHD in its certificate
application nor does it reflect the workers with disabilities paid
under pending renewal certificates. Notwithstanding, the Department
believes this data comparison remains valid and would be little
changed with these additional data points.
\72\ This statistic is compiled from WHD's listing of 14(c)
certificate holders between October 1, 2020, and April 1, 2024. WHD
maintains a listing of employers who hold or have applied for 14(c)
certificates at https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders.
---------------------------------------------------------------------------

WHD issues section 14(c) certificates to business establishments,
community rehabilitation programs (CRPs), hospitals/patient worker
facilities, and school-work experience programs (SWEPs). The
overwhelming majority of current certificate holders are CRPs,
representing approximately 93 percent of current certificate holders in
2023.\73\ In the context of section 14(c), WHD defines CRPs as ``not-
for-profit agencies that provide rehabilitation and employment for
people with disabilities.'' \74\ Such establishments are sometimes
referred to as ``sheltered workshops'' \75\ as they typically are
facility-based and often serve workers with disabilities in sheltered,
or segregated, settings. Only a small number of private-sector, for-
profit businesses hold certificates for the payment of subminimum
wages, as reflected by the fact that only approximately 4 percent of
current section 14(c) certificate holders are
businesses.^{76 77}
---------------------------------------------------------------------------

\73\ WHD listing of certificate holders from October 1, 2023,
indicating that approximately 93 percent of certificate holders are
CRPs, https://www.dol.gov/agencies/whd/workers-with-disabilities/reports-to-congress.
\74\ FOH 64k00.
\75\ FOH 64b00.
\76\ WHD listing of certificate holders from October 1, 2023,
https://www.dol.gov/agencies/whd/workers-with-disabilities/reports-to-congress.
\77\ Currently, the small number of private sector businesses
amongst section 14(c) certificate holders is a marked contrast to
the Congressional understanding of how such certificates would be
used at the time of the original enactment of section 14 in 1938.
During the debate preceding the passage of the FLSA, members of
Congress focused on the provision as being intended for employment
in the private sector, discussing the impact on ``industry,''
``manufacturers,'' and ``small businessmen.'' 82 Cong. Rec., 88-89
(1937).
---------------------------------------------------------------------------

Many CRPs provide both employment and other services, such as
rehabilitation and training, and receive public funding. GAO has noted
that many employers holding a section 14(c) certificate pay their
operating costs through a mix of public funding and public and private
contracts for goods or services.\78\ Specifically, GAO noted in a 2021
report that Medicaid is the largest source of Federal funds for day and
employment services (such as those provided by CRPs) for individuals
with developmental disabilities.\79\ Likewise, in a 2020 report, the
USCCR found that ``the majority of community rehabilitation programs
which provide supports and services for people with intellectual and
developmental disabilities to obtain a job are funded by the vocational
rehabilitation [program].'' \80\ As the USCCR explained, in addition to
Medicaid funding noted by GAO, the vocational rehabilitation funding
includes U.S. Department of Education program grants under the
Rehabilitation Act, in addition to State and local funding used for
match purposes under the Vocational Rehabilitation program.\81\
---------------------------------------------------------------------------

\78\ See 2001 GAO Report at 14; see also U.S. Gov't
Accountability Office, GAO-21-260, ``Subminimum Wage Program:
Factors Influencing the Transition of Individuals with Disabilities
to Competitive Integrated Employment'' (2021), at 6, https://www.gao.gov/products/gao-21-260 (``2021 GAO Report'').
\79\ Id. at 6, n.19.
\80\ U.S. Comm'n on Civ. Rts., ``Subminimum Wages: Impacts on
the Civil Rights of People with Disabilities,'' https://www.usccr.gov/files/2020/2020-09-17-Subminimum-Wages-Report.pdf, at
6 n.101 (2020) (``USCCR Report'').
\81\ See, for example, USCCR Report at 9 (explaining that in
Vermont, sites that have transitioned from subminimum wage
employment use Federal and State funding to provide employment and
non-work services for individuals with disabilities).
---------------------------------------------------------------------------

As noted above, Congress removed any wage floor for section 14(c)
employment nearly 40 years ago. As summarized in the table below, in a
2023 report, the GAO analyzed section 14(c) data for 62 percent of
renewal certificates for the period covering 2019 to 2021 and found
that more than 50 percent of workers in the data analyzed were paid
less than $3.50 per hour, while approximately 14 percent were paid at
or above the current Federal minimum wage of $7.25 per hour.\82\ Nearly
5 percent of workers were paid 25 cents per hour or less. Approximately
14 percent were paid $1.00 per hour or less. GAO observed that higher-
paid workers under section 14(c) certificates were more likely to be
paid by the hour, while lower-paid workers were more likely to be paid
on a piece rate basis \83\ (a piece rate fixes a wage payment on each
completed unit of work).\84\ Using WHD's administrative data of issued
certificates that were valid in the first two quarters of fiscal year
2024 (between October 2023 and

[[Page 96474]]

March 2024), WHD found that approximately 16 percent of workers were
reported by the employer on their most recent application (reflecting
average hourly wages from their prior fiscal quarter) to have been paid
at least the current Federal minimum wage of $7.25 per hour while
nearly 49 percent made less than $3.50 per hour. Based on WHD's
administrative data, approximately 10 percent made $1.00 per hour or
less and nearly 2 percent made 25 cents per hour or less.
---------------------------------------------------------------------------

\82\ See 2023 GAO Report at 16. A worker employed under a
section 14(c) certificate may be paid more than the Federal hourly
minimum wage of $7.25 if the prevailing wage upon which their
productivity-based commensurate wage is based exceeds the Federal
minimum wage.
\83\ Id. at 18-19.
\84\ FOH 64g06(a)(1).

------------------------------------------------------------------------
GAO's 2019 to 2021 WHD's October 2023
analysis to March 2024
-------------------- analysis
Scope of data studied -------------------
62 percent of administrative
renewal data of issued
certificates certificates
------------------------------------------------------------------------
Workers paid 25 cents or less Nearly 5 percent.. Nearly 2 percent.
per hour.
Workers paid $1.00 or less per Approximately 14 Approximately 10
hour. percent. percent.
Workers paid less than $3.50 per More than 50 Nearly 49 percent.
hour. percent.
Workers paid at or above the Approximately 14 Approximately 16
current Federal minimum wage of percent. percent.
$7.25 per hour.
------------------------------------------------------------------------

Most workers currently employed under section 14(c) certificates
have I/DD as their primary disability. In the years immediately after
section 14(c) was enacted, it was assumed that workers with a wide
range of disabilities, including physical disabilities, might be paid
subminimum wages. Over time, however, subminimum wage payments to all
groups other than individuals with I/DD substantially diminished. As
noted above, in 1967, one-third of workers in sheltered workshops were
individuals with I/DD.\86\ In 2001, GAO estimated that three-quarters
of workers employed under a section 14(c) certificate experienced some
form of I/DD.\87\ By 2021, GAO estimated approximately 90 percent of
workers employed under a section 14(c) certificate experienced I/
DD.\88\
---------------------------------------------------------------------------

\86\ 1967 DOL Report at 21.
\87\ 2001 GAO Report at 19.
\88\ 2023 GAO Report at 24. The Department notes that GAO's
findings in this area generally match the Department's internal
data, derived from the information self-reported by certificate
holders; the Department cites to the GAO herein as an independent
source. From WHD's listing of section 14(c) certificate holders
between October 2020, and April 2024, the percentage of workers
identified by their employers on their certificate applications as
having I/DD as their primary disability was 91 percent.
---------------------------------------------------------------------------

E. Comprehensive Review of Section 14(c)

On September 26, 2023, Acting Secretary Julie Su announced that the
Department would conduct a comprehensive review of the section 14(c)
program. As part of this review, between October 20, 2023, and November
20, 2023, the Department held a series of stakeholder engagement
sessions to hear diverse views on section 14(c) from members of the
public, including workers with disabilities and their family members,
disability rights advocates, service providers, and section 14(c)
certificate holders.
In holding these listening sessions, the Department received wide-
ranging feedback about section 14(c), including viewpoints regarding
the impacts of potentially ceasing to issue 14(c) certificates in the
future. Approximately 2,000 individuals participated in these sessions.
During these listening sessions, the Department heard from individuals
and groups that oppose permitting employers to pay subminimum wages
under section 14(c); those stakeholders emphasized, among other points,
that the payment of subminimum wages is outdated, discriminatory, and
no longer needed to provide employment opportunities for individuals
with disabilities. The Department also heard from individuals and
groups in support of the continued payment of subminimum wages who
focused, among other things, on the importance of individuals with
disabilities, and their families, being able to choose whether to
remain in their subminimum wage jobs and on the benefits that they have
experienced in such employment. The Department deeply valued those
listening sessions and it greatly appreciates and has considered the
wide-ranging and diverse input gathered from them in the formulation of
this proposed rule. The Department also welcomes comments from the
general public, including any individuals or entities who participated
in these earlier listening sessions, on its proposed rule.
The Department has included the section 14(c) regulations on its
long-term Regulatory Agenda for many years and has carefully reviewed
the history of section 14(c) and its current operations. In crafting
this proposal, the Department consulted with other Federal agencies to
better understand how their programs may intersect with the employment
of workers under section 14(c) as well as to discuss any foreseeable
impacts to those programs if changes were to be made to the section
14(c) regulations. In addition, the Department has extensively reviewed
numerous oversight reports, existing data, and information concerning
relevant trends in the availability of supports for employment
opportunities for workers with disabilities. The Department has also
reviewed numerous examples of legislative, policy, and executive
actions at all levels of government and analyzed their effect on the
employment of workers with disabilities. The Department summarizes this
research and analysis, and presents its conclusions based on this
comprehensive review, below.

III. Need for Rulemaking

A. Introduction

Since 1938, the FLSA has authorized the Secretary to issue
certificates to employers permitting them to pay workers whose
disabilities impair their earning or productive capacity at wage rates
below the Federal minimum wage rate.\89\ WHD is responsible for
administering the issuance of certificates and enforcing the provisions
of section 14(c). The Department issued its most recent substantive
revisions to the regulations pertaining to the issuance of section
14(c) certificates in 1989, more than 35 years ago. Since 1989, and
even more so since 1938, employment opportunities have changed
dramatically for workers with disabilities. In stark contrast to the
New Deal era in which section 14(c) was enacted, disability rights are
now enshrined in Federal civil rights laws and enforced by the Federal
government.\90\ Through the disability rights movement, advocates,
including self-advocates, have worked to ensure that individuals with
disabilities have the same access to employment and

[[Page 96475]]

other opportunities as others and that individuals with disabilities
are not subject to segregation and discrimination on the basis of a
disability.\91\ This access includes the legal right to reasonable
accommodation and prohibitions on discrimination in the workplace.
During this time, largely due to the efforts of self-advocates and
their allies, society's views about what it means to live and work with
a disability have evolved. In contrast to historical approaches that
may have viewed disability as a deficiency that needed to be ``fixed''
or ``cured'' or as a tragic condition, current understandings emphasize
the social model of disability, which identifies structural and social
barriers as the primary reason that individuals with disabilities
experience limitations on full engagement in all aspects of community
life, focuses on removing those barriers to facilitate full engagement,
and recognizes disability as a natural part of the human
experience.\92\ Thus, there has been a striking and consistent movement
away from the medical \93\ and charitable \94\ models of disability,
toward a social model of disability focused on various barriers which
may hinder full and effective participation in society.\95\
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\89\ See 29 U.S.C. 214(c).
\90\ See, e.g., U.S. Dep't of Justice, Civil Rights Div., ``The
Americans with Disabilities Act (ADA) protects people with
disabilities from discrimination,'' https://www.ada.gov/; U.S. Equal
Emp't Opportunity Comm'n, ``What Laws Does EEOC Enforce?,'' https://www.eeoc.gov/statutes/laws-enforced-eeoc; 42 U.S.C. 12101 et seq.
(1990); 29 CFR part 1630.
\91\ See, e.g., Nicole LeBlanc, ``Why Employment Matters: A
Resource Guide by and for Self-Advocates Interested in Pursuing
Competitive, Integrated Employment,'' Administration on Disability
Employment Technical Assistance Center, September 2021, https://aoddisabilityemploymenttacenter.com/wp-content/uploads/2021/10/DETAC-2021-GEN-3_Final_508.pdf.
\92\ Arlene S. Kanter, ``The Law: What's Disability Studies Got
To Do With It or an Introduction to Disability Legal Studies,'' 42
Columbia Human Rights Law Review 403, 410 (2011) (``2011 Kanter
Paper'').
\93\ The medical model generally views disability as some
deficiency to be ``fixed'' or ``cured.'' ``As a result of viewing
disability through a medical lens, societies have erected large
institutions to protect and exclude people with disabilities from
society.'' 2011 Kanter Paper at 420; see also Samuel R. Bagenstos,
``Subordination, Stigma, and `Disability' '', 86 Va. L. Rev. 397,
427 (2000) (``2000 Bagenstos Paper'') (citations omitted) (``Indeed,
virtually the entire ideology of the modern disability rights
movement can be seen as a reaction to that `medical/pathological
paradigm' of disability.'').
\94\ ``People who work with blind, deaf, autistic,
developmentally disabled, and/or physically disabled individuals
often see their clients' or patients' impairment as a great personal
tragedy. Yet, people with disabilities do not necessarily see their
own lives that way.'' 2011 Kanter Paper at 412, 414.
\95\ See, e.g., World Health Organization Policy on Disability
(2021), https://iris.who.int/bitstream/handle/10665/341079/9789240020627-eng.pdf?sequence=1. ``By relying on the social model
of disability, it is impossible to say that any person is `unable'
or `unqualified' to exercise rights or to participate fully in
society. Instead, it is affirmatively the obligation of society to
change or adapt its services, programs, facilities, systems, and
other entities, so that all people can exercise their rights to the
best of their ability, regardless of their particular impairment.''
2011 Kanter Paper at 427-28.; see also 2000 Bagenstos Paper at 427-
28.
---------------------------------------------------------------------------

The successes of the disability rights movement and the changing
views regarding disability have been reflected in legislative, legal,
policy, and programmatic changes that have broadly influenced available
employment options for individuals with disabilities today. As
described below, there have been several significant pieces of Federal
legislation that have vastly expanded opportunities for individuals
with disabilities, requiring better access and accommodations in
educational, work, and community settings.\96\ Supreme Court and other
judicial precedent has amplified the impacts of this legislation, most
notably by requiring that individuals with disabilities be able to
live, work, and play in the most integrated setting appropriate to
their needs.\97\ As part of this movement, various non-partisan
entities, including the USCCR and the National Council on Disability
(NCD), along with a number of non-profit advocacy organizations, have
published detailed reports urging the cessation of subminimum wage
payments to individuals with disabilities.\98\ Multiple States and
localities have prohibited or are in the process of phasing out the
payment of subminimum wages, and, as discussed below, for nearly a
decade, the Federal government has maintained a wage floor above the
FLSA's Federal minimum wage for certain government contracts that fully
applies to workers with disabilities who work on or in connection with
those contracts. Simultaneously, numerous Federal, State, and local
programs have emerged to increase access to opportunities for
competitive integrated employment (CIE) \99\ for workers with
disabilities.\100\ Amidst these advancements, the employment
experiences of workers with many types of disabilities indicate that
subminimum wages are unnecessary to safeguard their employment
opportunities. In 2023, the unemployment rate for individuals with
disabilities was as low as has ever been recorded.\101\
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\96\ For example, legislation such as the Americans with
Disabilities Act, 42 U.S.C. 12101 et seq, and the Workforce
Innovation and Opportunity Act, 29 U.S.C. 3101 et seq, are discussed
in detail later in this section.
\97\ See Olmstead v. L.C. ex rel. Zimring, 527 U.S. 581 (1999);
see also Tennessee v. Lane, 541 U.S. 509 (2004); Toyota Motor
Manufacturing, Kentucky, Inc. v. Williams, 534 U.S. 184 (2002);
Sutton v. United Air Lines, Inc., 527 U.S. 471 (1999); Cedar Rapids
Community School District v. Garret F., 526 U.S. 66 (1999).
\98\ See, for example, USCCR Report; National Council on
Disability (NCD), ``Has the Promise Been Kept? Federal Enforcement
of Disability Rights Laws (Part 1),'' (October 2018), https://www.ncd.gov/report/has-the-promise-been-kept-federal-enforcement-of-disability-rights-laws-part-1-october-2018/(``2018 NCD Progress
Report''); NCD, ``Report on Subminimum Wage and Supported
Employment'' (2012), https://www.ncd.gov/report/national-council-on-disability-report-on-subminimum-wage-and-supported-employment/
(``2012 NCD Report'').
\99\ The term ``competitive integrated employment'' (CIE) is
defined at 29 U.S.C. 705(5), and in the Department of Education's
regulations at 34 CFR 361.5(c)(9). Those regulations define CIE as
work that is performed on a full-time or part-time basis for which
an individual is: compensated at or above minimum wage and
comparable to the customary rate paid by the employer to employees
without disabilities performing similar duties and with similar
training and experience; receiving the same level of benefits
provided to other employees without disabilities in similar
positions; at a location where the employee interacts with other
individuals without disabilities; and presented opportunities for
advancement similar to other employees without disabilities in
similar positions. See also https://www.dol.gov/agencies/odep/program-areas/cie.
\100\ The Department of Education amended regulations at 34 CFR
parts 361 and 363, and established new part 397, in response to the
WIOA amendments to the Rehabilitation Act. These amended and new
regulations govern the State Vocational Rehabilitation Services
program and the State Supported Employment Services program, and
placed greater emphasis on the achievement of CIE. See U.S. Dep't of
Education, State Vocational Rehabilitation Services Program; State
Supported Employment Services Program; Limitations on Use of
Subminimum Wage, Final Regulations, 81 FR 55630 (Aug. 19, 2016).
\101\ See U.S. Dep't of Labor, Bureau of Labor Statistics,
``Economic News Release: Persons with a Disability: Labor Force
Characteristics Summary,'' Feb. 22, 2024, https://www.bls.gov/news.release/pdf/disabl.pdf (noting that the unemployment rate for
individuals with a disability was 7.2 percent in 2023, and also
stating that ``[i]n 2023, 22.5 percent of people with a disability
were employed--the highest recorded ratio since comparable data were
first collected in 2008'' and that such rate reflected a 1.2
percentage point increase from 2022); see also U.S. Dep't of Labor,
Bureau of Labor Statistics, ``Data Retrieval: Labor Force Statistics
(CPS)'', https://www.bls.gov/webapps/legacy/cpsatab6.htm (making
available historical data on unemployment and employment rates).
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As a result of these changes, today, subminimum wage employment
under section 14(c) certificates is no longer the most common form of
employment for individuals with disabilities. It bears emphasizing
that, currently, only a miniscule fraction of those working individuals
with disabilities are employed by section 14(c) certificate holders; in
the present day, millions of individuals with disabilities who are
working are doing so without section 14(c) certificates.\102\ Also, as
the number

[[Page 96476]]

of workers being paid subminimum wages under section 14(c) certificates
has continued to shrink,\103\ available data indicates that the numbers
of individuals with I/DD (who, as discussed above, comprise
approximately 90 percent of the workers paid subminimum wages by
section 14(c) certificate holders today), working for full Federal
minimum wages (or higher) has continued to grow.\104\ Specifically, as
shown by a 2023 Thinkwork Report, there are now many more individuals
with I/DD who are being paid full wages than who are being paid
subminimum wages; the Department has preliminarily assessed that the
total number of working individuals with I/DD is at least twice the
total number of individuals working under section 14(c)
certificates.\105\ In other words, the existing data--though limited--
shows that, by a significant margin, most workers with I/DD do not rely
on subminimum wages to gain employment opportunities and have
demonstrated therein that section 14(c) certificates are no longer
necessary for them to do so. The Department welcomes comments on this
data and the Department's preliminary analysis.\106\
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\102\ As discussed above, as of May 1, 2024, employers with an
issued certificate reported to the Department that they paid
approximately 40,579 workers at subminimum wages in their previously
completed fiscal quarter. This is a tiny fraction of the total
number of individuals with disabilities working today, as in each
month in the first half of 2024, over 7 million individuals 16 years
and over with a disability were employed in the civilian labor
force. See U.S. Dep't of Labor, Bureau of Labor Statistics, ``Data
Retrieval: Labor Force Statistics (CPS)'' https://data.bls.gov/pdq/SurveyOutputServlet. Additionally, cross-referencing these data
points, the Department estimates that, nationwide, there are only
approximately 4,000 individuals with disabilities other than I/DD
who are paid subminimum wages.
\103\ See section II.C.2, above, reflecting the decline in
numbers of employees being paid subminimum wages from approximately
424,000 in 2001 to about 40,579 in 2024.
\104\ See Agnieszka Zalewska, Jean Winsor & John Butterworth,
``Intellectual and Development Disabilities Agencies' Employment and
Day Services,'' Data Note Plus, no. 87 (2023) (``2023 Thinkwork
Report''), at 8-9, https://www.thinkwork.org/sites/default/files/2024-01/DN_87_R_0.pdf. This report, supported in part by the
Administration on Disabilities, Administration for Community Living,
U.S. Department of Health and Human Services, builds on annual and
bi-annual surveys of State I/DD agencies spanning several decades
and compiles data from all States (noting some States for which data
is not available). Of particular relevance here, the report includes
a chart depicting that, in 2021, approximately 130,000 clients of
State agencies serving individuals with I/DD worked in integrated
employment, while noting that in 2022, approximately 59,000 total
individuals participated in subminimum wage jobs. While this report,
which focuses on integration, does not directly compare the number
of workers with I/DD being paid full wages to the number of workers
paid subminimum wages (nor does it offer data sets about those
populations from the same year), in publishing this specific data,
it nevertheless supports the conclusion that more individuals with
I/DD now are paid full wages, as the total number of individuals
with I/DD who are reported as working in integrated settings is more
than twice the estimated total number of all individuals working
under section 14(c) certificates. As discussed in previous sections,
the overwhelming majority of section 14(c) certificate holders are
CRPs who typically provide work in non-integrated settings. Most of
the approximately 130,000 reported workers with I/DD in integrated
settings are likely paid at minimum wage or higher rates, compared
to the report's estimates of approximately 59,000 reported workers
paid subminimum wages who are primarily employed by non-integrated
CRPs. Moreover, the ratio of individuals with I/DD working for full
wages to individuals working for subminimum wages is likely far
higher than the estimate reported here because the ThinkWork report
only collects data about those individuals who are tracked by State
I/DD agencies. The report thus does not capture individuals who have
secured full-wage work without the assistance or knowledge of those
agencies. Therefore, the report's identification of approximately
130,000 individuals with I/DD working in integrated settings likely
undercounts the total actual number of individuals with I/DD working
for full wages.
\105\ Id.
\106\ The Department requests comments reflecting any 2022,
2023, and 2024 updates on similar reporting from State I/DD agencies
about the numbers of their clients working in integrated employment,
as well as any other comments relating to the declining numbers of
individuals working for subminimum wages in comparison to the
growing numbers of individuals with I/DD working for full wages.
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Cognizant of this changed employment landscape, the Department now
assesses, pursuant to its statutory mandate, whether the issuance of
section 14(c) certificates authorizing the payment of subminimum wages
is necessary to prevent the curtailment of opportunities for employment
for workers with disabilities.

B. Federal Legislation, Regulations, and Supreme Court Precedent

The current section 14(c) regulations were promulgated prior to
having the benefit of nearly all the most significant legislative and
legal developments regarding individuals with disabilities, and thus do
not contemplate the protections, rights, and opportunities created by
these developments. The discussion that follows is intended to
highlight several of the most notable and relevant of these
developments since 1989, and is not intended to provide a comprehensive
survey of all such changes.\107\ The Department requests comments on
the discussion of these developments and the Department's analysis of
them, as well as comments on any other Federal legislative or judicial
development relevant to whether the continued issuance of section 14(c)
certificates is necessary to prevent curtailment of opportunities for
employment of individuals with disabilities.
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\107\ This section provides only highlights of certain key laws;
however, the Department notes there are numerous pieces of
legislation over the last several decades that have incorporated
ways to enhance career opportunities for workers with disabilities.
For example, when Congress enacted the Rehabilitation Act of 1973,
section 504 of that law required that programs receiving Federal
financial assistance operate without discrimination on the basis of
disability. 29 U.S.C. 794. Modeled after the language of the Civil
Rights Act of 1964, the Rehabilitation Act of 1973, and subsequent
amendments, also prohibited discrimination on the basis of
disability by Federal agencies and contractors in their employment
practices. In enacting and amending the Act, Congress enlisted all
programs receiving Federal funds in an effort ``to share with
handicapped Americans the opportunities for an education,
transportation, housing, health care, and jobs that other Americans
take for granted.'' 123 Cong. Rec. 13,515 (1977) (statement of
Senator Humphrey). The 1998 amendments made to the Rehabilitation
Act stated that among other things, ``[i]t is the policy of the
United States that all programs, projects, and activities receiving
assistance under this Act shall be carried out in a manner
consistent with . . . [the] pursuit of meaningful careers, based on
informed choice, of individuals with disabilities.'' 29 U.S.C.
701(c) (1998). The amendments further stated that workers were to
develop an individualized plan for employment that ``to the maximum
extent appropriate, results in employment in an integrated
setting.'' Id.
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1. The Americans With Disabilities Act and the Supreme Court's Olmstead
Decision
Perhaps the most foundational of these developments was the
enactment of the Americans with Disabilities Act (ADA) in 1990.\108\
The ADA, as amended by the ADAAA, among other things, prohibits
discrimination on the basis of disability in the workplace and in the
provision of public programs, services, and activities. Title I of the
ADA, enforced by the U.S. Equal Employment Opportunity Commission
(EEOC), applies to private employers and State or local governments and
prohibits discrimination ``against a qualified individual on the basis
of disability in regard to job application procedures, the hiring,
advancement, or discharge of employees, employee compensation, job
training, and other terms, conditions, and privileges of

[[Page 96477]]

employment.'' \109\ Title I also requires employers to provide
reasonable accommodations to qualified individuals--an individual who,
with or without reasonable accommodation, can perform the essential
functions of the employment position that they hold or desire.\110\
Under the ADA, the term ``reasonable accommodation'' means: (1)
modifications or adjustments to a job application process that enable a
qualified applicant with a disability to be considered for the position
such qualified applicant desires; (2) modifications or adjustments to
the work environment, or to the manner or circumstances under which the
position held or desired is customarily performed, that enable an
individual with a disability who is qualified to perform the essential
functions of that position; or (3) modifications or adjustments that
enable a covered entity's employee with a disability to enjoy equal
benefits and privileges of employment as are enjoyed by its other
similarly situated employees without disabilities.\111\ A reasonable
accommodation may include, but is not limited to, making existing
facilities used by employees readily accessible to and usable by
individuals with disabilities, job restructuring, part-time or modified
work schedules, acquisition or modification of equipment, appropriate
adjustment or modifications of examinations, training materials, or
policies, and other similar accommodations for individuals with
disabilities.\112\ An employer is required to provide such reasonable
accommodations, unless it ``can demonstrate that the accommodation
would impose an undue hardship on the operation of the business of such
covered entity.\113\ Examples of reasonable accommodations may include
modifying job tasks, improving accessibility in a work area, changing
the presentation of tests or training materials, providing an aid or
service to increase access (such as specialized computer software),
providing alternative formats for feedback (such as verbally instead of
in writing), or job restructuring (such as providing checklists to
ensure task completion).\114\
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\108\ See 42 U.S.C. 12101 (1990). In 2008, Congress passed the
ADA Amendments Act (ADAAA) which made a number of changes to the ADA
definition of ``disability'' to ensure broad coverage, making it
easier for individuals seeking the protection of the ADA to
establish that they have a disability that falls within the meaning
of the statute. See ADA Amendments Act of 2008, Public Law 110-325
(S. 3406), September 25, 2008; see also https://archive.ada.gov/nprm_adaaa/adaaa-nprm-qa.htm. Under the Federal equal employment
opportunity laws that the EEOC enforces, including the ADA, an
employer cannot ask an employee to prospectively waive their rights
to protection. See, e.g., Lester v. O'Rourke, No. 17-cv-1772, 2018
WL 3141796, at *4-6 (N.D. Ill. June 27, 2018). In addition,
employers may not interfere with the protected right of an employee
to file a charge, testify, assist, or participate in any manner in
an investigation, hearing, or proceeding. See, e.g., EEOC,
``Enforcement Guidance on non-waivable employee rights under EEOC
enforced statutes,'' https://www.eeoc.gov/laws/guidance/enforcement-guidance-non-waivable-employee-rights-under-eeoc-enforced-statutes.
\109\ 42 U.S.C. 12112(a). An individual with a disability is
defined by the ADA as a person who has a physical or mental
impairment that substantially limits one or more major life
activities, a person who has a history or record of such an
impairment, or a person who is regarded as having such an
impairment. Id. at Sec. 12102(1). To be ``regarded as'' having such
an impairment, an individual must establish that they have been
subjected to a discriminatory action because of an actual or
perceived physical or mental impairment, whether or not the
impairment limits or is perceived to limit a major life activity.
Id. at Sec. 12102(3).
\110\ See 42 U.S.C. 12111.
\111\ 29 CFR 1630.2(o)(1).
\112\ 42 U.S.C. 12111(9).
\113\ The term ``undue hardship'' means an action requiring
significant difficulty or expense when considered in light of
several factors set forth in the ADA statute. 42 U.S.C. 12111(10),
12112(b)(5)(A).
\114\ Many workplace accommodations are no-cost or low-cost, and
resources exist to help individuals with disabilities and their
employers identify accommodations. See, e.g., ADA National Network
Fact Sheet--Reasonable Accommodations in the Workplace (2018),
https://adata.org/factsheet/reasonable-accommodations-workplace; Job
Accommodation Network (JAN), https://askjan.org/.
---------------------------------------------------------------------------

Title II of the ADA, enforced by the U.S. Department of Justice
(DOJ), prohibits discrimination on the basis of disability by State and
local government entities.\115\ It requires that State and local
governments ensure equal access for individuals with disabilities (for
example, in public education, employment, transportation, recreation,
health care, social services, courts, voting, and town meetings).
Additionally, DOJ's Title II regulations require public entities to
``administer services, programs, and activities in the most integrated
setting appropriate to the needs of qualified individuals with
disabilities.'' Appendix B to the regulation implementing Title II
explains that ``the most integrated setting'' is one that ``enables
individuals with disabilities to interact with nondisabled persons to
the fullest extent possible.'' \116\
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\115\ 42 U.S.C. 12131, 12132.
\116\ 28 CFR part 35, app. B, 703 (2023) (addressing 28 CFR
35.130(d)).
---------------------------------------------------------------------------

In 1999, in Olmstead v. L.C., the Supreme Court issued a landmark
decision that held that Title II of the ADA prohibits the unjustified
segregation of individuals with disabilities.\117\ The Court held that
public entities are required to provide community-based services to
persons with disabilities when (1) such services are appropriate; (2)
the affected persons do not oppose community-based treatment; and (3)
community-based services can be reasonably accommodated, taking into
account the resources available to the entity and the needs of others
who are receiving disability services from the entity.\118\ The Court
explained that this holding reflected two judgments. First,
``institutional placement of persons who can handle and benefit from
community settings perpetuates unwarranted assumptions that persons so
isolated are incapable or unworthy of participating in community
life.'' \119\ Second, ``confinement in an institution severely
diminishes the everyday life activities of individuals, including
family relations, social contacts, work options, economic independence,
educational advancement, and cultural enrichment.'' \120\
---------------------------------------------------------------------------

\117\ See 527 U.S. 581, 583, 597, 602 (1999).
\118\ Id. at 607.
\119\ Id. at 600.
\120\ Id. at 601.
---------------------------------------------------------------------------

Under Department of Justice regulations, a public entity may be
found in violation of this integration mandate if it administers
programs in a manner that results in unjustified segregation of persons
with disabilities.\121\ DOJ has explicitly recognized that a public
entity may be found in violation of the ADA's integration mandate if it
plans, administers, operates, funds, or implements employment services
in a way that unjustifiably segregates individuals with
disabilities.\122\ As discussed below, DOJ has taken action to enforce
the integration mandate, with broad impacts to employment opportunities
for workers with disabilities.
---------------------------------------------------------------------------

\121\ See 28 CFR 35.130(b)(1) (prohibiting a public entity from
discriminating ``directly or through contractual, licensing or other
arrangements, on the basis of disability''); 28 CFR 35.130(b)(2)
(``A public entity may not deny a qualified individual with a
disability the opportunity to participate in services, programs, or
activities that are not separate or different, despite the existence
of permissibly separate or different programs or activities.'').
\122\ See U.S. Dep't of Justice, Civil Rights Div., ``Questions
and Answers on the Application of the ADA's Integration Mandate and
Olmstead v. L.C. to Employment and Day Services for People with
Disabilities,'' https://www.ada.gov/assets/pdfs/olmstead-employment-qa.pdf (``DOJ ADA Integration Mandate Q&As'').
---------------------------------------------------------------------------

Title III of the ADA, also enforced by DOJ, pertains to public
accommodations. Under Title III, individuals with disabilities cannot
be discriminated against on the basis of disability in the ``full and
equal enjoyment of the goods, services, facilities, privileges,
advantages, or accommodations of any place of public accommodation by
any person who owns, leases (or leases to), or operates a place of
public accommodation.'' \123\ Places of public accommodation may
include, for example, restaurants, retail stores, hotels, movie
theaters, private schools, recreational facilities, and transportation
services run by private entities.
---------------------------------------------------------------------------

\123\ 42 U.S.C. 12182(a).
---------------------------------------------------------------------------

As DOJ has explained, when workers with disabilities are given
access to employment opportunities pursuant to the ADA and Olmstead
``in the most integrated setting appropriate to their needs, they have
the opportunity to live fuller lives, be more integrated into the
community, and gain financial independence to `move proudly into the

[[Page 96478]]

economic mainstream of American life.' '' \124\ This access fulfills
the goals of the ADA to ``assure equality of opportunity, full
participation, independent living, and economic self-sufficiency.''
\125\ Moreover, EEOC and DOJ have explained that the ADA is fully
applicable to workers with disabilities regardless of the work site or
how much they are paid. For example, ``Title I's coverage can include
individual service provider entities or sheltered workshops in their
capacity as private employers,'' prohibiting discrimination regarding
various terms and conditions of employment.\126\ Additionally, DOJ has
explicitly recognized that a public entity may be found in violation of
the ADA's Title II integration mandate if it plans, administers,
operates, funds, or implements employment services in a way that
unjustifiably segregates individuals with disabilities.\127\ Finally,
under Title III of the ADA, individuals with disabilities cannot be
discriminated against on the basis of disability in a place of public
accommodation, which can include an individual service provider entity
or a sheltered workshop.\128\
---------------------------------------------------------------------------

\124\ See DOJ ADA Integration Mandate Q&As, https://www.ada.gov/assets/pdfs/olmstead-employment-qa.pdf (quoting President George
H.W. Bush, Remarks at the Signing of the Americans with Disabilities
Act, July 26, 1990, https://perma.cc/VNU4-HR7P).
\125\ See 42 U.S.C. 12101(a)(7); see also DOJ ADA Integration
Mandate Q&As.
\126\ Id.; see also 42 U.S.C. 12112(a).
\127\ See DOJ ADA Integration Mandate Q&As.
\128\ Id.; see also 42 U.S.C. 12181(7)(K).
---------------------------------------------------------------------------

The legal protections for individuals with disabilities arising out
of the ADA and the Supreme Court's Olmstead decision have profoundly
impacted the rights and employment opportunities available to
individuals with disabilities. This has resulted in changes to
workforce development and vocational rehabilitation systems to more
fully support individuals with disabilities in achieving and
maintaining CIE, as discussed below. The Department's regulations
implementing section 14(c) were last updated prior to the enactment of
the ADA and therefore do not take into account changes to the
employment landscape for individuals with disabilities in light of the
fundamental anti-discrimination and reasonable accommodation
protections of the ADA, or those protections as later interpreted by
Olmstead. Although many section 14(c) certificate holders are subject
to both the FLSA and the ADA,\129\ the Department's current regulation
addressing the section 14(c) curtailment clause did not, and could not,
have taken into account the changes in employment opportunities that
would arise as a result of the ADA and the plethora of legal and policy
developments that have occurred as a result of this landmark
legislation. For instance, the Department did not consider (and could
not have considered) when it last promulgated its section 14(c)
regulations how the ADA's reasonable accommodation and workplace
modification requirements may affect a worker's productivity, nor did
the Department consider other ADA provisions that have expanded the
employment opportunities available to individuals with disabilities.
Today, the Department's assessment of whether section 14(c)
certificates are necessary cannot ignore the dramatic expansion of
employment opportunities for individuals with disabilities.
---------------------------------------------------------------------------

\129\ The Department notes that holding a section 14(c)
certificate does not protect an employer from charges pursuant to
the ADA, see FOH 64a02(c).
---------------------------------------------------------------------------

2. Additional Federal Legislation, Executive Orders, and Regulatory
Changes Expanding Opportunities for Workers With Disabilities
A wide range of other significant legislative and executive actions
have had a profound impact on employment opportunities and outcomes for
individuals with disabilities, particularly over the last decade. These
legal and policy developments have fundamentally altered the landscape
in which individuals with disabilities learn and work, beginning from
their earliest educational opportunities and settings.
i. Individuals With Disabilities Education Act
In 1975, Congress passed the Education for All Handicapped Children
Act (EHA), which addressed the rights and educational needs of students
with disabilities. In 1990 EHA was reauthorized and retitled to the
Individuals with Disabilities Education Act (IDEA).\130\ IDEA provides
funding to States, which must provide early intervention services and a
free appropriate public education to eligible infants, toddlers, and
children with disabilities.\131\ IDEA states that ``[a]lmost 30 years
of research and experience has demonstrated that the education of
children with disabilities can be made more effective by having high
expectations for such children and ensuring their access to the general
education curriculum in the regular classroom, to the maximum extent
possible . . . .'' \132\ IDEA further states that this focus on high
expectations and inclusion is intended to meet developmental goals and
challenging expectations, and, as particularly relevant here, that
students with disabilities are ``prepared to lead productive and
independent adult lives, to the maximum extent possible.'' \133\
Notably, the 1990 reauthorization also mandated that as a part of a
student's individualized education program (IEP), an individual
transition plan must be developed to help each student transition to
post-secondary life, including employment opportunities.\134\
Subsequent guidance has been released about the benefits of inclusion,
for example, in 2015, the U.S. Department of Health and Human Services
(HHS) and U.S. Department of Education issued a joint policy statement
about the importance of the inclusion of children with disabilities in
early childhood programs. The Departments updated and reiterated the
statement in 2023.\135\ For nearly 50 years, children with disabilities
have benefited from increased access to high-quality education from
early childhood to high school, providing them with better

[[Page 96479]]

preparation for employment than past generations of students with
disabilities.
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\130\ Educ. of the Handicapped Act Amendments of 1990, Public
Law 101-476, 104 Stat. 1103 (1990) (codified at 20 U.S.C. 1400).
Subsequent reauthorizations included reauthorizations in 1997 and
2004.
\131\ See 20 U.S.C. 1400 et seq. and U.S. Department of
Education, ``About IDEA,'' https://sites.ed.gov/idea/about-idea
(recording that early intervention, special education, and related
services were provided to more than 8 million eligible infants,
toddlers, children, and youth with disabilities in school year 2022-
2023).
\132\ 20 U.S.C. 1400(c)(5). A multitude of studies and academic
literature have concluded that students with disabilities make more
progress when educated in integrated, rather than segregated,
settings. See, e.g., Meghan Cosier, Julie Causton-Theoharis, &
George Theoharis, ``Does access matter? Time in general education
and achievement for students with disabilities,'' Remedial and
Special Educ. 34(6)(2013), at 323-332; Rachel Sermier Dessemontet,
Gerard Bless, & D. Morin. ``Effects of inclusion on the academic
achievement and adaptive behaviour of children with intellectual
disabilities,'' Journal of Intellectual Disability Research 56(6)
(2012) at 579-587.
\133\ 20 U.S.C. 1400(c)(5)(A)(ii).
\134\ The term ``individualized education program'' (IEP) means
a written statement for each child with a disability that is
developed, reviewed, and revised in accordance with 20 U.S.C.
1414(d). See 20 U.S.C. 1401(14); see also 34 CFR 300.320.
\135\ See U.S. Dep't of Health and Human Services and U.S. Dep't
of Education, ``Policy Statement on Inclusion of Children with
Disabilities in Early Childhood Programs,'' November 28, 2023,
https://sites.ed.gov/idea/idea-files/policy-statement-inclusion-of-children-with-disabilities-in-early-childhood-; see also Endrew F.
v. Douglas County School Dist., 580 U.S. 386, 399 (2017) (affirming
the promise of IDEA and holding that in order ``[t]o meet its
substantive obligation under the IDEA, a school must offer an IEP
reasonably calculated to enable a child to make progress appropriate
in light of the child's circumstances.'')
---------------------------------------------------------------------------

As educational reforms took hold, competitive integrated employment
became the goal of many youths with disabilities, including those with
I/DD. The groundbreaking National Longitudinal Transition Study-2
(NLTS2), funded by the U.S. Department of Education and published in
2005, identified a strong desire among youth with disabilities to
participate in competitive employment. Specifically, the NLTS2 found
that among the 70 percent of secondary school students with
disabilities who identified employment as a goal for the post-school
years, 62 percent had a goal to work in competitive employment, while
only 3 percent wished to work in ``sheltered'' employment.\136\ As
indicated in the NLTS2, students generally preferred competitive
employment rather than employment at a sheltered workshop regardless of
the type of disability experienced.\137\
---------------------------------------------------------------------------

\136\ Mary Wagner, Lynn Newman, Renee Cameto, Nicolle Garza, &
Phyllis Levine, ``After High School: A First Look at the Postschool
Experiences of Youth with Disabilities. A Report from the National
Longitudinal Transition Study-2 (NLTS2),'' SRI International, April
2005, pp. 5-3 to 5-4, www.nlts2.org/reports/2005_04/nlts2_report_2005_04_complete.pdf.
\137\ Id.
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ii. Workforce Innovation and Opportunity Act
In 2014, WIOA,\138\ a comprehensive Federal law enacted to improve
workforce development and training services for workers and jobseekers,
including various groups such as youth and workers with disabilities,
amended the Rehabilitation Act to add section 511.\139\ Section 511 of
the Rehabilitation Act limits the ability of employers to pay
subminimum wages to workers with disabilities, even when the employer
holds a section 14(c) certificate. Section 511 requires that
individuals with disabilities who are age 24 or younger complete
requirements designed to enable the individual to explore, discover,
experience, and attain CIE, including receiving pre-employment
transition services under the Vocational Rehabilitation program or
transition services under IDEA (to the extent either of those services
are available to the individual with a disability), applying for
vocational rehabilitation services, and receiving career counseling and
information and referral services, before they are employed at
subminimum wages. Section 511 also requires that all workers with
disabilities who are paid subminimum wages, of any age, receive regular
career counseling, information and referrals, and information about
self-advocacy, self-determination, and peer mentoring training
opportunities in their local area once every 6 months for the first
year of subminimum wage employment and annually thereafter.\140\
Section 511 was intended to help stop the pipeline by which youth with
disabilities were going straight from school to subminimum wage
employment.\141\ This provision was also enacted to ensure that workers
with disabilities who are currently paid subminimum wages are regularly
provided with counseling and information about supports and resources
available to them in their locality that may support them in obtaining
CIE.\142\
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\138\ 29 U.S.C. 794g; also see https://www.congress.gov/113/bills/hr803/BILLS-113hr803enr.pdf.
\139\ The Rehabilitation Act was the first Federal legislation
to address access and equity for individuals with disabilities. This
Act promoted successful employment outcomes by requiring that
programs receiving Federal financial assistance operate without
discrimination on the basis of disability. The Rehabilitation Act
develops and implements comprehensive and coordinated programs of
vocational rehabilitation for individuals with disabilities to
maximize their employability, independence, and integration into the
workplace. See 29 U.S.C. 701.
\140\ 34 CFR part 397.
\141\ Section 113 of the Rehabilitation Act described a specific
set of services, Pre-employment transition services, that are
intended to improve and expand vocational rehabilitation services
for students with disabilities, facilitating their transition from
educational services to postsecondary life. See 29 U.S.C. 733 and 34
CFR 361.65(a)(3). At least 15 percent of each State's federal
funding allotment for vocational rehabilitation services must be
reserved for Pre-employment transition services. See 29 U.S.C.
730(d)(1). Through these provisions, the Rehabilitation Act and its
regulations emphasized the provision of Pre-employment transition
services to students with disabilities, providing new opportunities
for them to explore careers and receive the training and supports to
increase the likelihood of achieving CIE. See 34 CFR 361.48.
\142\ 29 U.S.C. 794g; 34 CFR part 397. Additionally, throughout
WIOA, there are multiple references to ensuring that people with
disabilities have access to the training providers and services and
supports needed to succeed in CIE. Other sections of WIOA provide
funding to States in order to develop programs that support workers
with disabilities.
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iii. Achieving a Better Life Experience Act
In further support of competitive employment for workers with
disabilities, in 2014, Congress enacted the Achieving a Better Life
Experience Act (ABLE Act), which allows individuals with disabilities
to establish tax-advantaged savings accounts, subject to certain
restrictions, without jeopardizing access to public benefits. ABLE
accounts allow individuals with disabilities to maintain resources and
save for expenses while maintaining eligibility for critical public
benefits such as Medicaid and other means-tested programs. In 2020, the
Internal Revenue Service (IRS) released final ABLE regulations.\143\
The regulations noted that in enacting the ABLE Act, ``Congress
recognized the special financial burdens borne by families raising
children with disabilities and the fact that increased financial needs
generally continue throughout the lifetime of an individual with a
disability.'' \144\ Legislation such as the ABLE Act facilitates
workers' transitions from subminimum wage jobs to jobs paying
competitive wages because workers now are able to save more without
jeopardizing access to means-tested public benefits such as health
care.\145\
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\143\ See Guidance Under Section 529A: Qualified ABLE Programs,
85 FR 74010 (Nov. 19, 2020).
\144\ 85 FR 74010.
\145\ ``The ABLE Act states that funds in an ABLE account will
not affect eligibility for federally-funded, means-tested benefits
such as SSI and Medicaid.'' See ABLE National Resource Center,
https://www.ablenrc.org/what-is-able/debunking-able-myths/.
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iv. Executive Orders 13658 and 14026
In 2014 and 2021 respectively, Executive Orders 13658 and 14026
directed federal agencies to contract only with entities willing to pay
an hourly minimum wage (raised by Executive Order 14026) for workers
performing on or in connection with covered Federal construction and
service contracts.\146\ Workers covered by the Executive Orders, and
due the full applicable Executive Order minimum wage rates, include
workers with disabilities whose wages are calculated pursuant to
section 14(c) certificates.\147\ Executive Order 13658 stated that
``raising the pay of low-wage workers increases their morale and the
productivity and quality of their work'' and explicitly stated that the
Order applies to workers whose wages are calculated pursuant to section
14(c).\148\

[[Page 96480]]

Executive Order 14026 similarly extended the full Executive Order
minimum wage to workers with disabilities performing on or in
connection with covered Federal contracts, stating, among other
benefits, that raising the minimum wage has the effects of ``boosting
workers' health, morale, and effort.'' \149\
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\146\ On April 27, 2021, President Joseph R. Biden, Jr. issued
Executive Order 14026, ``Increasing the Minimum Wage for Federal
Contractors.'' 86 FR 22835. The order builds on the foundation
established by Executive Order 13658, ``Establishing a Minimum Wage
for Contractors,'' signed by President Barack Obama on February 12,
2014. See 79 FR 9851. The Department notes that, at the time of the
drafting of this NPRM, there are several pending lawsuits
challenging the President's authority to have issued Executive Order
14026. Such cases are not discussed herein because they are beyond
the scope of this proposed rule, which simply highlights the
issuance of the Executive Order as an example of the profound legal
and policy developments that have impacted individuals with
disabilities in recent decades.
\147\ See 86 FR at 22835; 79 FR at 9851.
\148\ 79 FR 9851, Executive Order 13658, ``Establishing a
Minimum Wage for Contractors,'' February 12, 2014, https://obamawhitehouse.archives.gov/the-press-office/2014/02/12/executive-order-minimum-wage-contractors.
\149\ 86 FR at 22835.
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v. Home and Community-Based Services ``Settings Rule''
In addition to legislative and presidential action, other Federal
agencies have also promulgated regulations consistent with expanding
CIE opportunities for workers with disabilities. For example, in 2014,
HHS's Centers for Medicare and Medicaid Services (CMS) issued the Home
and Community Based Settings (HCBS) ``Settings Rule'' that focused on
various aspects of residential and employment settings for individuals
with disabilities. The rule emphasized that individuals have free
choice of providers for services in their service plan, including
employment services.\150\ These regulations further stipulate that the
``setting is integrated in and supports full access of individuals
receiving Medicaid HCBS to the greater community, including
opportunities to seek employment and work in competitive integrated
settings . . . to the same degree of access as individuals not
receiving Medicaid HCBS.'' \151\
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\150\ 79 FR 2948 (Jan. 16, 2014).
\151\ 42 CFR 441.530(a)(1)(i).
---------------------------------------------------------------------------

vi. U.S. AbilityOne Commission 2022 Final Rule
The AbilityOne Program provides the Federal Government with
services and products procured through a nationwide network of
approximately 450 non-profit entities that employ individuals who are
blind or have significant disabilities.\152\ In 2022, the U.S.
AbilityOne Commission (Commission) issued a final rule prohibiting the
payment of subminimum wages under section 14(c) to employees on
contracts within the AbilityOne Program.\153\ The 2022 AbilityOne final
rule adds a new requirement for non-profit agencies that seek both
initial and continuing qualification to participate in the AbilityOne
Program: namely, such agencies must certify that, when paying workers
on AbilityOne contracts, they will not use section 14(c) certificates.
In its 2022 final rule, the Commission states that ``ending wage
disparities between employees based solely on disability places the
economic power of individuals with disabilities on par with their work
colleagues who do not have disabilities and paying the same wage to
individuals with disabilities and those without conveys a message of
equality and a commitment to inclusion.'' \154\ The Commission
explained that ending the payment of subminimum or sub-prevailing wages
on AbilityOne contracts was designed to help break cycles of poverty
and dependence for workers with disabilities, and instead shift the
focus on assisting workers with disabilities to move to careers of
meaningful employment.\155\ The Commission further explained that
societal expectations of people with disabilities had changed and that
the availability of reasonable accommodations and employment supports
had significantly changed the employment landscape for workers with
disabilities.\156\ The final rule was published on July 21, 2022, and
took effect 90 days later on October 19, 2022. Nonprofit agencies
seeking qualification to participate in the AbilityOne program were
allowed to apply for a single extension of up to 12 months if they
provided required support for the need of the extension and a
corrective action plan detailing how they planned to achieve compliance
during the requested extension period.
---------------------------------------------------------------------------

\152\ See AbilityOne Program, FAQs, https://www.abilityone.gov/abilityone_program/faqs.html#1.
\153\ 87 FR 43427 (July 21, 2022).
\154\ 87 FR 43428-43429.
\155\ 87 FR 43428.
\156\ 87 FR 43429.
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As of September 30, 2023, no employee on an AbilityOne contract was
being paid a subminimum wage.\157\ AbilityOne's final rule prohibiting
the payment of subminimum wages marked a noteworthy step away from the
use of subminimum wage certificates.
---------------------------------------------------------------------------

\157\ See U.S. AbilityOne Commission, ``Fiscal Year 2023
Performance and Accountability Report,'' at 95, https://www.abilityone.gov/commission/performance.html. In fiscal year 2022,
approximately 36,000 people who are blind or have significant
disabilities were employed through the AbilityOne program. Id. at 7.
---------------------------------------------------------------------------

In sum, legislation, judicial precedent, and regulatory initiatives
have fundamentally and profoundly altered the rights, protections,
access, and opportunities available to individuals with disabilities.
These evolving changes to the employment landscape have dramatically
altered access to employment opportunities and available supports for
workers with disabilities.
vii. Strategies, Initiatives, and Resources Focused on Increasing
Competitive Integrated Employment Opportunities
Alongside these legislative, executive, and judicial developments
clarifying and expanding the rights and opportunities of individuals
with disabilities, virtually all of which occurred after Congress last
amended section 14(c) and the Department last substantively updated the
section 14(c) regulations, a number of strategies focused on increasing
CIE have also emerged. The proliferation of resources and strategies to
increase CIE since 1989 demonstrates to the Department that there are
numerous alternatives to subminimum wage employment, as well as many
additional pathways to employment at or above the full Federal minimum
wage for individuals with disabilities. The diversity of available
supports, services, and strategies to facilitate the attainment of CIE
for workers with disabilities indicates that subminimum wages are no
longer a strategy that is necessary to prevent curtailment of
opportunities for employment for these workers. One example is
Employment First, which is a national framework centered on the premise
that all individuals, including those individuals with the most
significant disabilities, are capable of full participation in CIE and
community life.\158\ Under Employment First, public systems and States
are urged to align policies, regulatory guidance, and reimbursement
structures to commit to CIE as the priority option with respect to the
use of publicly-financed day and employment services for youth and
adults with significant disabilities.\159\ Many States have formally
committed to the Employment First framework through official executive
proclamation or formal legislative action.\160\ The Association of
People Supporting Employment First (APSE) website reports that, to
date, every State has taken some Employment First action, with 31
States having passed Employment First legislation, 16 States having
issued Employment First executive orders, and 32 States having
administrative policies and/or

[[Page 96481]]

regulations in place in support of the Employment First framework.\161\
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\158\ U.S. Dep't of Labor, Office of Disability Emp't Policy,
``Employment First,'' https://www.dol.gov/agencies/odep/initiatives/employment-first.
\159\ Id. There are multiple additional initiatives that have
developed from Employment First, including the National Expansion of
Employment Opportunities Network (NEON) and the Advancing State
Policy Integration for Recovery and Employment (ASPIRE) initiatives.
\160\ Id.
\161\ See https://apse.org/home-v2-2/employment-first/ for a
state-by-state summary. As of June 2024, all 50 States (as well as
the District of Columbia) are listed on this website, with Idaho
having taken Employment First action other than legislation,
executive order, or administrative policies/regulations. Many States
``have a combination of legislation, Executive action and/or State
Agency policy in place.'' Id.
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The methods of assisting individuals to obtain and maintain
competitive employment have evolved over the past several decades,
further enhancing these CIE programs. For example, research shows that
the development of supported employment, the Individual Placements and
Supports (IPS) model, and customized employment methodologies have been
used to successfully implement CIE for workers with disabilities.\162\
Specifically, the IPS model is designed to assist individuals with
serious mental health conditions and involves a multi-disciplinary team
that employs eight strategies: competitive employment, systematic job
development, rapid job search, integrated services, benefits planning,
time-limited supports, worker preferences, and zero exclusion of
participants.\163\ This coordination of medical care and supported
employment has been described as a standardization of evidence-based
supported employment.\164\
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\162\ See, e.g., Joonas Poutanen, Matti Joensuu, Kirsi Unkila &
Piurjo Juvonen-Posti, ``Sustainable employability in Supported
Employment and IPS interventions in the context of the
characteristics of work and perspectives of the employers: a scoping
review protocol,'' BMJ Open 12(6) (June 17, 2022), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9207909/ (``The sustainable
employment outcomes and cost-effectiveness of SE and IPS have been
well reported.'').
\163\ See https://ipsworks.org/index.php/what-is-ips/.
\164\ See Gary R. Bond, Robert E. Drake & Deborah R. Becker,
``An update on randomized controlled trials of evidence-based
supported employment.'' Psychiatric Rehabilitation Journal, 31(4)
(April 2008), 280-290, https://doi.org/10.2975/31.4.2008.280.290.
---------------------------------------------------------------------------

The Department of Labor's Office of Disability Employment Policy
(ODEP), established in 2001, led the research that built evidence for
customized employment, ``a process for achieving competitive integrated
employment or self-employment through a relationship between employee
and employer that is personalized to meet the needs of both.'' \165\
Customized employment tailors job tasks to fit the individual who will
be performing the work, and this strategy has been shown to be
particularly beneficial for people with disabilities who might not have
been successful in CIE using other training and employment strategies.
In 2014, customized employment was included in Title IV of the WIOA as
a strategy under the definition of supported employment.
---------------------------------------------------------------------------

\165\ See U.S. Dep't of Labor, Office of Disability Emp't
Policy, ``Customized Employment,'' https://www.dol.gov/agencies/odep/program-areas/customized-employment.
---------------------------------------------------------------------------

Finding these methodologies effective, various Federal agencies
have adopted them, and funded their use, through their programs and
initiatives. For example, supported employment was added to the
Rehabilitation Act in 1986 to help more workers with disabilities
obtain employment. Customized employment emerged first through grant
programs beginning in 2001 and was added to WIOA in 2014. The
development and implementation of these strategies for successful CIE
align with the emergence of the social model of disability as well as
with person-centered planning. Strategies consistent with the social
model of disability that decrease barriers and increase access to
opportunities and focus on the individual needs of each worker have
created new pathways for workers with disabilities to find, and
maintain, the right jobs for them.
ODEP has also led several initiatives focused on promoting CIE and
aiding States and service providers in implementing CIE strategies. For
example, the Campaign for Disability Employment, an ODEP-funded
outreach effort, showcases supportive, inclusive workplaces for all
workers and brings together several leading disability and business
organizations convened by ODEP to work together to address disability
employment, demonstrating the increased collaboration among employers
to advance employment options for workers with disabilities.\166\ The
Disability Employment Initiative (DEI), funded by ODEP and the
Department's Employment and Training Administration, awarded more than
$123 million through the initiative to 49 projects in the public
workforce system in 28 States to improve education, training, and
employment outcomes of youth and adults with disabilities.\167\
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\166\ U.S. Dep't of Labor, Office of Disability Emp't Policy
https://www.dol.gov/agencies/odep/initiatives/campaign-for-disability-employment.
\167\ U.S. Dep't of Labor, Office of Disability Emp't Policy
https://www.dol.gov/newsroom/releases/odep/odep20160914.
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In addition, through the Employment First State Leadership
Mentoring Program, ODEP supported 24 States in their strategic efforts
to increase CIE for individuals with disabilities, including those with
significant disabilities.\168\ ODEP has also established the National
Expansion of Employment Opportunities Network (NEON) to collaborate
with CRPs to extend CIE for the people they serve through provider
transformation. ODEP explains that this process ``realigns'' disability
service provider agencies' business models ``from providing work
opportunities in segregated settings or at subminimum wages to
providing CIE for people with disabilities.'' \169\ This robust level
of programming and State participation allows the refocusing of many
State resources from programs relying on the payment of subminimum
wages to workers with disabilities to programs that support CIE
opportunities. In 2012, ODEP began and actively maintains an Employment
First Community of Practice (COP) of nearly 3,000 State agency and
service provider professionals, researchers, policy makers, workers and
family members, and Federal officials. The COP shares CIE challenges
and solutions, resources, events, and successes. In March 2024, ODEP
launched an online CIE Transformation Hub of practical Federal
resources that support CIE organized by target audience--individuals
with disabilities and family members, employment service providers,
State agencies, and employers.\170\
---------------------------------------------------------------------------

\168\ See supra note 159.
\169\ See U.S. Dep't of Labor, Office of Disability Emp't
Policy, ``National Expansion of Employment Opportunities Network
(NEON),'' https://www.dol.gov/agencies/odep/initiatives/neon.
\170\ U.S. Dep't of Labor, Office of Disability Emp't Policy,
https://www.dol.gov/agencies/odep/program-areas/cie/hub.
---------------------------------------------------------------------------

Since 2021, the U.S. Department of Education's Rehabilitation
Services Administration (RSA),\171\ has administered demonstration
programs with discretionary grants through the Disability Innovation
Fund (DIF) to support innovative activities aimed at increasing
CIE.\172\ In 2022, RSA made DIF awards to 14 vocational rehabilitation
agencies to, as the Department of Education has explained, ``decrease
the use of subminimum wages and increase access to competitive
integrated employment for people with disabilities.'' \173\ In recent

[[Page 96482]]

years, DIF grant projects have focused on improving the outcomes of
individuals with disabilities through, for example, (1) career
advancement programs, (2) transition from subminimum wage to CIE
programs, and (3) ``pathways to partnerships programs'' that seek to
support projects that foster the establishment of close ties among
agencies--such as State vocational rehabilitation agencies, State
educational agencies, local educational agencies, and federally funded
Centers for Independent Living--to actively collaborate to support
coordinated transition processes for children and youth with
disabilities.\174\ These 5-year grants are awarded to States as
cooperative agreements to support innovative activities aimed at
increasing CIE for youth and other individuals with disabilities.\175\
---------------------------------------------------------------------------

\171\ To assist individuals with disabilities in the pursuit of
gainful employment, RSA administers and manages programs that assist
individuals with disabilities to achieve employment outcomes. One of
these programs, the State Vocational Rehabilitation Services
Program, provides State formula grant programs to vocational
rehabilitation (VR) agencies providing a wide variety of services to
individuals with significant disabilities, including individuals
with the most significant disabilities.
\172\ See Consolidated Appropriations Act, Public Law 117-103,
136 Stat. 49, 479 (2022).
\173\ U.S. Dep't of Educ., ``Education Department Awards $177
Million in New Grants to Increase Competitive Integrated Employment
for People with Disabilities,'' https://www.ed.gov/news/press-releases/education-department-awards-177-million-new-grants-increase-competitive-employment-people-disabilities.
\174\ U.S. Dep't of Educ., Rehabilitation Services
Administration (RSA), ``RSA Programs,'' https://rsa.ed.gov/about/programs.
\175\ See 29 U.S.C. 705(5); see also Dep't of Educ., RSA,
``Disability Innovation Fund,'' https://rsa.ed.gov/about/programs/disability-innovation-fund-pathways-to-partnerships.
---------------------------------------------------------------------------

A landmark agreement in Oregon, the Lane v. Brown settlement
agreement, illustrates some of this legal, legislative, and policy
progression. In 2012, a class action complaint was filed in district
court on behalf of individuals with I/DD alleging that by unnecessarily
segregating them and other similar individuals with I/DD in sheltered
workshops receiving public funds, Oregon was in violation of Title II
of the ADA and section 504 of the Rehabilitation Act.\176\ DOJ
intervened in the lawsuit as a plaintiff, and a statewide settlement
agreement was signed in 2015 requiring, among other things, that Oregon
decrease State support of sheltered workshops for individuals with I/DD
and expand access to supported employment services that allow the
opportunity to work in CIE settings. As a result, Oregon implemented a
number of competitive and supported employment strategies to support
individuals with disabilities in the State, including training for
school districts and those providing support services, new grants,
reallocation of funding and technical assistance to support CIE.\177\
These strategies accelerated the transition for workers with
disabilities from employment under the prior sheltered workshop model
to a CIE model within the State, ultimately ending the payment of
subminimum wages to workers with disabilities in Oregon. In 2016, the
year that this settlement was reached and approved by the court, there
were 1,405 people working in sheltered workshops in Oregon.\178\
Through this transition, Oregon placed 1,138 individuals from the class
who had previously worked for subminimum wages into CIE, exceeding the
targets set by the consent judgment. Additionally, by September 2020,
all sheltered workshops except one had converted to providing
supported, full-wage employment opportunities.\179\
---------------------------------------------------------------------------

\176\ The Department notes that, on May 9, 2024, HHS published a
final rule which modernized and strengthened the implementing
regulations for section 504 of the Rehabilitation Act, which
prohibits discrimination on the basis of disability in programs and
activities that receive Federal financial assistance. See 89 FR
40066 (May 9, 2024). The rule, among other things, clarifies
obligations to provide services in the most integrated setting,
appropriate to the needs of individuals with disabilities, and
updates existing requirements to make them consistent with the ADA.
See HHS, Section 504 of the Rehabilitation Act of 1973 Part 84 Final
Rule: Fact Sheet, https://www.hhs.gov/civil-rights/for-individuals/disability/section-504-rehabilitation-act-of-1973/part-84-final-rule-fact-sheet/. Section 84.76 of HHS's updated section
504 regulations specifically requires all recipients of Federal
financial assistance from HHS to administer their programs and
activities in the most integrated setting appropriate to the needs
of a qualified person with a disability. See 45 CFR 84.76; 89 FR
40066, 40117.
\177\ Oregon Dep't of Human Services, ``Lane v. Brown Settlement
Agreement Report,'' https://www.oregon.gov/odhs/employment-first/Documents/lane-v-brown-settlement-message-2022-06-21.pdf.
\178\ Id.
\179\ See Disability Employment TA Center, The Components of
Integrated Employment Service Systems, p.11 (July 2022), https://aoddisabilityemploymenttacenter.com/wp-content/uploads/2022/07/Components-of-Integrated-Employment-Part-II-FINAL-Final.pdf. In
addition to the Oregon settlement, in 2014, DOJ entered into a
statewide settlement agreement in Rhode Island to resolve violations
of the ADA for approximately 3,250 Rhode Islanders with I/DD. See
U.S. Dep't of Justice, ``Department of Justice Reaches Landmark
Americans With Disabilities Act Settlement Agreement With Rhode
Island,'' April 8, 2014, https://www.justice.gov/usao-ri/pr/department-justice-reaches-landmark-americans-disabilities-act-settlement-agreement-rhode.
---------------------------------------------------------------------------

In sum, a wide range of resources and programs have emerged in
recent years that are focused on increasing competitive integrated
employment. These supports and services assist workers in obtaining and
maintaining employment at or above the full Federal minimum wage and
also assist employers in transitioning their business models to
integrated workplaces where the minimum wage is paid to all workers.
Today, subminimum wage employment under section 14(c) certificates is
no longer the most common form of employment for individuals with
disabilities, including individuals with I/DD. As the number of workers
being paid subminimum wages under section 14(c) certificates continues
to shrink, the numbers of workers with disabilities, including workers
with I/DD, working in integrated settings for full wages continues to
grow.\180\
---------------------------------------------------------------------------

\180\ See discussion in section III.A.
---------------------------------------------------------------------------

C. Third Party Reports Regarding Section 14(c)

In the context of the changes that have taken place over the past
several decades in opportunities for employment for individuals with
disabilities, both public and private entities (including from the
nonprofit, academic, and business sectors) have published relevant
reports and statements regarding subminimum wage employment. Though, as
discussed below, some organizations remain in strong support of the
continuation of section 14(c) certificate issuance, many of these
reports, from governmental and non-governmental organizations alike,
have compiled substantial evidence that subminimum wages are no longer
a necessary method of providing employment opportunities to individuals
with disabilities. In this subsection, the Department reviews key
aspects of these reports, which represent the culmination of years of
findings and conclusions, most of which provide support for the
Department's proposal to end the issuance of section 14(c)
certificates.
1. Government Oversight Reports
In recent years,\181\ a number of Federal government agencies and
committees have studied the payment of subminimum wages to workers with
disabilities and generated oversight reports. These agencies and
committees brought together a wide range of individuals from across
government and the non-profit and business sectors to share their
expertise and experience regarding the payment of subminimum wages to
workers with disabilities and corresponding models of employment. In
general, these oversight entities have sharply criticized the continued
payment of subminimum wages as an outdated method to support workers
with disabilities and reflect a broad consensus that subminimum wages
are not necessary to provide opportunities for employment of
individuals with disabilities, including opportunities for individuals
with I/DD Accordingly, many recommend that a phase out of section 14(c)
certificates should begin immediately. The Department notes that

[[Page 96483]]

there are no equivalent government oversight reports that favor the
continued issuance of section 14(c) certificates (at least beyond a
phaseout period). The Department welcomes comments on its analysis of
the selected reports discussed in this proposed rule as well as
comments on any other reports relevant to whether the continued
issuance of section 14(c) certificates is necessary to prevent the
curtailment of employment opportunities for individuals with
disabilities.
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\181\ This section is not an exhaustive listing of all such
Federal government oversight reports relating to individuals with
disabilities, but rather focuses on recent reports that specifically
consider the role of section 14(c) and subminimum wages in the
employment of those individuals.
---------------------------------------------------------------------------

i. U.S. Commission on Civil Rights Report on Subminimum Wages
The USCCR is an independent, bipartisan, fact-finding Federal
agency established in part to study discrimination or denial of equal
protection by reason of race, color, religion, sex, age, disability, or
national origin. In 2020, the USCCR issued a comprehensive 349-page
report entitled ``Subminimum Wages: Impacts on the Civil Rights of
People with Disabilities'' (USCCR Report).\182\ The USCCR concluded
that payment of subminimum wages should be eliminated through a planned
phaseout period that allows for the transition among service providers
and individuals with disabilities.\183\ In making this recommendation,
the USCCR emphasized its finding that ``[p]eople with intellectual and
developmental disabilities who are currently earning subminimum wages
under the 14(c) program are not categorically different in level of
disability from people with intellectual and developmental disabilities
currently working in competitive integrated employment.'' \184\
Especially given the comprehensive nature of the USCCR report, the
Department gives weight to the report's key factual findings and
recommendations in proposing to phase out issuance of section 14(c)
certificates.
---------------------------------------------------------------------------

\182\ USCCR Report. The U.S. Commission on Civil Rights was
established by Congress in 1957 and submits reports and
recommendations to the President and Congress based upon their
studies. Two members dissented from the conclusions of the 2020
report.
\183\ Id. at 223.
\184\ Id. at 221.
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To generate the report, the USCCR collected data, reports, and
testimony from ``Members of Congress, Labor and Justice Department
officials, self-advocates and workers with disabilities, family members
of people with disabilities, service providers, current and former
public officials, and experts on disability employment and data
analysis;'' received thousands of public comments both in favor of and
in opposition to the use of section 14(c) certificates; held a public
hearing; and conducted in-person visits to both full-wage and
subminimum wage worksites.\185\
---------------------------------------------------------------------------

\185\ Id. at i.
---------------------------------------------------------------------------

During the USCCR's hearings, they heard testimony from employers
who provided insight into the impact of phasing out subminimum wages on
their operations. For example, the USCCR heard from some employers who
had transitioned away from the use of subminimum wages that, based on
their experiences, section 14(c) certificates were no longer necessary
to prevent curtailment of employment opportunities for individuals with
disabilities. The Chief Executive Officer (CEO) of Melwood, a non-
profit organization that transitioned their employees to at least the
full minimum wage in 2013 and withdrew its section 14(c) certificate in
2016, testified that phasing out subminimum wages had positively
impacted Melwood's operations, resulting in higher morale and
productivity, and contributed to its ongoing successes.\186\
Additionally, the CEO reflected on what she believed were the negative
impacts of using section 14(c) certificates, testifying that ``time
trials caused our employees to feel extremely anxious and stressed, as
employees knew that their performance could reduce their wages and harm
their ability to live happy independent lives,'' and that ``the average
employee lost five hours of productive time as a result of each time
trial, not including the loss of productivity due to the anxiety
distraction.'' \187\ The USCCR also spoke with employers who employed
individuals with I/DD but who had never held a section 14(c)
certificate, and those employers spoke positively of their
experiences.\188\
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\186\ USCCR Report at 50-51.
\187\ Id. at 50.
\188\ In a briefing to the USCCR, for example, Microsoft
explained that, since 2013, its Supported Employment Program had
placed over 280 individuals with I/DD in full-wage jobs at
Microsoft. Id. at 48 (citing Brian Collins, briefing transcript at
272-73 and 274-75). Microsoft observed that employing workers with
I/DD had added strength to the company because those workers tended
to be longer-term employees (thus reducing recruitment, turnover,
and onboarding costs) and tended to challenge the status quo and
teach colleagues about ``communication, inclusion, and empathy.''
Id. at 49.
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The USCCR also collected extensive testimony from, among others,
individuals with I/DD and their family members, current and former
section 14(c) certificate holders, and employers of individuals with I/
DD. The USCCR found that ``[p]ersons with disabilities who have
transitioned out of 14(c) workshops were adamantly against the
program.'' \189\ For example, the USCCR interviewed a worker in Vermont
who, after that State eliminated the payment of subminimum wages, had
transitioned to working in integrated employment, where he received
more than minimum wage and had opportunities for advancement.\190\
Reflecting on his previous experiences working for subminimum wages
pursuant to a section 14(c) certificate, the worker explained that he
believed that his former employer had been ``using'' his disability
``against'' him, and that he would ``do more and get less than everyone
else.'' \191\
---------------------------------------------------------------------------

\189\ Id. at xi.
\190\ Id. at 198.
\191\ Id.
---------------------------------------------------------------------------

As another key part of its review, the USCCR conducted intensive
case studies of three States that, at the time of the report's
publication, still permitted payment of subminimum wages (Virginia,
Arizona, and Missouri), and compared those States to three States that
had taken steps to eliminate subminimum wages (Vermont, Maine, and
Oregon). In general, the USCCR's case studies detailed many successful
transitions from subminimum wages to full wages. In terms of data
regarding employment outcomes in those States, the USCCR noted both the
complexity and insufficiency of available statistics. Summarizing its
analysis of state-level employment data collected from those six States
in 2016 and 2017, the USCCR explained that ``contrary to the popular
belief that ending subminimum wages will lead to job losses, the
eradication of subminimum wages correlates with increased employment
for people with disabilities'' in certain States.\192\ The USCCR
expressly noted, however, that ``importing these data over a wider
range of states shows even more complexity.'' \193\ Recognizing that
the results of the then-existing data regarding impact of state-level
legislation prohibiting subminimum wages was ``mixed,'' the USCCR
concluded that ``[t]he success of states like Oregon and Vermont show
that there is a path forward[ ]; moreover, even concerned family
members in those states eventually embraced a supported transition from
14(c) to competitive integrated employment.'' \194\
---------------------------------------------------------------------------

\192\ Id. at 143-45.
\193\ Id.
\194\ Id. at 217.
---------------------------------------------------------------------------

In addition to receiving comments urging the elimination of
subminimum wages, however, the USCCR also noted that ``the majority of
the public

[[Page 96484]]

comments the Commission received were from parents who support the
continued operation of 14(c) workshops unchanged.'' \195\ These public
comments included ``family members of persons with disabilities working
in 14(c) workshops . . . who stated it was their `CHOICE' to work there
and that they were against elimination of the 14(c) program.'' As one
family member of a person with a disability wrote to the USCCR, ``We
are NOT concerned with lower pay. We ARE concerned that the rights of
our family member to work in a fulfilling, safe, stable job where he
enjoys being part of a community is at risk due to the wage debate''
(emphasis in original).\196\
---------------------------------------------------------------------------

\195\ Id. at xi.
\196\ Id. at 175.
---------------------------------------------------------------------------

The USCCR also found several other notable aspects of subminimum
wage employment. In a chapter of its Report, the USCCR broadly reviewed
the roles of different government agencies in relationship to section
14(c). The USCCR detailed the extensive use of public funds to support
existing sheltered workshops. Among other key points, the USCCR found
that some States have used HHS and Medicaid funding to fund worker
supports necessary for those workers to access employment at the full
minimum wage; this same funding is frequently used to fund non-profit
employers who use section 14(c) certificates in other States.\197\ In
other words, in some instances, funds could be shifted from supporting
subminimum wage employment to supporting full-wage employment. Of note,
the USCCR stated that transition away from subminimum wages could be
``aided by the provision of accommodations such as a job coach, peer
support, or specialized training or other supports that allow persons
with disabilities to effectively work in integrated settings,'' and
that funds once used to fund employment under section 14(c)
certificates (such as at CRPs) could be redirected to these
purposes.\198\ The USCCR explained that ``[s]tate-level phase outs of
the use of the 14(c) program have been developed and designed for State
service providers and other stakeholders to ensure that a competitive
integrated employment model does not result in a loss of critical
services to individuals with disabilities including former 14(c)
program participants.'' \199\
---------------------------------------------------------------------------

\197\ Id. at xiv and 179-80.
\198\ Id. at xi-xii. Similarly, recent non-governmental reports
have also emphasized the role that States' and organizations'
programmatic choices play in determining whether individuals with
disabilities have opportunities for subminimum or full-wage
employment. For example, in 2024, New America released a report
analyzing States' efforts to end payment of subminimum wages. This
report examined the usage of programs that New America deemed to
support successful transitions from subminimum to full wages,
including ``Medicaid expansion, benefits counseling, and tax-
deferred savings accounts.'' The report analyzed States' efforts to
put in place supportive employment policies and programs and noted a
wide disparity of approaches among States in these areas. Among
other conclusions in the report, New America observed that States
that did not seek to limit or eliminate the use of subminimum wages
often also did not engage in as many supportive employment or
financial security initiatives. See New America, ``Pennies on the
Dollar: The Use of Subminimum Wage for Disabled Workers across the
United States: Momentum to Change the Subminimum Wage'' (2024),
https://www.newamerica.org/education-policy/reports/the-use-of-subminimum-wage-for-disabled-workers-across-the-us/.
\199\ 2020 USCCR Report at xvi.
---------------------------------------------------------------------------

As part of its review, the USCCR collected and analyzed data about
the use of section 14(c) certificates. Summarizing this analysis, the
USCCR concluded that ``the Department of Labor's enforcement data as
well as several key civil rights cases and testimony from experts show
that with regard to wage disparities, the program is rife with abuse
and difficult to administer without harming employees with
disabilities, as reflected in over 80 percent of cases investigated.''
\200\ The USCCR based this finding in part on WHD enforcement data
that, as discussed above, shows that WHD investigations of section
14(c) certificate holders reveal high rates of FLSA violations. The
USCCR made no analysis of or conclusions about the types or severity of
violations found in WHD investigations. However, the USCCR highlighted
a well-documented case involving egregious civil rights abuses
connected to an employer who had formerly held a section 14(c)
certificate, the Hill Country Farms case.\201\ In that case, both the
Department and the EEOC successfully recovered substantial damages for
the workers based on, respectively, the employer's willful violations
of the FLSA and the employer's severe abuse and discrimination in
violation of the ADA.\202\ In addition to highlighting the
``disability-based harassment, discrimination and abuse'' experienced
by these workers, the USSCR commented that ``[t]his case does not
directly address whether 14(c)'s permitting payment of subminimum wages
violates the ADA, but it does illustrate that Title I ADA violations
are possible under those circumstances.'' \203\
---------------------------------------------------------------------------

\200\ Id. at vi-vii.
\201\ In that case, Hill Country Farms, doing business as
Henry's Turkey Service, employed a group of men with intellectual
disabilities for approximately 20 years at an Iowa turkey processing
plant where the employer subjected the workers to ``abusive verbal
and physical harassment; restricted their freedom of movement; and
imposed other harsh terms and conditions of employment such as
requiring them to live in deplorable and sub-standard living
conditions, and failing to provide adequate medical care when
needed.'' U.S. Equal Emp't Opportunity Comm'n, https://www.eeoc.gov/eeoc/newsroom/release/5-1-13b.cfm (May 1, 2013). The employer also
paid only pennies per hour--$65 a month in cash wages even when
company time sheets reflected that they worked more than 40 hours a
week. U.S. Dep't of Labor, https://www.dol.gov/newsroom/releases/whd/whd20110427 (April 27, 2011).
\202\ Solis v. Hill Country Farms, 808 F. Supp. 2d 1105 (S.D.
Iowa 2011), aff'd, 469 Fed. App'x 498 (8th Cir. 2012); EEOC v. Hill
Country Farms, Inc., 899 F. Supp. 2d 827 (S.D. Iowa 2012), aff'd,
564 Fed. App'x 868 (8th Cir. 2014).
\203\ 2020 USCCR Report at 25.
---------------------------------------------------------------------------

In sum, the USCCR's qualitative and quantitative study of the use
and cessation of section 14(c) certificates--encompassing employer,
worker, family, government, and expert perspectives--substantially
aided the Department's review of whether section 14(c) certificates are
still necessary to prevent curtailment of employment opportunities for
workers with disabilities. Furthermore, given this body of evidence,
the Department finds the USCCR's conclusion that subminimum wages are
no longer necessary to be compelling.
ii. National Council on Disability Reports Relevant to Payments of
Subminimum Wages
The National Council on Disability (NCD) is an independent Federal
agency charged with advising Congress, the President, and other
entities on policy related to people with disabilities. NCD has issued
several reports related to section 14(c), including two reports that
specifically favor the cessation of subminimum wages, finding that such
practices are not necessary to prevent curtailment of opportunities for
employment of individuals with disabilities. As with the USCCR report,
the NCD's thorough analysis, spanning nearly a decade, undergirds the
Department's finding that subminimum wages are no longer necessary to
prevent curtailment of employment opportunities for individuals with
disabilities.
In 2012, the NCD issued a report recommending that section 14(c) be
phased out.\204\ In this report, published prior to the passage of
WIOA, NCD recommended many reforms similar to those that were
subsequently enacted, including ``mandatory information sharing to
workers,'' and expansion of supported education and postsecondary
education and training for individuals

[[Page 96485]]

with disabilities.\205\ NCD recommended that section 14(c) ``should be
phased out gradually to provide adequate time for transition to new
alternatives.'' \206\ To facilitate that proposed phaseout, NCD
outlined in their 2012 report a ``comprehensive system of support that
will result in greater opportunities for people with disabilities.''
\207\
---------------------------------------------------------------------------

\204\ 2012 NCD Report.
\205\ Id. at 10.
\206\ Id. at 18.
\207\ Id.
---------------------------------------------------------------------------

Among its key findings, the 2012 NCD report noted that work in
subminimum wage settings generally did not provide a stepping stone to
full-wage work but was instead almost always an end-placement. As NCD
observed citing back to a 2001 GAO report, ``Sheltered workshops are
ineffective at transitioning people with disabilities to integrated
employment. According to the 2001 investigation by [GAO] into the 14(c)
program, only approximately 5 percent of sheltered workshop employees
left to take a job in the community.'' \208\
---------------------------------------------------------------------------

\208\ Id. at 10.
---------------------------------------------------------------------------

In a follow-up 2018 report, NCD again focused on the issue of
whether subminimum wages were necessary to secure employment
opportunities for individuals with disabilities. NCD reiterated its
recommendation to phase out the use of section 14(c) certificates,
labelling continued certificate issuance as ``even more evidently
outdated and ineffective than it was six years ago.'' \209\ NCD termed
the continued issuance of section 14(c) certificates a form of
``economic disenfranchisement'' of ``great significance to the overall
health of our nation's economy and society.'' \210\ The report found
that the ``landscape of law and policy has been considerably expanded''
to allow transitions from sheltered workshops into competitive
integrated employment. NCD found that, despite these advances, those
working under section 14(c) certificates remain ``confined'' to
``sheltered workshops where they perform manual tasks that are often
mismatched with their particular strengths and also with their
preferences and interests as employees . . . even though new
technologies, services, and supports exist that would allow them to
succeed in competitive integrated employment.'' \211\ The NCD report,
echoing the Department's findings discussed above in its report to
Congress nearly 50 years earlier, posited that the ``sheltered workshop
business model, itself, rather than the impact of disability on
productivity, incentivizes low wages and correspondingly
disincentivizes reasonable accommodations, better job matches, and more
integrated employment services.'' \212\
---------------------------------------------------------------------------

\209\ Nat'l Council on Disability, ``National Disability
Employment Policy from the New Deal to the Real Deal: Joining the
Industries of the Future,'' Letter of Transmittal, 2018, https://www.ncd.gov/report/national-disability-employment-policy-from-the-new-deal-to-the-real-deal-joining-the-industries-of-the-future/
(2018 New Deal NCD Report).
\210\ Id. at 12.
\211\ Id. at 13-14.
\212\ Id. at 53.
---------------------------------------------------------------------------

In its 2018 report, NCD described ``successful examples of
transformation from six States [of organizations] where providers have
transitioned services from sheltered workshops that paid 14(c)
subminimum wages to rival models of individualized supported and
customized employment services . . . .'' \213\ In reviewing these
examples, NCD analyzed ``key success factors'' in each of these
organization case studies, including factors such as the presence of
staff versed in ``employment first'' strategies, a strong
organizational commitment to inclusion of individuals with disabilities
in socially valued roles, collaboration with supported employment
organizations, high expectations for outcomes, the fostering of an
incentivizing link between an individual's work performance and ``a
paycheck,'' a business-oriented emphasis on placing employees where
they will meet employers' real needs, and fostering the self-advocacy
skills of individuals with disabilities.\214\
---------------------------------------------------------------------------

\213\ Id. at Transmittal Letter.
\214\ Id. at 66, 70, 73-74, 78, 83.
---------------------------------------------------------------------------

NCD also made site visits and highlighted the stories of
individuals. In one example, NCD wrote ``[a] person with I/DD who was
accused of being a `slow worker' in the sheltered workshop became `a
raging success' working competitively in a family restaurant. He was
better matched, and therefore performed better, in a job where he could
interact with customers.'' NCD also described, in specific detail, the
methodologies of agencies in several States providing supportive
employment services, such as individualized job matching and community
networking strategies.\215\ NCD noted that ``families' viewpoints often
change from hesitance about working in the community to full support
after they see how successful a family member can be in a typical work
setting, and how that success can run to other domains of life.'' \216\
---------------------------------------------------------------------------

\215\ Id.
\216\ Id. at 76.
---------------------------------------------------------------------------

Based on its review, NCD made several recommendations in its 2018
report. For example, NCD recommended that disability policy should
focus on ``increased capacity for sustained funding for integrated
supported and customized employment,'' improving technical assistance,
benefits counseling, business engagement strategies, and developing
resources and innovations to allow people with disabilities to do
current and future available jobs.\217\ In conclusion, NCD recommended
current certificate holders should be given time to phase out
subminimum and sub-prevailing wages, while the Department's issuance of
``new'' certificates should immediately cease.\218\
---------------------------------------------------------------------------

\217\ Id. at 14.
\218\ Id. at 99-100.
---------------------------------------------------------------------------

In an additional 2018 report entitled ``National Disability Policy:
A Progress Report,'' (2018 NCD Progress Report), NCD also extensively
reviewed WHD's administration and enforcement efforts under section
14(c).\219\ Among other findings, NCD noted that WHD had recognized the
need to focus enforcement efforts on areas ``where large numbers of
vulnerable workers are found,'' such as workers employed by holders of
section 14(c) certificates.\220\ As part of this effort, NCD reported
that WHD conducted extensive investigations of such employers between
2008 and 2017. During that period, as also discussed in section II.D.1
(``Administration and Enforcement of Certificates''), NCD ``documented
`a high prevalence' of FLSA and other violations among the 14(c)
certificate holders investigated. In many instances, employers were
unaware of the requirements of Section 14(c) or did not implement the
requirements appropriately.'' \221\
---------------------------------------------------------------------------

\219\ 2018 NCD Progress Report.
\220\ Id. at 68-69.
\221\ Id. at 69-70.
---------------------------------------------------------------------------

The 2018 NCD Progress Report also highlighted the intersection
between section 14(c) and anti-discrimination civil rights protections.
This report, among many other recommendations, called for more
collaboration between WHD and civil rights enforcement agencies; as an
example of this type of activity, NCD highlighted that as a result of a
WHD investigation of a certificate holder in Rhode Island, WHD made a
referral to DOJ's Civil Rights Division. DOJ then found ``unnecessary
segregation of adults and serious risks of unnecessary segregation of
students in violation of the ADA and the U.S. Supreme Court Olmstead
decision,'' resulting in a court ordered settlement agreement with the
State of Rhode Island and the city of Providence.\222\
---------------------------------------------------------------------------

\222\ Id. at 74.

---------------------------------------------------------------------------

[[Page 96486]]

The Department considers the NCD reports insightful in analyzing
changed employment opportunities for individuals with disabilities,
especially as the NCD documented the impact of these changes in reports
spanning several years. Furthermore, it is relevant that NCD not only
found that subminimum wage employment is unnecessary given the
alternatives, but also put forward evidence that many employees working
under section 14(c) certificates may, despite positive intentions,
experience negative outcomes.
iii. Report of the Advisory Committee on Increasing Competitive
Integrated Employment for Individuals With Disabilities
In 2014, the Advisory Committee on Increasing Competitive
Integrated Employment for Individuals with Disabilities (Advisory
Committee) was established under section 609 of the Rehabilitation Act,
as amended by section 461 of the WIOA.\223\ The Advisory Committee was
created to advise the Secretary and Congress in three areas: (1) ways
to increase competitive integrated employment opportunities for
individuals with intellectual or developmental disabilities or other
individuals with significant disabilities; (2) the use of the section
14(c) certificate program for the employment of individuals with I/DD
or other individuals with significant disabilities; and (3) ways to
improve oversight of the use of such certificates.\224\ The Advisory
Committee was established according to the provisions of the Federal
Advisory Committee Act, which helps ensure the independent nature of
the Advisory Committee in providing advice and recommendations to the
Secretary. Especially as Congress specifically created the Advisory
Committee to independently study questions closely related to the
Department's charge to determine whether continued issuance of
certificates is necessary, the Department gives weight to the
Committee's relevant findings.
---------------------------------------------------------------------------

\223\ 29 U.S.C. 795n.
\224\ Id.
---------------------------------------------------------------------------

Members of the Advisory Committee included Federal members,\225\
self-advocates for individuals with I/DD, providers of employment
services, representatives of national disability advocacy organizations
for adults with I/DD, academic experts, representatives from the
employer community or national employer organizations, and other
individuals or representatives with expertise on increase opportunities
for CIE for individuals with disabilities. The Advisory Committee
worked for 2 years on its study of the topics mentioned above. In
evaluating these issues, the Advisory Committee held 10 public meetings
during which individuals and organizations provided testimony and
public comments. The Advisory Committee also received ``more than 2,000
letters, emails and personal video messages from people with
disabilities, and other citizens and organizations across the nation
that helped inform the work of the committee and its final
recommendations.'' \226\
---------------------------------------------------------------------------

\225\ The Advisory Committee's Federal membership consisted of
the following agency leaders or their designee: Department of
Labor's Assistant Secretary of ODEP, the Assistant Secretary for
Employment and Training Administration (ETA), and the WHD
Administrator; the HHS Commissioner of the Administration on
Intellectual and Developmental Disabilities; CMS Director; the
Commissioner of the Social Security Administration (SSA) and the
Department of Education's RSA Commissioner.
\226\ Advisory Committee on Increasing Competitive Integrated
Employment for Individuals with Disabilities, ``Final Report,''
2016, at p. iv, https://www.dol.gov/sites/dolgov/files/odep/topics/pdf/acicieid_final_report_9-8-16.pdf.
---------------------------------------------------------------------------

As the culmination of these efforts, in September 2016, the
Advisory Committee issued a detailed report (Committee Report) that
included six chapters discussing that increasing CIE will require
substantial capacity building, including for youth, in the marketplace,
and within the Federal government itself.\227\ The Advisory Committee,
among other conclusions, recommended that Congress repeal section 14(c)
through a multi-year phaseout.\228\ The Advisory Committee further
recommended that WHD ``engage in stronger enforcement'' of section
14(c) certificates and require both States and individual applicants to
submit more information (including information about States' and
applicants' efforts to work towards alternatives to the payment of
subminimum wages) to show that the issuance of certificates would be
necessary to prevent the curtailment of employment opportunities for
individuals with disabilities.\229\
---------------------------------------------------------------------------

\227\ Id. at 1-4.
\228\ Id. at 2.
\229\ Id. at 30.
---------------------------------------------------------------------------

The Advisory Committee observed that ``one by-product of subminimum
wage employment is a culture with a low expectation for competitive
integrated employment.'' \230\ The Committee further concluded that the
``current widespread practice of paying workers subminimum wages, based
on assumptions that individuals with disabilities cannot work in
typical jobs, or on assumptions about the unavailability of alternative
work opportunities, is antithetical to the intent of modern federal
policy and law.'' \231\ The Advisory Committee explained that modern
Federal policy and laws are ``based on the assumption that all
individuals with disabilities are capable of, and have a right to,
CIE.'' \232\
---------------------------------------------------------------------------

\230\ Id. at 28.
\231\ Id. at 29.
\232\ Id.
---------------------------------------------------------------------------

The Advisory Committee further recommended that vocational
rehabilitation services for individuals with disabilities focus more on
practices demonstrated to produce positive outcomes in full-wage
employment. For example, the Advisory Committee explained that research
shows providing experience in community-based workplaces performing
actual work tasks is a superior training strategy compared with
providing ``work readiness training'' in sheltered workshops.\233\
Similarly, the Advisory Committee made recommendations regarding
supportive employment practices based on its finding of the importance
of factors such as ``work experience and [competitive integrated
employment] during secondary school years'' and family expectations
about employment.\234\
---------------------------------------------------------------------------

\233\ Id. at 10.
\234\ Id. at 21. The Department notes that in addition to the
agency reports discussed herein, in 2018, the minority staff of the
U.S. Senate Committee on Health, Education, Labor, and Pensions
reached a similar conclusion that the evidence does not support the
continued payment of subminimum wages and the Department should no
longer issue new section 14(c) certificates. Minority Staff of S.
Comm. on Health, Educ., Labor, and Pensions, ``Disability
Employment: Outdated Laws Leave People with Disabilities Behind in
Today's Economy,'' Comm. Print 2018, https://web.archive.org/web/20181224100838/https://www.murray.senate.gov/public/_cache/files/84084732-e011-470a-b246-1cdab87755c3/staff-report-on-employment-for-people-with-disabilities-10-29-2018-pm-.pdf.
---------------------------------------------------------------------------

As with the other government oversight reports discussed above, the
Department finds the thorough conclusions of the Advisory Committee to
be highly relevant to the Department's analysis, and, in particular,
the Department notes the import of the Committee's congressional
mandate. Specifically, the Advisory Committee's conclusions regarding
the availability of alternatives to section 14(c) certificates informed
the development of this proposed rule; the Committee Report provides a
picture of the employment landscape for workers with disabilities that
does not rely upon subminimum wages.

[[Page 96487]]

iv. U.S. Government Accountability Office Reports
Unlike the government agency reports detailed above, GAO has not
directly addressed the question of whether it is still necessary to
permit payment of subminimum wages to promote employment opportunities
for individuals with disabilities. However, GAO has issued multiple
reports addressing various aspects of the use and operation of section
14(c) certificates, and in doing so, has generated significant data and
analysis relevant to this proposed rule.\235\ The Department found this
data and analysis to be helpful in its review of section 14(c) and
development of this NPRM.
---------------------------------------------------------------------------

\235\ Additional GAO reports include GAO-81-116519, ``Stronger
Fed. Efforts Needed for Providing Emp't Opportunities and Enforcing
Labor Standards in Sheltered Workshops'' (1981), https://www.gao.gov/products/hrd-81-99; GAO-01-886, ``Special Minimum Wage
Program: Centers Offer Emp't and Support Servs. to Workers with
Disabilities, But Labor Should Improve Oversight'' (2001), https://www.gao.gov/products/gao-01-886; and GAO-12-594, ``Students with
Disabilities: Better Fed. Coordination Could Lessen Challenges in
the Transition from High School'' (2012), https://www.gao.gov/products/gao-12-594.
---------------------------------------------------------------------------

In 2023, GAO issued a report addressing the Department's oversight
of employers using section 14(c) certificates. In this report, in
addition to its primary recommendations regarding section 14(c)
certificate processing, GAO emphasized that participation of employers
using section 14(c) certificates has markedly decreased, tracking a
steady decline over the decade from 2010 to 2019.\236\ GAO attributed
this decline to changing Federal laws and policies, changing State
policies (such as state-level phaseouts of the use of subminimum
wages), and shifts in employer and worker views.\237\
---------------------------------------------------------------------------

\236\ See 2023 GAO Report.
\237\ Id. at 14-15.
---------------------------------------------------------------------------

In the 2023 report, GAO also published important demographic and
statistical data about employers holding section 14(c) certificates and
the employees they were paying subminimum wages. GAO confirmed that,
currently, CRPs are the ``vast majority of 14(c) employers,'' and that
``almost all 14(c) workers had an intellectual or developmental
disability.'' \238\ GAO estimated that approximately 70 percent of
section 14(c) workers were 25-54 years old, with approximately 26
percent 55 years or older, and only approximately 4 percent 18-24 years
old.\239\ As already noted above, GAO found that the majority of
workers paid under section 14(c) certificates in the data they analyzed
were paid less than $3.50 per hour, approximately 14 percent were paid
less than one dollar per hour, and approximately 5 percent were paid
less than 25 cents per hour.\240\ GAO also found that ``few 14(c)
workers'' engaged in competitive employment, including being paid at
least minimum wage in an integrated work setting.\241\
---------------------------------------------------------------------------

\238\ Id. at 2.
\239\ Id. at 26.
\240\ Id at 17.
\241\ Id.
---------------------------------------------------------------------------

Additionally, in 2021, GAO issued a report on ``Factors Influencing
the Transition of Individuals with Disabilities to Competitive
Integrated Employment.'' \242\ GAO identified 32 factors that may
influence transitions away from subminimum wages to competitive
integrated employment.\243\ GAO did not find a consensus across the
individuals it interviewed about the most significant factors
influencing ``14(c)-to-CIE transition.'' \244\ Instead, ``each of the
32 factors was identified by at least one interviewee to be among the
most important in influencing an individual's transition to CIE.''
\245\ Additionally, many interviewees emphasized that the factors were
heavily inter-related. GAO also emphasized the potential impact of the
COVID-19 pandemic, noting uncertainty about such impacts at the time of
the report's publication.\246\ As a backdrop to its study of factors
that might influence individuals' transition to CIE, GAO noted
legislative changes--such as WIOA--that promote access to employment at
full wages.\247\ Additionally, GAO highlighted a ``shift in federal and
state priorities'' away from reliance on section 14(c), and noted that
``at least 40 states have adopted legislation or state policy stating
that integrated employment in the community is the first and preferred
option for people with disabilities . . . .'' \248\
---------------------------------------------------------------------------

\242\ 2021 GAO Report.
\243\ Id. at 13.
\244\ Id. at 13.
\245\ Id.
\246\ Id. at 2.
\247\ Id. at 1.
\248\ Id. at 1-2.
---------------------------------------------------------------------------

GAO's interviews with employees identified several factors that
inhibited transitions to CIE, including the individuals' age, concern
for maintaining benefits, desire for a social community, concern for
safety of non-sheltered working environment, and ``views'' about an
individuals' skills.\249\ Observing that family members' judgments were
often decisive even when differing from the preferences of employees
themselves, GAO recounted that ``one participant told us that family
members may not see the individual's potential for accomplishing work
because they remember times when the person struggled.'' \250\
Interviewees also noted that ``people who have been exposed to CIE,
including through real-world, authentic experiences, almost always
choose CIE . . . because they have a more accurate perception of what
it entails.'' \251\
---------------------------------------------------------------------------

\249\ Id. at 14.
\250\ Id. at 19.
\251\ Id.
---------------------------------------------------------------------------

Regarding the views of employers, GAO listed factors that might
influence a section 14(c) certificate holder's decision to transition
away from subminimum wages, a process GAO referred to as ``provider
transformation.'' \252\ GAO found that the factors most relevant to
whether section 14(c) holders transitioned from subminimum wages to CIE
were, in addition to resource-related factors, ``14(c) certificate
holder leadership views, 14(c) certificate holder's use of person-
centered approach to employment planning, 14(c) certificate holder's
mission or business model, 14(c) certificate holder's access to
training and technical assistance, and 14(c) certificate holder's
provision of ongoing supports for CIE.'' \253\
---------------------------------------------------------------------------

\252\ Id.
\253\ Id. at 20.
---------------------------------------------------------------------------

Finally, GAO noted several policy and economic factors that could
influence transition away from subminimum wages. Among these factors,
GAO identified State resources supporting CIE, State policies
``allowing public benefits to continue while working,'' ``federal
support for 14(c) employment versus CIE,'' the overall unemployment
rate, available transportation, and available employment services.\254\
---------------------------------------------------------------------------

\254\ Id. at 25-27.
---------------------------------------------------------------------------

In sum, while GAO's reports did not directly address whether
section 14(c) certificates were necessary to prevent curtailment of
opportunities for employment, the Department found them relevant in
several ways, as reflected by the information discussed above. In
particular, GAO's 2023 report provided additional insight into the
demographics of the workers with disabilities currently working under
section 14(c) certificates while GAO's 2021 report provided a better
understanding of many of the challenges potentially faced by employers
in transitioning from section 14(c) subminimum wage employment to an
alternative model. The Department's proposed phaseout approach,
discussed in greater detail below, is intended to

[[Page 96488]]

mitigate against such potential transition difficulties.
2. Non-Governmental Assessments of Certificate Issuance Under Section
14(c)
In recent years, not-for-profit, academic, and advocacy
organizations have also issued many reports and shared public comments
on the payment of subminimum wages to individuals with
disabilities.\255\ This proposed rule does not include a complete
survey of these reports and viewpoints. Rather, the reports noted here
are a sampling of non-governmental views on subminimum wage payments
under section 14(c). The Department notes that these reports reflect a
wide range of the views on the use of section 14(c) certificates and
subminimum wage employment of workers with disabilities.
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\255\ See, e.g., Nat'l Fed'n of the Blind, Letter to the
Secretary of Labor, https://nfb.org/sites/nfb.org/files/2021-06/Letter%20to%20Secretary%20Walsh%20regarding%2014c.pdf (June 21,
2021) (``We believe Section 14(c) of the FLSA is a discriminatory
practice and we have long been fighting to end it . . . 14(c)
certificates have been a source of systemic abuse and corruption . .
. [and] can no longer be justified, even under the FLSA's own terms
. . .''); Minn. Disability Law Ctr., ``Ending the Subminimum Wage in
Minnesota: A Report from the Minnesota Disability Law Center,''
https://mylegalaid.org/wp-content/uploads/2024/03/Ending-the-Subminimum-Wage-in-Minnesota_October-2022_Text-Version.pdf (October
2022) (among other findings, recommending the State government
``[pa]ss legislation to phase out the payment of subminimum wages in
Minnesota by a specific date with funding to implement the phase
out.''); Association of People Supporting Employment First (APSE),
``Trends and Current Status of 14(c),'' https://apse.org/wp-content/uploads/2021/10/10_20_21-APSE-14c-Update-REV.pdf (October 2021)
(presenting data in support of APSE's call for complete phase out of
the use of 14(c) certificates); Jean Winsor, Cady Landa, Cady,
Andrew Perumal, and John Butterworth, ``The Power of Disability
Employment: The Impact to Arizona's Economy,'' ThinkWork!, https://www.thinkwork.org/sites/default/files/files/Arizona_whole%20report_Final.pdf (October 2019) (finding that
increasing the number of workers with disabilities will positively
impact Arizona's economy).
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In general, most (but not all) organizations that advocate on
behalf of individuals with disabilities strongly oppose reliance on the
payment of subminimum wages to generate employment opportunities for
individuals with disabilities. For example, in 2011, the National
Disability Rights Network (NDRN),\256\ a non-profit membership
organization for the federally mandated State Protection and Advocacy
Systems and Client Assistance Programs for individuals with
disabilities, issued a report detailing their review of ``segregated
work, sheltered environments, and the sub-minimum wage to determine
whether they meet the needs of people with disabilities and whether
they comply with federal law.'' \257\ NDRN found that workers with
disabilities in ``sheltered workshops'' using section 14(c)
certificates are often ``stuck'' indefinitely, without a meaningful
option of other employment, because workers under section 14(c)
certificates are not provided with effective, transferable skills
training in such settings.\258\ Among many recommendations to Congress,
States, and Federal agencies, NDRN called for the cessation of section
14(c) certificate issuance.\259\ NDRN explained that ``[i]n the best of
situations, sheltered environments, segregated work, and the sub-
minimum wage does not truly provide a meaningful experience for workers
with disabilities. Workshop tasks are often menial and repetitive, the
environment can be isolating, and the pay is often well below the
Federal minimum wage. In the worst situations, the segregated and
sheltered nature of the lives of workers with disabilities leaves them
vulnerable to severe abuse and neglect.'' \260\
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\256\ On December 13, 2021, the Department's WHD and NDRN
renewed a memorandum of understanding (MOU) establishing a
collaborative relationship to promote compliance with laws of common
concern. See https://www.dol.gov/agencies/whd/workers-with-disabilities/national-disability-rights-network-mou. This MOU built
upon the foundation established by a prior MOU entered into between
WHD and NDRN in December 2015. Although WHD and NDRN collaborate on
certain enforcement and training-related matters, the Department did
not independently consult with NDRN about the development of this
proposed rule.
\257\ Nat'l Disability Rights Network, ``Segregated and
Exploited: The Failure of the Disability Service System to Provide
Quality Work,'' 2011, A Letter from the Executive Director, https://www.ndrn.org/wp-content/uploads/2019/03/Segregated-and-Exploited.pdf
at 7.
\258\ Id. at 32-33.
\259\ Id. at 46.
\260\ Id. at 7.
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Conversely, some organizations and individuals vigorously support
the continued issuance of section 14(c) certificates. For example, the
non-profit organization A Voice of Reason (VOR), which is a grassroots
advocacy organization that consists primarily of families of
individuals with I/DD, posted a public letter in 2021 opposing the
elimination of section 14(c) certificates. In the letter, VOR stated
that it is important to preserve ``opportunities for those who can
succeed in competitive integrated employment as well as those who
cannot.'' \261\ VOR elaborated that section 14(c) gives ``thousands of
individuals with I/DD the opportunity to work in a specialized
environment that nurtures them and fits their abilities.'' \262\ VOR
asserted that for these individuals ``[w]ithout 14(c) certificates,
they would lose any opportunity to work.'' \263\ The Department
received similar feedback in its listening sessions from parents and
other proponents of section 14(c).
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\261\ A Voice of Reason, ``In Support of Protecting Vocational
Centers and 14(c) Wage Certificates,'' https://vor.net/images/stories/2020-2021/VOR_-_In_Support_of_Protecting_Vocational_Centers_and_14c_Wage_Certificates_2-4-21.pdf; see also Coalition for Preserving 14(c) White Paper
(2022), https://employmentchoice.org/protecting-employment-for-individuals-with-i-dd-coalition-white-paper-2022/.
\262\ Id.
\263\ Id.
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While acknowledging dissenting views, the Department relies on the
significant quantitative and qualitative evidence discussed throughout
these third-party reports that supports the preliminary conclusion that
section 14(c) certificates are no longer necessary to prevent
curtailment of opportunities for employment for workers with
disabilities. The Department welcomes comments on its review and
analysis of the reports mentioned in this section or other recent
reports that consider the role of section 14(c) certificates and
subminimum wages in the employment of workers with disabilities.

D. State Elimination of Subminimum Wages and Other Relevant Data

1. State Elimination of Payments of Subminimum Wages to Individuals
With Disabilities
An increasing number of States and localities \264\ have
prohibited, limited, or plan to phase out the payment of subminimum
wages to workers with disabilities, suggesting that these States and
localities have reached the conclusion that such certificates are no
longer necessary or appropriate in their jurisdictions.\265\
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\264\ At the local level, Chicago, Seattle, Denver, and Reno are
among the localities that have passed city-specific bans on the
payment of subminimum wages. See APSE ``Trends and Current Status of
14(c)'' at 8 (July 2023), https://apse.org/wp-content/uploads/2023/09/APSE-14c-Update-REV-0723.pdf.
\265\ It bears mentioning that there have also been litigation
and consent decrees aimed at the enforcement of Olmstead's
integration mandates that have resulted in States eliminating the
payment of subminimum wages. For example, as discussed in greater
detail in section III above, following a settlement agreement (see
Settlement Agreement, Lane v. Brown,, No. 3:12-cv-00138, https://www.justice.gov/media/1237561/dl), Oregon transitioned many workers
from sheltered workshops to CIE. An important part of Oregon's
progress was investing in the employment support agencies to learn
how to properly implement CIE programs. ``Oregon's efforts have
resulted in the state being recognized in 2020 by the U.S.
Commission on Civil Rights as a leader in eliminating subminimum
wage and in transitioning to integrated employment.'' Or. Dep't Hum.
Servs., ``Lane v. Brown Settlement Agreement Report,'' at 2 (Jan.
2022), https://www.oregon.gov/odhs/employment-first/Documents/lane-v-brown-settlement-message-2022-06-21.pdf.

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[[Page 96489]]

i. Legal Developments at the State Level Eliminating or Curtailing
Subminimum Wage Payments
A number of States have statutes, regulations, or other guidance
regarding the payment of subminimum wages to workers with disabilities,
further narrowing the universe of workers being paid below the Federal
minimum wage. Significantly, nearly one-third of States have already
passed laws entirely prohibiting (or planning to prohibit through a
phase out) the payment of subminimum wages to workers with
disabilities. To date, Alaska,\266\ California,\267\ Colorado,\268\
Delaware,\269\ Hawaii,\270\ Maine,\271\ Maryland,\272\ Nevada,\273\ New
Hampshire,\274\ Oregon,\275\ Rhode Island,\276\ South Carolina,\277\
Tennessee,\278\ Virginia,\279\ and Washington \280\ have all passed
legislation or executive orders prohibiting (or planning to prohibit
through a phase out) the payment of subminimum wages to at least some
workers with disabilities in their State. These bills were often passed
with bipartisan support and with the support of broad coalitions of
stakeholders. Several additional States are considering similar
legislation.\281\ Other States have limited or restrained the payment
of subminimum wages in various ways, such as Texas (prohibiting payment
of subminimum wages by CRPs participating in State use contracts, with
limited exceptions),\282\ Illinois (executive order prohibiting payment
of subminimum wages for work performed by employees of State not-for-
profit vendors, including subcontractors),\283\ Kansas (limiting
payment of subminimum wages to no less than 85 percent of the State
minimum wage),\284\ Minnesota (limiting payments to no less than 50
percent of the State minimum wage, with some exceptions) and New Mexico
(limiting payment of subminimum wages to no less than 50 percent of the
State minimum wage),\285\ West Virginia, Nebraska, and New York
(subminimum wages only permissible in certain

[[Page 96490]]

settings or by certain employers),\286\ and Arizona (pursuant to a
policy statement, an employer must pay an ``employee'' with a
disability at least the State minimum wage; however under Arizona's
guidance, a worker in a CRP, vocational training program or service
recipient program may not be an employee in certain circumstances under
Arizona state law).\287\
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\266\ As of December 2022, no employer in Alaska is permitted to
pay an individual with a disability less than the State minimum
wage, due to the repeal of the State statute which previously
allowed for the use of subminimum wage certificates. See Alaska
Stat. Ann. sec. 23.10.070 (2022).
\267\ In 2021, California enacted Senate Bill 639, implementing
a multi-year phaseout of the use of licenses authorizing a
subminimum wage. See Cal. Lab. Code. sec. 1191 (2022).
\268\ On June 29, 2021, Colorado enacted Senate Bill 21-039,
which was designed to phase out the use of subminimum wages for
employees with disabilities by 2025. See Colo. Rev. Stat. Ann. sec.
8-6-108.7 (2021). As of July 2023, 2 years sooner than initially
contemplated by the legislation, employers in Colorado are
prohibited from paying an individual with a disability less than the
State minimum wage. See Press Release, Polis-Primavera
Administration Eliminates Subminimum Wages for People with
Disabilities Two Years Ahead of Schedule (Oct. 31, 2023), https://www.colorado.gov/governor/news/10901-polis-primavera-administration-eliminates-subminimum-wages-people-disabilities-two-years.
\269\ In 2021, Delaware enacted the Jamie Wolfe Employment Act,
which repealed the State statutory provision permitting the payment
of subminimum wages and prohibited the payment of subminimum wages
after January 31, 2024. See Del. Code. Ann. tit. 19 sec. 905 (2024);
Del. Code. Ann. tit. 19 sec. 752 (2024).
\270\ In 2021, Hawaii enacted Senate Bill 793, which immediately
repealed the authority of the Director of Labor and Industrial
Relations to permit the employment of individuals with disabilities
at a subminimum wage. See Hawaii Rev. Stat. Ann. sec. 387-9 (2021).
\271\ In 2020, Maine enacted Legislative Document 1874, which,
effective June 16, 2020, amended its minimum wage law to state that
the Director of Labor Standards ``may not'' issue a certificate
authorizing an employer to pay a subminimum wage to an employee with
a disability. See Me. Rev. Stat. Ann. tit. 26, sec. 666 (2020).
\272\ In 2016, Maryland enacted the Ken Capone Equal Employment
Act, which amended its minimum wage law to abolish the payment of
subminimum wages to persons with disabilities after October 1, 2020.
See Md. Code Ann., Lab. & Empl. sec. 3-414 (2016).
\273\ In 2023, Nevada enacted Assembly Bill 259, which phases
out the use subminimum wages in Nevada by January 1, 2028, see
Assemb. 259, 82d Sess. sec. 12 (Nev. 2023), and prohibits providers
of jobs and training services from entering into new contracts that
included the payment of subminimum wages on or after January 1,
2025. See id., sec. 8 (amending Nev. Rev. Stat. secs. 608.250 and
435.305).
\274\ In 2015, New Hampshire enacted Senate Bill 47, which
generally prohibited the payment of subminimum wages to workers with
disabilities as of July 6, 2015. See N.H. Rev. Stat. Ann. sec.
279:22 (2024).
\275\ In 2019, Oregon enacted Senate Bill 494, which banned the
payment of subminimum wages to workers with disabilities after June
30, 2023. See Or. Rev. Stat. Ann. sec. 653.033 (2019).
\276\ In 2022, Rhode Island enacted Senate Bill 2242, which
banned the payment of subminimum wages to workers with disabilities
after June 15, 2022. See R.I. Gen. Laws Ann. sec. 28-12-9 (2022).
\277\ In 2022, South Carolina enacted Senate Bill 533, which
phases out the use of section 14(c) certificates which allow the
payment of subminimum wages in the State by August 1, 2024. See S.C.
Code Ann. sec. 41-6-10 (2022); 2022 S.C. Act No. 209, sec. 3(C)(1).
\278\ In 2022, Tennessee enacted the Tennessee Integrated and
Meaningful Employment Act, which states that, effective July 1,
2022, Tennessee employers must pay at least the Federal minimum wage
to all workers with disabilities. See Tenn. Code Ann. sec. 50-2-114
(a).
\279\ In 2023, Virginia enacted House Bill 1924 to phase out the
use of the subminimum wages by 2030. As part of the phase out, no
new authorizations were permitted after July 1, 2023; however, any
employer that was certified prior to July 1, 2023, is permitted to
continue paying employees pursuant to section 14(c) until 2030. See
Va. Code Ann. sec. 40.1-28.9(A)(9) (2023)
\280\ In 2021, Washington enacted Senate Bill 5284 which phases
out the use of subminimum wage certificates for private employers.
See Wash. Rev. Code Ann. sec. 49.46.170(2) (2021). For private
employers, no new certificates were issued after July 31, 2023, and
the last potential date a certificate can remain valid under the law
is July 30, 2026. See id. sec 49.46.170(2)-(3); see also Wash. Dep't
of Labor & Indus. & Wash. Dep't of Social & Health Servs.,
``Subminimum Wage Certificates'' at 2 (2023), https://www.lni.wa.gov/agency/_docs/2023SubMinimumWageCertificatesReport.pdf. As to State employers,
``no state agency'' is permitted to ``employ an individual to work
under a special certificate . . . for the employment of individuals
with disabilities at less than the minimum wage'' as of July 1,
2020. Id. sec. 49.46.170(1) (2021). Any certificate issued to a
State agency expired on June 30, 2020. Id.
\281\ For example, House Bill 793 in Illinois, which would ban
the payment of subminimum wages to workers with disabilities by
2030, passed the Illinois House in May 2024 and is currently pending
in the Illinois Senate. See Illinois General Assembly-Bill Status,
https://ilga.gov/legislation/billstatus.asp?DocNum=793&GAID=17&GA=103&DocTypeID=HB&LegID=142668&SessionID=112.
\282\ In 2019, Texas enacted Senate Bill 753, which ended the
use of subminimum wages in its State Use Program. See Tex. Hum. Res.
Code Ann. sec. 122.0076(a) (2019). A community rehabilitation
program may not participate in the program administered under this
chapter ``unless each worker with a disability employed by the
program is paid at least the federal minimum wage . . .''; the
provision, however, contains an exceptions clause. See id. sec.
122.0076(a), (b).
\283\ On October 4, 2021, Illinois Governor JB Pritzker issued
Executive Order 2021-26, which required that contracts and sub-
contracts with State agencies that participate in the State Use
Program must pay ``no less than the applicable local, if higher, or
Illinois minimum wage for all employees performing work on the
contract, notwithstanding any provision that would permit payment of
a lower wage rate.'' See Ill. Exec. Order 2021-26, https://www.illinois.gov/government/executive-orders/executive-order.executive-order-number-26.2021.html.
\284\ See Kan. Admin. Regs. 49-31-5(b) (2024). Additionally, on
February 8, 2024, Kansas enacted the Disability Employment Act,
which incentivizes employers to pay employees with disabilities the
State minimum wage. The Act established the ``sheltered workshop
transition fund,'' in order to ``facilitate[ ] transitions by Kansas
sheltered workshop employers away from employing individuals with
disabilities under a certificate issued by the United States
Secretary of Labor under 29 U.S.C. [ ] 214(c) and toward paying all
such employees at least the minimum wage,'' by providing matching
grants to sheltered workshops that commit to paying at least the
minimum wage. See 2024 Kan. Sess. Laws Ch. 1, sec. 2(a). The Act
also provides a tax incentive for purchases of goods and services
from ``qualified vendors,'' which include vendors that do ``not
employ individuals under a certificate issued by the United States
Secretary of Labor under 29 U.S.C. [ ] 214(c).'' Kan. Stat. Ann sec.
79-32,273(b) & (e)(1)(A)(iv) (2024).
\285\ See Minn. Stat. Ann. sec. 177.28, subd. 5 (2007); Minn. R.
5200.0030 (2008); N.M. Stat. Ann. sec. 50-4-23. Additionally, from
2021-24 Minnesota established a task force ``to develop a plan and
make recommendations to phase out payment of subminimum wages to
people with disabilities on or before August 1, 2025.'' See 2021
Minn. Laws, First Spec. Sess., ch. 7, art. 17, sec. 14.
\286\ W. Va. Code Ann. sec. 21-5C-1(f)(8) (limited to non-profit
sheltered workshops); Neb. Rev. Stat. Ann. sec. 48-1202(3)(i)
(limited to rehabilitation programs receiving public funding); N.Y.
Lab. Law secs. 651(5)(i); 655(5)(c)(2) (limited to charitable,
educational, or religious employers).
\287\ Indus. Comm'n of Ariz., ``Substantive Policy Statement
Regarding Application of Arizona Minimum Wage Act to Work Activities
Performed by Individuals with Disabilities,'' (Mar. 29 2007),
https://www.azica.gov/sites/default/files/migrated_pdf/Labor_MinWag_SubstantivePolicyDisabilities_32907-2.pdf. State laws
do not affect whether an individual is an employee under the FLSA.
---------------------------------------------------------------------------

Additionally, although Vermont does not have any formal legislation
\288\ specifically to disallow the payment of subminimum wages to
workers with disabilities, the Vermont Division of Disability and Aging
Services does ``not support center-based or group supported employment
services'' and there have been no active section 14(c) certificate
holders in Vermont for many years.\289\ USCCR notes in its 2020 Report
that ``Vermont achieved an end to subminimum wage and segregated
employment by ending funding for new entrants into sheltered workshops
in 2000, which also began a three year phase-out of all subminimum
wage, sheltered employment.'' In sum, 15 states have laws that prohibit
or are in the process of prohibiting subminimum wage payments, and an
additional nine states have limited or restrained the payment of
subminimum wages, resulting in nearly half of the States eliminating or
restricting such payments. As discussed below, the Department's
analysis yields no statistical evidence that employment or the labor
force participation rate of individuals with cognitive disabilities,
such as I/DD, differed in states that have adopted laws, policies, or
regulations that end the payment of subminimum wages relative to states
that do allow subminimum wages.\290\
---------------------------------------------------------------------------

\288\ 2020 USCCR Report at 181 (noting that Vermont eliminated
the payment of subminimum wages in practice in 2002 but did not pass
legislation banning subminimum wages at that time). The District of
Columbia and Wyoming similarly do not have any formal legislation in
place, yet do not report any workers receiving subminimum wages
under section 14(c) certificates. See https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders.
\289\ See id.
\290\ See e.g., preliminary regulatory impact analysis
discussion in section VII.E (``Transfers''). The Department further
notes that nationwide and for decades, there has been growth in the
number of individuals with disabilities who participate in State-
funded non-work supportive rehabilitation programming (such
programs, which offer both enrichment to individuals with
disabilities and respite to caregivers, often consist of activities
such as taking adult education classes, support for daily
activities, and participating in social activities). See 2023
Thinkwork Report at 3. This broader trend appears to be unrelated to
State action related to the cessation of subminimum wage employment
under section 14(c) certificates. As discussed above, in Oregon, the
overwhelming majority of former sheltered workshop employees
transitioned to full-wage jobs, exceeding the goal for the numbers
of individuals entering into CIE placement set forth in the
settlement agreement. See Oregon Dep't of Human Servs., ``Lane v.
Brown Settlement Agreement Report,'' https://www.oregon.gov/odhs/employment-first/Documents/lane-v-brown-settlement-message-2022-06-21.pdf.
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ii. Data From Vermont Regarding Long-Term Impacts of Elimination of
Subminimum Wage Payments
While many States have moved away from subminimum wage payments
relatively recently, data and studies regarding Vermont's decision to
end funding for sheltered workshops and phase out all subminimum wage
employment offer insight into how elimination of the payment of
subminimum wages to individuals with disabilities impacted the long-
term employment opportunities of those workers. Despite this
longstanding absence of the payment of subminimum wages under section
14(c) certificates in Vermont, that absence does not appear to have
negatively impacted employment rates of workers with I/DD when compared
with national employment rates. Instead, as observed by the USCCR in
its 2020 report, from 2008 to 2016-2017, the rate of employment for
workers with I/DD in Vermont rose from 35.8 percent to 42 percent, more
than double the national average employment rate in 2016-2017 for this
group.\291\
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\291\ Id. at 180-81 (citing Univ. Mass. Boston, Inst. for
Community Inclusion, StateData.info, ``State Employment Snapshot:
Vermont,'' https://www.statedata.info/statepages/Vermont).
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Additionally, academic research from Vermont also shows that
workers' transitions away from a sheltered workshop, subminimum wage
model are often positive, despite those workers' (and their families')
initial opposition to such changes. For example, years after Vermont
eliminated subminimum wage employment, a researcher at the University
of Vermont published a case study based on extensive interviews with
individuals with I/DD and their family members.\292\ Some of the
individuals had previously worked for subminimum wages, and their
interviews speak to deep anxieties about the elimination of subminimum
wages.\293\ At the beginning of the transition in Vermont, parents of
workers with disabilities expressed fear of the future, with particular
emphasis on issues of safety where an adult child was leaving a
sheltered workshop setting.\294\ However, parents reported that as
their children with disabilities ``spent more time in the community,
the fears of abuse and ridicule did not materialize[.]'' \295\
Moreover, the workers with disabilities generally reported positive
feelings about their new jobs.\296\ As discussed above, the USCCR made
similar findings based on its case studies in Vermont.\297\
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\292\ Bryan Dague, ``Sheltered Employment, Sheltered Lives:
Family Perspectives of Conversion to Community-Based Employment,''
37 J. of Vocational Rehab. 1 (Jan. 2012).
\293\ Id. at 4-5.
\294\ Id. at 5-7.
\295\ Id. at 7.
\296\ Id. at 8.
\297\ See, e.g., 2020 USCCR Report at 198.
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E. Summary of Analysis and Conclusion

Congress gave the Secretary the authority to issue certificates
allowing employers to pay subminimum wages to individuals with
disabilities but not without restriction and not in perpetuity.
Instead, Congress included a significant statutory limitation on the
Department's authority, allowing the issuance of certificates only to
the extent ``necessary to prevent curtailment of opportunities for
employment,'' and conferred authority upon the Department to determine
whether that standard has been met.
Given the expanded legal protections and opportunities for
employment of individuals with disabilities available today, to comply
with the terms of the statute, the Department must determine whether
the FLSA's standard continues to be met. When Congress first enacted
the subminimum wage provision of the FLSA in what is now known as
section 14(c), the employment opportunities available to individuals
with disabilities were a fraction of what they are today. Through the
Department's comprehensive review culminating with this rulemaking, the
Department has reflected on the substantial progress, resources, and
supports for workers with disabilities that have emerged over the last
several decades. After extensively reviewing and analyzing the issues,
developments, and reports discussed in this proposed rule, holding
listening sessions, and partnering closely with agencies within and
outside of the Department, as well as the Department's extensive
experience administering and enforcing section 14(c) certificates, the
Department preliminarily finds that subminimum

[[Page 96491]]

wages are no longer necessary to prevent curtailment of employment
opportunities for individuals with disabilities. Accordingly, the
Department proposes to amend 29 CFR part 525 to phase out the issuance
of section 14(c) certificates.
Under the Department's current regulation at 29 CFR 525.9, ``in
order to determine that special minimum wage rates are necessary in
order to prevent the curtailment of opportunities for employment,'' the
Administrator considers whether a certificate applicant has satisfied
the standards set forth in other regulatory provisions governing the
proper computation and payment of subminimum wages. The current
regulations thus focus on whether a certificate applicant has properly
evaluated and calculated productivity-based wage rates for workers with
disabilities at specific jobs (and under the specific conditions)
offered by the employer. The statute does not require the framework
currently in place, however and this regulatory methodology, now 35
years old, could not have taken into account today's more structural,
comprehensive strategies for preventing curtailment of employment
opportunities for individuals with disabilities. However, the Secretary
now has the benefit of being able to take such strategies and
developments into account. Thus, to comply with the terms of the
statute, the Department must determine whether the statute's
prerequisite--that payment of subminimum wages be necessary to prevent
the curtailment of employment opportunities--can be met given the
current demonstrated systemic and nationwide advances in employment
opportunities for individuals with disabilities.
In the introductory section of the ADA Amendments Act of 2008,
Congress states that ``in enacting the ADA, Congress recognized that
physical and mental disabilities in no way diminish a person's right to
fully participate in all aspects of society, but that people with
physical or mental disabilities are frequently precluded from doing so
because of prejudice, antiquated attitudes, or the failure to remove
societal and institutional barriers.'' \298\ With this context in mind,
the Department takes note of the historical evolution of the use of
section 14(c) certificates. When first enacted, Congress focused
significantly on private industry and small businesses,\299\ and a far
broader swath of U.S. workers were being paid subminimum wages based on
age, disability, or injury.\300\ Over time, the use of section 14(c)
certificates has narrowed to almost exclusively one setting--CRPs
rather than private sector opportunities--and has constricted to
consist almost exclusively of workers with I/DD. As other groups
experiencing different disabilities (e.g., age-related, addiction-
related, those experiencing blindness) have already generally moved
away from working for subminimum wages to employment at or above the
full minimum wage, so too now are workers with I/DD. Specifically, as
to these workers, reports show, among the general population of workers
with I/DD, working in integrated settings for at least the minimum wage
is now far more common than working for subminimum wages.\301\ At the
same time, the number of section 14(c) certificates has dwindled, with
a decades-long downward trend and with the vast majority of
certificates now being renewals, with only a few new applications.
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\298\ 42 U.S.C. 12101 note (2008).
\299\ Congressional Record, Vol. 82, Part I, 75th Cong. 2d
Sess., p. 88.
\300\ For example, in the 1967 report to Congress, the
Department noted that there were sheltered workshops paying
subminimum wages for older workers, workers who were blind, workers
with tuberculosis, workers who were epileptic, workers with
alcoholism, workers who were paraplegic, and workers experiencing
mental illness, among others. See generally U.S. Dep't of Labor,
``Sheltered Workshop Report of the Secretary of Labor and Technical
Report on Wage Payments to Handicapped Clients in Sheltered
Workshops,'' September 1967.
\301\ See, e.g., Agnieszka Zalewska, Jean Winsor, & John
Butterworth, ``Intellectual and Developmental Disabilities Agencies'
Employment and Day Services (1988-2021),'' ThinkWork, Data Note
Plus, Issue 87 (2023), at 8, https://www.thinkwork.org/sites/default/files/2024-01/DN_87_R_0.pdf. See also NLTS2, Exhibit 5-2,
noting the vast majority of youths with I/DD having a transition
goal of competitive or supported employment (79 percent) compared to
sheltered employment (14 percent).
---------------------------------------------------------------------------

Today, the issuance of section 14(c) certificates may be self-
reinforcing, with the continued use of certificates facilitating
workers continuing to only receive subminimum wages despite the
potential to engage in other full-wage employment opportunities, which
is contrary to the statute's intent of providing for certificates only
when necessary.\302\ As noted by NDRN, workers with disabilities in
sheltered workshops using section 14(c) certificates are often
``stuck'' indefinitely, without a meaningful option of other
employment, because workshop tasks are often menial and repetitive, the
environment can be isolating, and workers under section 14(c)
certificates are not provided with effective, transferable skills
training in such settings.\303\ DOJ has similarly observed that workers
with disabilities in community rehabilitation programs typically have
``no opportunity for advancement'' and ``often earn extremely low wages
when compared to people with disabilities in integrated employment,
resulting in stigmatization and a lack of economic independence.''
\304\ Given this, the Department is cognizant that today, the issuance
of section 14(c) certificates may, inadvertently and
counterintuitively, even contravene the statute's intent of promoting
opportunities for gainful employment.\305\
---------------------------------------------------------------------------

\302\ See, e.g., ``Legal Foundations for Protection and Advocacy
Entities,'' Part 1 (July 15, 2021) 5, n.22, https://aoddisabilityemploymenttacenter.com/wp-content/uploads/2021/07/DETAC_BY_Resource_PA_Legal_Foundations_Pt_1_Final_508.pdf
(explaining that research demonstrates that a very low percentage of
workers--less than 5 percent--transition from sheltered workshops
being paid subminimum wages to integrated or community-based
employment at full wages) (citations omitted); see also U.S. Dep't
of Justice Civil Rights. Div., ``Questions and Answers on the
Application of the ADA's Integration Mandate and Olmstead v. L.C. to
Employment and Day Services for People with Disabilities,'' p.1
(``The work of individuals with disabilities in segregated settings
is often highly regimented and typically offers no opportunity for
advancement.'').
\303\ Nat'l Disability Rights Network, ``Segregated and
Exploited: The Failure of the Disability Service System to Provide
Quality Work,'' 2011, A Letter from the Executive Director, https://www.ndrn.org/wp-content/uploads/2019/03/Segregated-and-Exploited.pdf
at 32-33.
\304\ See DOJ ADA Integration Mandate Q&As.
\305\ See Portland Terminal, 330 U.S. at 151.
---------------------------------------------------------------------------

In light of these realities, as well as the legal and policy
developments discussed above, the Department preliminarily finds that
today, the issuance of subminimum wage certificates is no longer
necessary to prevent the curtailment of employment opportunities.
Moreover, the evidence indicates such certificates themselves may, in
fact, sometimes contribute to the curtailment of employment
opportunities at or above the full Federal minimum wage for some
workers with disabilities.
The disability rights movement, led by a broad coalition of
stakeholders including self-advocates, has forged a path toward
increased equity, self-determination, and inclusion, thereby expanding
access to and opportunities available for employment. As discussed
above, this movement has resulted in a very different--and improved--
legal and policy landscape than existed in 1938 or even 1989 when
section 14(c) regulations were last substantively updated, reflecting
the 1986 amendments to the FLSA.
An array of Federal legislation has substantially broadened
opportunities

[[Page 96492]]

and access, while legal precedent has bolstered these nationwide laws.
Most significantly, over the past several decades, the ADA and the
Supreme Court's Olmstead decision have profoundly impacted the rights
and employment opportunities available to individuals with
disabilities. These legal developments have resulted in changes to
workforce development and vocational rehabilitation systems that
provide more support to individuals with disabilities in achieving and
maintaining employment at or above the full minimum wage, as discussed
above. While the ADA has been the catalyst for substantial change and
progress in the legal landscape affecting workers with disabilities,
the section 14(c) regulations could not have contemplated this progress
or incorporated the fundamental anti-discrimination and reasonable
accommodation protections of the ADA. Additionally, the ADA's broad
legal protections (made more broadly applicable through the ADAA
\306\), coupled with Olmstead's integration mandate and the array of
employment-related programs, and supports for workers with disabilities
discussed in this proposed rule, fundamentally alters the assessment as
to whether subminimum wages are necessary to prevent curtailment of
employment opportunities. The Department is also cognizant of the
Department of Justice's conclusion that public entities (i.e., state
and local governments) may be in violation of the ADA's integration and
equal employment opportunity mandates if they plan, administer,
operate, fund, or implement any services--including employment or day
services--in a way that unjustifiably segregates individuals with
disabilities.
---------------------------------------------------------------------------

\306\ Supra note 110.
---------------------------------------------------------------------------

The Department also takes notice of the multitude of Federal and
State programs encouraging CIE that do not rely on the payment of
subminimum wages to workers. There is now an extensive and continually
growing network of supports for workers with disabilities to access
full-wage employment opportunities in a variety of ways, as evidenced
by the fact that all States and the District of Columbia have taken
Employment First actions. The opportunities available to workers with
intellectual or developmental disabilities have been fundamentally
changed by these laws, regulations, executive orders, and policy
initiatives. As a result, more than ever before, these workers have the
chance to ``move proudly into the economic mainstream of American
life.'' \307\
---------------------------------------------------------------------------

\307\ President George H.W. Bush, Remarks at the Signing of the
Americans with Disabilities Act (July 26, 1990), https://perma.cc/VNU4-HR7P.
---------------------------------------------------------------------------

The Department is further persuaded by the overwhelming evidence
and arguments put forward by the majority of disability-focused
government, academic, and advocacy organizations illustrating that
section 14(c) certificates are no longer necessary. Non-partisan
Federal agencies that have studied the issue in depth, such as the
USCCR and NCD, have published detailed reports concluding that the
payment of subminimum wages is unnecessary to create employment
opportunities for individuals with disabilities, including individuals
with I/DD, and that section 14(c) certificates may actually be
detrimental to the population they are intended to help. Indeed, as
noted above, the USCCR found there is little distinction among
characteristics of the I/DD workforce that receives at least the full
Federal minimum wage and the characteristics of the I/DD workforce that
receives subminimum wages. The Department finds it particularly
noteworthy that, as evidenced in the USCCR findings, workers with
disabilities being paid at least the full minimum wage experience
similar disabilities and have similar support needs as workers with
disabilities being paid subminimum wages, and finds this compelling
evidence to preliminarily conclude that section 14(c) certificates are
no longer necessary to prevent the curtailment of employment
opportunities. Indeed, individual experiences of workers in States
where subminimum wages have been phased out also demonstrate that there
are not insurmountable barriers to transitioning to employment at or
above the full Federal minimum wage, as evidenced by the experience of
the lead plaintiff in Lane v. Brown. Prior to filing her suit, Paula
Lane worked on an assembly line packaging gloves for 66 cents an
hour.\308\ Subsequently, Lane found work at full wages in a community
setting.\309\
---------------------------------------------------------------------------

\308\ Disability Rights Oregon, ``Lawsuit: State Required to
Limit Use of Sheltered Workshops,'' https://www.droregon.org/litigation-resources/lane-v-brown.
\309\ Id.
---------------------------------------------------------------------------

Nearly half of U.S. States have now prohibited or limited the
payment of subminimum wages. Additionally, as further discussed in
section VII, although the unemployment rate for individuals with
disabilities remains relatively high compared to the entire population
(though it is trending in a favorable direction), the available data
demonstrates that there is a strong demand for CIE opportunities, that
subminimum wage employment does not typically lead to competitive
integrated employment, and that the States that have abolished
subminimum wages have not, in general, seen a comparative decrease in
employment opportunities for individuals with disabilities. The
Department finds that Oregon's experiences--and the amount of data
available due to the Lane v. Brown settlement agreement, discussed
above--are especially instructive in considering why subminimum wages
are no longer necessary. In a relatively short time period, Oregon was
able to meet or exceed the numerical metrics of the Lane v. Brown
settlement agreement regarding, among other things, the reduction in
sheltered workshop hours, the provision of supported employment
services, and achieving competitive integrated employment for the
numbers of individuals specified in the settlement agreement.\310\ The
Department notes that the Oregon example sheds light on the fact that
current employers of workers receiving subminimum wages are usually
publicly funded, and that States which have stopped the payment of
subminimum wages can achieve positive outcomes in part by redirecting
these funds away from sheltered workshops or other jobs where
subminimum wages are being paid toward full wage employment
opportunities.\311\ Similarly, nearly 25 years ago, Vermont achieved an
end to subminimum wage by, in part, ending funding for new entrants
into sheltered workshops.\312\ These examples also highlight the shift
in employer demographics for certificate holders--from the
``industry,'' ``manufacturers,'' and ``small businessmen'' who were the
potential section 14(c) employers discussed during the floor debate in
1937 to the vast majority of certificate holders today being CRPs, many
of whom receive some type of public funding. While most of the
employers envisioned in 1937 were market-driven private sector
employers, today's section 14(c) employers are commonly enmeshed with
public funding streams

[[Page 96493]]

that may be able to be redirected, as several States such as Oregon and
Vermont have already demonstrated.
---------------------------------------------------------------------------

\310\ Final Report to the Court of the Independent Reviewer,
Lane v. Brown, Civil Action No. 3:12-cv-00138-ST (D. Or.), https://www.centerforpublicrep.org/wp-content/uploads/FINALLaneIRFinalReporttotheCourt6.30.22.pdf.
\311\ Id. Specifically, Oregon ceased funding and closed all
sheltered workshops within a matter of a few years, and instead
increased access to supported employment services and CIE for
workers with I/DD, expanded evidence-based transition practices,
developed an agency infrastructure across State agencies, and,
critically, enhanced Federal and State funding to support access to
CIE.
\312\ USCCR Report at 180.
---------------------------------------------------------------------------

The Department finds that the evidence from Oregon and Vermont's
experiences further supports its preliminary conclusion that payment of
subminimum wages is no longer necessary to prevent the curtailment of
employment opportunities for workers with disabilities. As described in
Section VII, the Department's analysis yields no statistical evidence
that employment or the labor force participation rate of individuals
with cognitive disabilities differed in States that have adopted laws,
policies, or regulations that do not allow the payment of subminimum
wages. However, the Department's analysis did show a statistically
significant increase in average hourly wage rates of such individuals.
The Department believes the results of this analysis, while not
dispositive, further support its preliminary conclusion that employment
opportunities exist for workers with disabilities that are independent
from section 14(c) certificates. The Department welcomes comments on
States' experiences in prohibiting or limiting the payment of
subminimum wages to workers with disabilities.
The Department recognizes and deeply values the lived experiences
of workers as well as families who may have a loved one working under a
section 14(c) certificate and who may wish to continue in their current
positions under which they are paid subminimum wages. The Department
welcomes public comment on this proposed rule. The Department also
emphasizes that nothing in this proposal would require existing section
14(c) certificate holders to amend the services they currently provide,
including employment services, other than by paying all workers the
full required minimum wage for all covered work, as of the phaseout
effective date, as explained below. The Department notes that, as a
general matter, the empirical evidence reviewed does not indicate that
workers transitioning from subminimum wage employment have had negative
outcomes. As outlined above and discussed in a number of reports
referenced herein, many more workers with disabilities are working in
competitive integrated employment and workers and their families have
expressed positive feelings about new opportunities and spending more
time in the community, as noted, for example, by families in Vermont
who have experienced this transition. Congress has directed that
employment of workers with disabilities at subminimum wages may occur
only if the Secretary determines it is necessary to prevent the
curtailment of employment opportunities for workers with disabilities.
Thus, in considering its obligations under the section 14(c) provisions
to evaluate opportunities for employment for workers with disabilities,
it is appropriate for the Department to consider how the evolution
described above impacts whether the payment of subminimum wages to
workers with disabilities is necessary to prevent the curtailment of
employment opportunities for workers with disabilities. The Department
must also enforce this statutory mandate in the broader context of the
FLSA generally, including the fundamental principle that FLSA rights
cannot be waived by workers or employers, and consider whether, even if
workers would agree to work for subminimum wages, it is necessary to
continue granting certificate authority permitting payment of wages
below the current Federal minimum wage of $7.25 per hour.
The Department's analysis as set forth in this proposed rule
preliminarily indicates workers with disabilities--including workers
with I/DD--no longer need subminimum wages for employment
opportunities. With expanded opportunities and legal protections, both
compared to the enactment of section 14(c) in 1938 and the last
substantive update to the section 14(c) regulations in 1989, and with
opportunities for full-wage employment now substantially more common
than subminimum wage employment, the Department proposes to phase out
issuance of section 14(c) certificates based on its tentative
conclusion that these certificates are no longer necessary to prevent
the curtailment of employment opportunities for workers with
disabilities.

IV. Discussion of Proposed Regulatory Changes

The Department proposes to revise 29 CFR 525.1 to explain that, as
evidenced by the analysis set forth above in the Need for Rulemaking
section, the Secretary has preliminarily determined that section 14(c)
certificates are no longer necessary to prevent the curtailment of
opportunities for employment of individuals with disabilities. The
Department further proposes to revise that regulation to explain, in
light of this determination, that the Secretary will cease issuing new
certificates immediately as of the effective date of a final rule and
that certificates will only be available to renewing applicants for a
limited phaseout period ending 3 years after the effective date of a
final rule. The Department further proposes to revise 29 CFR 525.1 to
clarify that this part remains in effect during the phaseout period.
The contours of the Department's proposed certificate phaseout are
explained below in greater detail. The Department seeks comments on the
structure of the proposed phaseout, including the proposed length of
the phaseout period and any potential extensions to the defined
phaseout period, factors affecting the sufficiency of any phaseout
period, and states' and organizations' experience with phasing out the
use of subminimum wages.

A. Phaseout

The Department proposes that WHD would no longer issue new section
14(c) certificates in response to initial applications postmarked or
submitted online on or after the effective date of the final rule
because the Department preliminarily finds such certificates are no
longer necessary to prevent the curtailment of employment opportunities
for individuals with disabilities. Employers that do not hold a valid
section 14(c) certificate or that have not timely and properly filed a
renewal application as of the effective date of the final rule would
not have authority to pay subminimum wages and neither they nor the
workers whom they employ would be actively utilizing a section 14(c)
certificate for their respective operations or jobs. Accordingly,
proposed 29 CFR 525.7 states that only applicants who are seeking to
renew a certificate pursuant to proposed 29 CFR 525.13, but not initial
applicants, may apply for certificates. The Department also proposes to
amend 29 CFR 525.7 to provide minor clarifying edits regarding the
certificate application process.
For employers who hold a valid section 14(c) certificate at the
time of the effective date of a final rule and seek to renew that
certificate, the Department proposes, at 29 CFR 525.13, that it would
continue to process renewal applications for such existing certificate
holders for a 3-year period beginning on the effective date of a final
rule, with all renewals granted within that period expiring no later
than the date that is 3 years after the effective date of a final rule.
The Department proposes that a phaseout period would allow those
employers to prepare and transition to the payment of minimum wages
required under the law. Based on the Department's experience, the
Department preliminarily finds this

[[Page 96494]]

multi-year phaseout period would provide time for employers who are
paying subminimum wages pursuant to section 14(c) certificates, if
needed, to make necessary adjustments to their operation and funding
models. Likewise, affected workers with disabilities who would be due
higher wages under the Department's proposed rule may, for example, use
the phaseout period to explore new workplace accommodations,
participate in additional job training or vocational services, or
receive counseling about public benefits and income. Finally, the
proposed phaseout period would also provide time for States and other
entities to adjust budget allocations, staffing, and disability service
delivery programs, as needed, to continue to support workers with
disabilities and service providers after the phaseout period ends and
the payment of subminimum wages is prohibited for workers with
disabilities. As discussed below in section V., State statutes
containing multi-year phaseouts have phaseout periods that range from 2
years to 7 years, with many states opting for a 2- or 3-year phaseout.
The Department proposes that 3 years should be sufficient to allow for
transitions away from subminimum wage employment but seeks comments on
the need for, length of, and factors affecting any phaseout period. As
specified at proposed 29 CFR 525.13(b), all section 14(c) certificates
renewed on or after a final rule's effective date would expire at or
before the end of that phaseout period, and under the proposed rule, if
finalized, the Department would no longer issue any section 14(c)
certificates after the last day of that phaseout period. The Department
proposes to make conforming edits to 29 CFR 525.2, 525.9, and 525.11(c)
to ensure that stakeholders understand the proposed phaseout.
The Department also notes that, as discussed above, many oversight
and advocacy reports that recommend an end of the payment of subminimum
wages concluded that such plans should include a phaseout period but
varied in providing recommendations concerning the length of the
phaseout period. For example, NCD recommended a gradual phaseout of the
use of subminimum wages to allow time for modernization of employment
service systems that would promote successful transitions for people
currently working under section 14(c) certificates.\313\ In another
example, the USCCR also recommended a multi-year phaseout ``to allow
transition among service providers and people with disabilities to
alternative service models . . . .'' but did not specify a length for
the phaseout period.\314\ The Department further notes that many such
reports recommend that a gradual end of subminimum wages should be
accompanied by simultaneous movement of workers with disabilities into
integrated employment. However, the Department's authority and its
proposed rule do not require any change to employment settings during
the phaseout period or anytime thereafter.
---------------------------------------------------------------------------

\313\ 2018 NCD Report at 99-100.
\314\ USCCR Report at 223.
---------------------------------------------------------------------------

In accordance with this phaseout proposal, the Department proposes
to modify 29 CFR 525.7 to reflect that the Department would no longer
accept initial applications for a section 14(c) certificate as of the
effective date of a final rule. Moreover, the Department proposes in 29
CFR 525.11 that section 14(c) certificate holders, assuming all legal
requirements are met, may continue to operate under section 14(c)
certificate authority for up to 3 years after the effective date of a
final rule. Because the Department proposes that this phaseout would
lead to a cessation of all certificate issuance, the Department does
not propose any changes to the operational requirements of the section
14(c) regulations, such as the procedures for determining a
commensurate wage, for employers who hold a valid certificate during
the phaseout period.
The Department requests comments on the length and structure of the
proposed phaseout period and any evidence that supports those comments,
including data, case studies, explanations of program or funding
structures, and the personal experiences of employers and employees.
The Department's proposal to phase out section 14(c) over several years
is intended to avoid disruptions to services, supports, and funding
streams needed to transition workers from being paid subminimum wages
while still timely phasing out subminimum wage payments to individuals
with disabilities. The Department specifically invites comment on how
it may implement any proposed phaseout in a manner that further reduces
potential disruptions. The Department also invites comment on how State
and publicly funded entities may be impacted by a phase out of section
14(c), including comments relevant to the length of the phase-out
period.
Finally, the Department proposes to revise 29 CFR 525.18, which
sets forth an administrative appeal process for any person aggrieved by
any action of the Administrator taken pursuant to the regulations, to
explain that any administrative review granted cannot result in section
14(c) certificate authority being extended beyond the phaseout period.

B. Request for Comments Related to Potential Extensions

In reviewing phaseouts of subminimum wages, the Department observes
that the State of Washington allowed for a one-time extension period of
up to 12 months in its phaseout of subminimum wages.\315\ Similarly,
the AbilityOne Commission granted limited extensions no longer than 12
months when it phased out subminimum wages.\316\ The Department has not
proposed such an extension framework in this proposed rule. As
discussed above, the Department proposes that a 3-year phaseout period
should be sufficient for most, if not all, employers that currently
hold section 14(c) certificates to adjust their operations and funding
structures such that they can transition away from subminimum wages by
the end of that period. However, if the Department finalizes the
proposal herein that current section 14(c) certificate holders may
renew their certificates to allow payment of subminimum wages until 3
years from the effective date of a final rule, the Department
anticipates considering whether any potential extension framework
should be added to the final rule, and seeks comments accordingly.
---------------------------------------------------------------------------

\315\ Wash. Rev. Code Sec. 49.46.170, [Washington Minimum Wage
Act; Minimum Wage and Labor Standards; State Agencies Prohibited
From Employing Individuals With Disabilities At Less Than Minimum
Wage Beginning July 1, 2020; No New Special Certificates May Be
Issued After July 31, 2023], Wages & Hours P 50-41016; see also
Washington Department of Labor and Industries, 2023 Annual Report to
the Legislature, p.2, https://www.lni.wa.gov/agency/_docs/2023SubMinimumWageCertificatesReport.pdf (Most private certificate
holders were subject to a two-year phaseout, with a possible one-
time, one-year extension for a total of three years).
\316\ Prohibition on the Payment of Subminimum Wages Under 14(c)
Certificates as a Qualification for Participation as a Nonprofit
Agency Under the Javits Wagner O'Day Act, 87 FR 43427, 43428 (July
21, 2022) (codified at 41 CFR part 51) (``However, an [non-profit
agency] may apply for an extension for up to 12-months in order to
come into compliance if it can provide evidence for why it cannot
make the wage adjustments by the effective date (due to budgetary
limitations, because doing so will necessarily harm employees, or
for other good cause) and if it provides a corrective action plan
describing the steps it intends to take to achieve compliance within
the approved extension period.''). The Commission noted, in
implementing a 90-day effective period for its rule, that its
position on phasing out use of section 14(c) had been announced in a
2019 notification and resources supporting transition were invested
even prior to the rulemaking.
---------------------------------------------------------------------------

The Department requests comments on all aspects of a possible
limited

[[Page 96495]]

extension provision beyond the end of the proposed 3-year phaseout
period, including whether an extension provision would be appropriate,
the duration of any such extension(s), the showing (including any
documentation) an employer must make to receive an extension, the
criteria by which requests for extension should be reviewed, and the
procedures by which employers apply for extension(s).
For example, the Department requests comments as to the length of
time any extension might extend (including whether any potential
extension should be limited to a maximum of 3, 6, 12, or 18 months, or
some other period). The Department further requests comment as to
whether any employer should be able to receive more than one extension,
and if multiple extensions are allowed, whether there should be a
maximum limit on the total number of extensions granted to a
certificate holder (e.g., each certificate holder would only be
entitled to two time-limited extensions). Similarly, the Department
requests comments on whether there should be a maximum time limit on
the total number of extensions granted to a certificate holder (e.g.,
each certificate holder would be eligible for multiple extensions, but
not to exceed a total extension period of 12 months). Likewise, the
Department also seeks comments on whether, if extensions were to be
available, certificate holders should be required to demonstrate good
cause for any extension request. The Department welcomes public comment
on what a certificate holder might need to present to demonstrate such
good cause as well as the specific documentation needed to support such
cause. For example, the Department welcomes comment on whether, if an
extension were to be available, it should be granted only when there
are unique factual circumstances outside of an employer's control, a
need for additional time for the employer to complete an orderly
transition from the payment of subminimum wages, and a need to avoid
undue disruptions impacting workers with disabilities currently
employed at subminimum wages.

C. Severability

The Department proposes that the regulatory text include a
severability provision in part 525 so that if one or more of the
provisions in part 525 is held invalid or stayed pending further agency
action, the remaining provisions would remain effective and operative.
The Department proposes to add this provision as Sec. 525.25. The
proposed provision explains that each provision is capable of operating
independently from one another, and that if any provision of part 525
is held to be invalid or unenforceable by its terms, or as applied to
any person or circumstance, or stayed pending further agency action,
the provision shall be construed so as to continue to give the maximum
effect to the provision permitted by law, unless such holding shall be
one of utter invalidity or unenforceability, in which event the
provision shall be severable from the regulation and shall not affect
the remainder thereof.

V. Alternatives to the Proposed Rule

In developing this proposed rule, the Department considered a wide
range of alternative regulatory approaches. For example, the Department
considered whether to allow workers with disabilities who are currently
paid subminimum wages to ``opt out'' of the proposed phaseout of
section 14(c) certificates set forth in this proposed rule. In other
words, the Department evaluated whether to permit such workers to
choose to continue receiving subminimum wage payments where they
believe such continuity would be beneficial. However, after
consideration and analysis, the Department has determined that such a
regulatory alternative would not be legally permissible or advisable as
a policy matter.
In this proposed rule, the Department has preliminarily concluded
that payment of subminimum wages is not necessary to prevent
curtailment of opportunities for employment. In the absence of such
need, an opt-out provision would be akin to allowing a waiver of the
FLSA's requirement to pay minimum wages. As discussed in section II.D.
above, it is well-established that the right to the full Federal
minimum wage cannot be waived by individual workers or employers. The
Supreme Court has consistently and explicitly held that ``FLSA rights
cannot be . . . waived because this would `nullify the purposes' of the
statute and thwart the legislative policies it was designed to
effectuate.'' \317\ The Department is foreclosed, as a legal matter,
from allowing workers with disabilities, or their families or
guardians, to ``opt out'' of receiving the full Federal minimum wage on
an individual basis. Rather, the FLSA is clear that an employer may
only pay subminimum wages to workers with disabilities after obtaining
a certificate from the Department and that such certificates can only
be issued when the Department decides that they are necessary to
prevent the curtailment of employment opportunities. Congress did not
grant the Department unconditional authority to issue subminimum wage
certificates, or to permit subminimum wage payments based on such
workers' preferences.
---------------------------------------------------------------------------

\317\ Barrentine, 450 U.S. at 740 (quoting Brooklyn Sav., 324
U.S. at 707).
---------------------------------------------------------------------------

Finally, the Department rejected this alternative because it would
likely result in formidable administrative challenges for both WHD and
employers, as well as confusion on the part of workers.
The Department also considered alternative regulatory approaches to
the proposed phaseout of section 14(c) certificates. As detailed above,
the Department proposes to: (1) cease issuance of new section 14(c)
certificates to employers submitting an initial application on or after
the effective date of a final rule and (2) permit existing section
14(c) certificate holders, assuming all legal requirements are met, to
continue to operate under section 14(c) certificate authority for up to
3 years after the effective date of a final rule.
Among the alternative approaches that were considered the
Department also considered whether to use a different phaseout period.
The Department declined to propose a shorter phaseout period (or no
phaseout period) because, as explained in this proposed rule,
individuals with disabilities who have been working for employers
holding a section 14(c) certificate, employers who have held a section
14(c) certificate, and government entities may need time to transition
to the payment of the full minimum wage in order to mitigate
disruptions that might potentially otherwise cause curtailment of
employment opportunities. At the same time, the Department also
declined to propose a longer phaseout period. As discussed in section
III.D.1.i., many States have already passed laws prohibiting (or
planning to prohibit) the payment of subminimum wages through a phase
out.\318\ State statutes containing multi-year phaseouts range from 2
years to 7 years, with many states opting for a 2- or 3-year phaseout.
In view of this, the Department thus believes that 3 years should be
sufficient to allow for transitions away from subminimum wage
employment. Furthermore, the Department is concerned that a longer
period might incentivize delay of effective transition measures.
---------------------------------------------------------------------------

\318\ See section III.D.1.i. for a fuller discussion of State
phaseout periods.

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[[Page 96496]]

The Department also considered revising its existing regulations to
change the process and evidence employers would need to provide in
order to demonstrate that the payment of a subminimum wage is necessary
to prevent the curtailment of employment opportunities. The Department
did not propose such changes because, as explained elsewhere in this
proposal, given the statutory legal authority requiring the Department
to determine the necessity of certificates (to the extent necessary to
prevent the curtailment of opportunities for employment), the best
approach is to examine the standard based on a comprehensive
consideration of how employment opportunities are both currently
curtailed and created across the employment market rather than on the
framework set out in the 1989 regulations reflecting the presumption
that subminimum wages are necessary where productivity measures are
satisfied. As this proposal explains, the Department's preliminary
findings are that employment opportunities exist sufficiently apart
from section 14(c) certificates to justify the proposed determination
to stop issuing certificates through a multi-year phaseout. Given this
belief and the Department's proposed determination, a change to only
alter the requirements of holding a certificate may not fully meet the
Department's statutory obligation under the curtailment clause given
the changed opportunities for employment currently.
The Department also considered proposing an additional extension
period beyond the 3-year phaseout period. However, as stated above, the
Department proposes that a 3-year phaseout period should be sufficient
for most, if not all, employers that currently hold section 14(c)
certificates, to adjust their operations and funding structures such
that they can transition away from subminimum wages by the end of that
period. Furthermore, any extension option increases the risk of use of
certificates beyond an actual period of demonstrated need for orderly
transition, and might undercut the incentive for those employers to
make efficient and timely plans to move away from subminimum wages.
However, as noted above, the Department seeks comments about a
potential extension option.

VI. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, require the Department
to consider the agency's need for its information collections, their
practical utility, the impact of paperwork and other information
collection burdens imposed on the public, and how to minimize those
burdens. The PRA typically requires an agency to provide notice and
seek public comments on any proposed collection of information
contained in a proposed rule. See 44 U.S.C. 3506(c)(2)(B); 5 CFR
1320.8.
This rulemaking would revise the burdens for the existing
information collection previously approved under Office of Management
and Budget (OMB) control number 1235-0001, Fair Labor Standards Act
Special Employment Provisions. The 1235-0001 information collection
encompasses information collected pursuant to FLSA sections 11(d),
14(a), and 14(b), as well as section 14(c). As required by the PRA, the
Department has submitted information collections as revisions to
existing collections to OMB for review to reflect changes to existing
burdens that will result from and are limited to the implementation of
this section 14(c) rulemaking.
Summary: FLSA section 14(c) authorizes the Department to issue
certificates permitting employers to pay workers whose disabilities
impair their earning or productive capacity at wage rates below the
Federal minimum wage. The Department has promulgated regulations at 29
CFR 525 to administer and enforce section 14(c) of the FLSA. This NPRM,
if finalized, would impose new information requirements revising an
existing information collection.
Purpose and use: This proposed rule, which would revise 29 CFR part
525, would result in the Department no longer issuing new section 14(c)
certificates in response to initial applications postmarked or
submitted online on or after the effective date of a final rule.
Pursuant to the proposed rule, the Department would permit existing
section 14(c) certificate holders, assuming all legal requirements are
met, to continue to operate under section 14(c) certificate authority
and re-apply for continued certificate authority for up to 3 years
after the effective date of a final rule. In addition, as discussed
above, the Department proposes that a 3-year phaseout period should be
sufficient for most, if not all, employers that currently hold section
14(c) certificates to adjust their operations and funding structures
such that they can transition away from subminimum wages by the end of
that period. However, the Department also requests comments on all
aspects of a possible limited extension provision beyond the end of the
proposed 3-year phaseout period.
This proposed rule, if finalized, would impact the collection by
reducing the number of employers that hold section 14(c) certificates
throughout the phaseout period, and thereby also reduce employees
employed under section 14(c) certificates. However, ultimately, 3 years
from the effective date of a final rule, there would be no section
14(c) certificates and no employees employed under section 14(c)
certificates, which would eliminate the burden associated with this
collection.
WHD obtains PRA clearance under OMB control number 1235-0001 for an
information collection with respect to subminimum wage employment. An
Information Collection Request (ICR) has been submitted to revise the
approval and adjust the burdens for this collection.
Information and technology: There is no particular order or form of
records prescribed in the current regulations or in the proposed rule.
An employer may meet the requirements of this proposed rule using paper
or electronic means. The Department has enhanced the section 14(c)
certificate application process by implementing an online electronic
application platform to submit Forms WH-226 and WH-226A; this platform
can be found on the Department's website at: https://section14c.dol.gov/. The Department also makes Forms WH-226 and WH-226A
and instructions for completing them available in a fillable Adobe PDF
format for downloading and printing from the Department's website at:
https://www.dol.gov/agencies/whd/forms/wh226. Respondents currently
have the option of either mailing the form(s) or completing and
submitting an application using the section 14(c) online application
system.
Minimizing Small Entity Burden: While information collections,
i.e., WH-226 and WH-226A, may involve a substantial number of small
businesses or non-profit agencies, the collections do not have a
significant impact on those small entities. Forms WH-226 and WH-226A
collect information necessary for the Department to determine if an
employer qualifies for a certificate. The data collection gathers
additional information on individual workers to better assist the
agency in preventing abuse of a vulnerable worker population. The
Department has provided detailed item-by-item instructions and online
tools such as wage calculators to assist all employers, including small
entities, in completing these forms and complying with the statutory
and regulatory requirements. The Department also has an online

[[Page 96497]]

electronic platform for submission of the information.
Public comments: As part of its continuing effort to reduce
paperwork and respondent burden, the Department conducts a preclearance
consultation program to provide the general public and Federal agencies
with an opportunity to comment on proposed and continuing collections
of information in accordance with the PRA. This program helps to ensure
that requested data can be provided in the desired format, reporting
burden (time and financial resources) is minimized, collection
instruments are clearly understood, and the impact of collection
requirements on respondents can be properly assessed.
The Department seeks comments on this NPRM and its potential impact
to public burdens associated with ICR 1235-0001, Fair Labor Standards
Act Special Employment Provisions. Detailed calculations indicating
respondents, responses, burden hours, and burden costs are contained in
the supporting statement found at www.reginfo.gov.
Commenters may send their views on the Department's PRA analysis in
the same way they send comments in response to the NPRM as a whole
(e.g., through the www.regulations.gov website), including as part of a
comment responding to the broader NPRM. Alternatively, commenters may
submit a comment specific to this PRA analysis by sending an email to
[email protected]. While much of the information provided to OMB
in support of the information collection request appears in the
preamble, interested parties may obtain a copy of the supporting
statements for the affected ICR by sending a written request to the
mail address shown in the ADDRESSES section at the beginning of this
preamble. Alternatively, a copy of the ICR with applicable supporting
documentation, including a description of the likely respondents,
proposed frequency of response, and estimated total burden, may be
obtained free of charge from the RegInfo.gov website by visiting https://www.reginfo.gov/public/do/PRAMain.
OMB and the Department are particularly interested in comments
that:
Evaluate whether the proposed collections of information
are necessary for the proper performance of the functions of the
agency, including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Total burden for the affected information collection, including the
burdens that will be affected by this proposed rule and any changes are
summarized as follows:
Type of review: Revision to currently approved information
collections.
Agency: Wage and Hour Division, Department of Labor.
Title: Fair Labor Standards Act Special Employment Provisions.
OMB Control Number: 1235-0001.
Affected public: Private sector, not-for-profits, businesses or
other for-profits, and Individuals or Households.
Estimated number of respondents: 335,167 (0 from this rulemaking).
Estimated number of responses: 1,338,561 (0 from this rulemaking).
Frequency of response: On occasion.
Estimated annual burden hours: 671,464 (0 from this rulemaking).
Estimated annual burden costs (capital/startup): $0 ($0 from this
rulemaking).
Estimated annual burden costs (operations/maintenance): $2,284 ($0
from this rulemaking).
Estimated annual burden costs: $32,404,730 ($0 from this
rulemaking).

VII. Analysis Conducted in Accordance With Executive Order 12866,
Regulatory Planning and Review, Executive Order 13563, Improving
Regulation and Regulatory Review, and Executive Order 14094

Under Executive Order 12866 (as amended by Executive Order 14094),
OMB's Office of Information and Regulatory Affairs (OIRA) determines
whether a regulatory action is significant and, therefore, subject to
the requirements of the Executive order and OMB review. As amended by
Executive Order 14094, section 3(f) of Executive Order 12866 defines a
``significant regulatory action'' as a regulatory action that is likely
to result in a rule that may: (1) have an annual effect on the economy
of $200 million or more; or adversely affect in a material way the
economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or state, local, territorial, or
Tribal governments or communities; (2) create a serious inconsistency
or otherwise interfere with an action taken or planned by another
agency; (3) materially alter the budgetary impact of entitlements,
grants, user fees or loan programs or the rights and obligations of
recipients thereof; or (4) raise legal or policy issues for which
centralized review would meaningfully further the President's
priorities or the principles set forth in the Executive order. OIRA has
determined that this proposed rule is a ``significant regulatory
action'' under section 3(f)(1) of Executive Order 12866, as amended.
Executive Order 13563 directs agencies to, among other things,
propose or adopt a regulation only upon a reasoned determination that
its benefits justify its costs; that it is tailored to impose the least
burden on society, consistent with obtaining the regulatory objectives;
and that, in choosing among alternative regulatory approaches, the
agency has selected those approaches that maximize net benefits.
Executive Order 13563 recognizes that some costs and benefits are
difficult to quantify and provides that, when appropriate and permitted
by law, agencies may consider and discuss qualitatively values that are
difficult or impossible to quantify, including equity, human dignity,
fairness, and distributive impacts. The analysis below outlines the
impacts that the Department anticipates may result from this proposed
rule and was prepared pursuant to the above-mentioned executive orders.

A. Background and Need for Rulemaking

\319\ 29 U.S.C. 206(a), 207(a).
\320\ 29 U.S.C. 214(c)(1).

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[[Page 96498]]

Since the Department first promulgated regulations governing the
issuance of section 14(c) certificates in 1938, and even since the
Department last substantively updated those regulations more than 35
years ago, opportunities for employment have dramatically changed for
individuals with disabilities. In recent years, the employment rate for
individuals with disabilities has generally climbed (Figure 1, Panel
A). During the same time period, the estimated number of individuals
working under section 14(c) certificates has declined (Figure 1, Panel
B).
[GRAPHIC] [TIFF OMITTED] TP04DE24.034

Notes: Employment-population ratios calculated using the average
monthly ratios for the year ending in May of each year to align with
Panel B. Ratios are based on data from the Current Population Survey
(CPS), which is the primary source for labor force statistics. CPS
tends to estimate a lower number of disabled workers compared to other
nationally representative surveys, such as the American Community
Survey (ACS), which is more commonly used for population estimates.
However, the changes in trends over time are similar across both
surveys.
Sources: Panel A: U.S. Bureau of Labor Statistics, Employment-
Population Ratio--With a Disability, 16 Years and over [LNU02374597],
retrieved from https://data.bls.gov/timeseries/LNU02374597, September
30, 2024; Panel B: WH-226A form data of issued and pending
certificates, May 1 (2014 through 2024).
Fueled by the disability rights movement, societal and cultural
assumptions, beliefs, and expectations regarding the employment of
individuals with disabilities have evolved, and opportunities for
individuals with disabilities have dramatically expanded. Federal
legislation and judicial precedent have established and enshrined
fundamental legal protections requiring equal access, opportunities,
and respect for individuals with disabilities in both education and
employment. Of these legislative and judicial developments, the
landmark Americans with Disabilities Act (ADA), enacted in 1990, the
year after the section 14(c) regulations were last substantively
updated, has had a profound impact on employment opportunities for
individuals with disabilities. In addition, the President and executive
agencies have taken steps to end the payment of subminimum wages to
workers with disabilities on certain government contracts. Numerous
States and localities have prohibited or limited the payment of
subminimum wages to workers with disabilities within their
jurisdictions.
Although it is widely acknowledged that individuals with
disabilities continue to face challenges in obtaining equal opportunity
and treatment, the extent of legal protections, opportunities,
resources, training, technological advancements, and supports has
dramatically expanded since regulations were first promulgated over 85
years ago, and since 1989, when the Department's regulations were last
substantively updated, to assist individuals with disabilities both in
obtaining and maintaining employment at or above the full Federal
minimum wage. Employers similarly have substantially more resources and
training available to recruit, hire, and retain workers with
disabilities in employment at or above the full Federal minimum wage.
Recognizing the expansion of full-wage employment options for
individuals with disabilities, an increasing number of oversight and
advisory reports have vigorously called for a ``phase out'' of section
14(c) certificates. As another indication that subminimum wages are not
necessary to prevent the curtailment of employment opportunities, an
increasing number of States and localities, including many
jurisdictions with higher minimum wages than the FLSA minimum wage,
have prohibited or limited the payment of subminimum wages in their
respective jurisdictions. Furthermore, an increasing number of
employers themselves are voluntarily opting out of paying subminimum
wages, as is reflected in the rate at which the number of section 14(c)
certificate holders has substantially declined in recent years, while
at the same time the employment rate for people with disabilities has
generally climbed. Due to expanded opportunities both compared to the
enactment of the section 14 provisions and promulgation of initial
regulations in 1938 and the last substantive update to the section
14(c) regulations in 1989, with opportunities for full-wage employment
now substantially more common than subminimum wage employment, the
Department preliminarily concludes that the issuance of section 14(c)
certificates is no longer necessary to prevent the curtailment of
employment opportunities for individuals with disabilities.
Accordingly, the Department proposes to phase out the issuance of
section 14(c) certificates. The Department specifically proposes to:
(1) cease issuance of new section 14(c)

[[Page 96499]]

certificates to employers submitting an initial application on or after
the effective date of a final rule and (2) permit existing section
14(c) certificate holders, assuming all legal requirements are met, to
continue to operate under section 14(c) certificate authority for up to
3 years after the effective date of a final rule. The Department
requests comments on all aspects of a possible limited extension
provision beyond the end of the proposed 3-year phaseout period,
including whether an extension provision would be appropriate, the
duration of any such extension(s), the showing (including any
documentation) an employer must make to receive an extension, the
criteria by which requests for extension should be reviewed, and the
procedures by which employers apply for extension(s).

B. Number of Affected Workers and Employers

The entities that will be directly affected by this proposed rule
are section 14(c) certificate holders and workers with disabilities
being paid a subminimum wage by a certificate holder. According to
WHD's data on section 14(c) certificate holders as of May 1, 2024,
there were 801 employers who had certificates that were either issued
or pending.\321\ Employers holding issued certificates reported paying
approximately 40,579 workers at subminimum wages in their previously
completed fiscal quarter.\322\
---------------------------------------------------------------------------

\321\ WHD, 14(c) Certificate Holders, May 1, 2024, https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders. Note that some of these entities (34 employers)
report having zero workers paid a subminimum wage, so this may be an
overestimate of the actual number of affected entities. Based on
this list, employers operate in the following 38 States: Alabama,
Arizona, Arkansas, California, Colorado, Connecticut, Florida,
Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New
York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania,
South Carolina, South Dakota, Texas, Utah, Virginia, Wisconsin, and
West Virginia. The remaining 12 States, plus the District of
Columbia, had no section 14(c) employers on the list.
\322\ Id. Note that the number of workers paid subminimum wages
are only reported for entities that have issued certificates and
does not represent workers that may be employed by employers with
subminimum wage payment authority listed as pending.
---------------------------------------------------------------------------

The Department has provided additional data below about the hours,
earnings, and primary disability of workers reported by employers on
applications for section 14(c) certificates. In addition to these
workers, there may be other categories of workers affected by this
proposed rule, such as youth with disabilities looking to enter
employment, or non-working individuals with disabilities who may choose
to enter the labor force if there is an increase in full-wage
employment options (see section VII.D.4. for an additional discussion
on this population). The Department welcomes comments regarding other
types of workers who may be affected by the proposed rule.
1. Form WH-226A--Information Collected
When applying for a section 14(c) certificate to employ workers
with disabilities at subminimum wages, employers must fill out form WH-
226A, which asks for information about workers who were paid subminimum
wages at each job site, including the type of work being performed,
average hourly earnings, average weekly hours worked, and the primary
disability that affects the worker's productivity for the job most
performed.\323\ The data discussed here reflects what employers have
entered on their application forms.\324\ Data is for May 1, 2024, and
reflects the applicant's most recently completed fiscal quarter at the
time they applied.\325\
---------------------------------------------------------------------------

\323\ The information collected from the form WH-226A is
submitted by applicants and may include inaccuracies, such as
instances when an employer reports a piece rate instead of an hourly
wage rate or miscalculates the wage. Inaccuracies may also be the
result of data entry errors. The Department presents this
information to provide context for the general status of workers on
section 14(c) certificates. The summary data presented here does not
reflect any changes an employer made after submission of its
application, including those based upon the Department's oversight
of section 14(c) through its application processes and enforcement
actions.
\324\ WHD collects this data for the purpose of processing
applications to provide employers with certificates authorizing the
payment of subminimum wages to workers with disabilities under
section 14(c). Although the data from the application forms is not
collected for comprehensive statistical analysis, it is the best
data that the Department has on the population of workers paid
subminimum wages under section 14(c) certificates and is useful to
provide context for purposes of this analysis.
\325\ In this data set, the effective dates for the certificates
range from July 2022 to the present.
---------------------------------------------------------------------------

According to this data, the mean ``average hourly earnings'' for
workers on section 14(c) certificates is $4.08, and the median
``average hourly earnings'' is $3.46. These workers work a mean of
11.45 hours per week. Form WH-226A also asks certificate holders about
the primary disability that affects each subminimum wage worker's
productivity for the job at which they have worked the most number of
hours over the most recently completed fiscal quarter. As shown in
Table 1, the vast majority (about 91 percent) of workers being paid
subminimum wages under section 14(c) certificates have I/DD reported as
their primary disability.

Table 1--Workers on Section 14(c) Certificates by Primary Disability
------------------------------------------------------------------------
Share of
workers on
Primary disability section 14(c)
certificates
------------------------------------------------------------------------
Age Related Disability.................................. 0.09%
Hearing Impairment...................................... 0.14
Intellectual/Developmental Disability................... 90.96
Neuromuscular Disability................................ 0.68
Psychiatric Disability.................................. 4.34
Substance Abuse......................................... 0.02
Visual Impairment....................................... 0.21
Other................................................... 3.41
------------------------------------------------------------------------

2. Section 14(c) Workers Demographics--Race, Age, and Ethnicity
The WHD section 14(c) application form does not ask for any other
demographic data on section 14(c) certificate workers. For their 2023
report, GAO surveyed community rehabilitation program (CRP) employers
to estimate the percentage of section 14(c) workers employed by CRPs in
August 2021 by race and ethnicity and by age. As shown in Table 2, GAO
estimated that a large share of these workers are White and fall
between the ages of 25 and 54, which aligns with demographic breakdowns
found in the overall employed population.\326\
---------------------------------------------------------------------------

\326\ For example, in the overall employed population in the
U.S., White workers represent 76.5 percent of all employed persons,
and workers ages 25 to 54 represent 64 percent of all employed
persons. U.S. Dep't of Labor, Bureau of Labor Statistics, BLS
Current Population Survey, Employment Status of the Civilian
Population by Age, Sex, and Race, 2023, https://www.bls.gov/cps/cpsaat03.htm.

[[Page 96500]]

Table 2--Estimated Percentage of Section 14(c) Workers Reported To Be
Employed by Community Rehabilitation Programs in August 2021, by Race/
Ethnicity and Age
------------------------------------------------------------------------
Estimated share of
workers on section
14(c) certificates
(%)
------------------------------------------------------------------------
Racial/ethnicity Category:
White (Not Hispanic or Latino).................. 78
Black or African American (Not Hispanic or 14
Latino)........................................
Asian (Not Hispanic or Latino).................. 1
Native American or Alaska Native (Not Hispanic 1
or Latino).....................................
Hispanic or Latino.............................. 5
All other race/ethnicity categories............. 2
Age:
18-24 years old................................. 4
25-54 years old................................. 70
55 years old or older........................... 26
------------------------------------------------------------------------
Source: GAO Survey of Community Rehabilitation Program employers, 2023
GAO Report

Aside from the information discussed in this section, the
Department is unaware of any data source that regularly publishes
additional up-to-date demographic information specifically on workers
employed by section 14(c) certificate holders. The Department's Bureau
of Labor Statistics (BLS) publishes data on all workers with a
disability, including sex, race, age, and educational attainment.\327\
However, workers who are currently employed under section 14(c)
certificates are only a small subset of all workers with a disability.
The Department welcomes comments and data on the demographics of
workers with disabilities employed under section 14(c) certificates.
---------------------------------------------------------------------------

\327\ U.S. Dep't of Labor, Bureau of Labor Statistics, BLS
Current Population Survey, ``Employment status of the civilian
noninstitutional population by disability status and selected
characteristics, 2023 annual averages,'' https://www.bls.gov/news.release/disabl.t01.htm.
---------------------------------------------------------------------------

3. Affected Employers
As discussed in section II.C.2., WHD issues section 14(c)
certificates to business establishments, community rehabilitation
programs (CRPs), hospitals/patient worker facilities, and school-work
experience programs (SWEPs). The overwhelming majority of current
certificate holders are CRPs, representing approximately 93 percent of
current certificate holders as of May 1, 2024. In the context of
section 14(c), WHD defines CRPs as ``not-for-profit agencies that
provide rehabilitation and employment for people with disabilities.''
\328\ Such establishments are sometimes referred to as ``sheltered
workshops'' as they typically are facility-based and often serve
workers with disabilities in sheltered or segregated settings. At the
time of drafting, only 30 private-sector, for-profit businesses hold
certificates for the payment of subminimum wages, representing 4
percent of total certificate holders. Apart from CRPs and business
establishments, the remaining certificates are held by hospitals or
residential care facilities that employ patients, representing 3
percent of total certificate holders, and ``school work experience
programs'' that represent less than half of one percent of total
certificate holders.
---------------------------------------------------------------------------

\328\ WHD Field Operations Handbook (FOH) 64k00, https://www.dol.gov/agencies/whd/field-operations-handbook/Chapter-64.
---------------------------------------------------------------------------

In the WHD data reviewed, the expiration dates for certificates
fall between May 2024 and early 2026. The Department assumes that a
share of the certificate holders with certificates expiring before the
publication of the final rule would reapply and be granted new
certificates with later expiration dates (no later than 3 years after
the effective date of a final rule). The Department does not have
information to estimate exactly how many certificate holders will
choose to reapply. As of May 1, 2024, 779 of the 801 employers holding
or seeking a certificate (97 percent) were renewals, but the overall
trend of certificate holders has been in a steady decline over the past
decade (the number of pending and issued certificate holders was 2,820
in April 2015 and has declined every year since). If this trend
continues, fewer certificate holders may choose to reapply in the
future even absent any regulatory action. Furthermore, the publication
of the proposed rule may impact certificate holders' choices if they
anticipate that certificates are going to be phased out if the rule is
finalized as proposed. There may also be changes to State or local laws
during this time period that may affect whether certificate holders
operating in those states or localities reapply for a certificate.
Similarly, employers in States that have already begun a phaseout of
subminimum wages may choose not to reapply before expiration of the
phaseout period. As of May 1, 2024, there are 53 certificate holders
located in States that are in the process of phasing out the payment of
subminimum wages.\329\
---------------------------------------------------------------------------

\329\ California (38), Colorado (1), Nevada (4), and South
Carolina (10). WHD, 14(c) Certificate Holders, May 1, 2024, https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders.
---------------------------------------------------------------------------

The number of certificate holders has declined over recent years,
and the Department expects that trend to continue. In 2001, the GAO
estimated that approximately 424,000 workers with disabilities were
paid subminimum wages while working for 5,612 employers holding section
14(c) certificates.\330\ As mentioned above, as of May 1, 2024, that
number dropped to approximately 40,579 workers with disabilities being
paid subminimum wages to employers with issued certificates, while 801
employers held or were seeking section 14(c) certificates, representing
a decline in certificate holders of almost 86 percent.\331\ All impacts
discussed in this

[[Page 96501]]

regulatory impact analysis use the current number of certificate
holders at the time of drafting, but the Department expects this may be
an overestimate, as the number of certificate holders could likely
decline by the time of publication of the final rule given the overall
trends in the number of certificate holders. For example, as of May 1,
2023, the number of employers holding or seeking a section 14(c)
certificate was 931, meaning that the number of certificate holders
declined by almost 14 percent over the year. If a similar decline were
to occur over the forthcoming year, the number of certificate holders
could be below 700 by May 2025. Additionally, the data includes
certificate holders in states that have plans to phase out the payment
of subminimum wages for workers with disabilities in the near future,
which could also result in a lower number of certificate holders at the
time of the final rule.
---------------------------------------------------------------------------

\330\ U.S. Gov't Accountability Office, GAO-01-886, ``Special
Minimum Wage Program: Centers Offer Employment and Support Services
to Workers with Disabilities, But Labor Should Improve Oversight''
(2001) (2001 GAO Report) at 10, 18.
\331\ The Department notes that data collected by the Department
from section 14(c) applications is not census data. Data is derived
from information received by WHD during the certificate application
process, which is used for the purposes of determining whether to
issue a certificate. The application requires the employer to
provide a snapshot of its operations and workforce that is paid a
subminimum wage during its most recently completed fiscal quarter at
the time of its renewal application, and the submission date varies
per applicant. Because certificates are issued to the employer, not
individuals employed at subminimum wages, the specific number of
employees may change over the duration of the certificate. The
certificate application data is self-reported by employers and does
not reflect any changes made by the employer after its submission.
Additionally, the data provided reflects active certificates as of
the date that the Department's website list was revised and does not
include the number of employees on ``pending'' section 14(c)
certificates.
---------------------------------------------------------------------------

C. Costs

1. Regulatory Familiarization Costs
This proposed rule would impose direct costs on section 14(c)
certificate holders by requiring them to review the regulation. To
estimate these ``regulatory familiarization costs,'' three pieces of
information must be estimated: (1) the number of affected certificate
holders; (2) a wage level for the employees reviewing the rule; and (3)
the amount of time spent reviewing the rule. As discussed above, WHD
data shows that there are 801 employers who had certificates that were
either issued or pending as of May 1, 2024.\332\ The Department assumes
that each of these entities would incur some regulatory familiarization
costs, and that each certificate holder would spend an average of 2
hours reviewing this proposed rule. The Department assumes that each
reviewer will spend 1 minute per page reviewing the regulatory
text,\333\ which is equivalent to 5 double-spaced pages at the time of
publication. They will also review sections of the preamble and any
compliance assistance materials as appropriate, so the Department has
added significant additional time for that review.
---------------------------------------------------------------------------

\332\ As discussed above, this may be an overestimate of the
number of employers who will review the final rule, as some of these
certificate holders operate in States that are phasing out the
payment of subminimum wages to workers with disabilities in the near
future.
\333\ Brysbaert, Marc (April 12, 2019), ``How many words do we
read per minute? A review and meta-analysis of reading rate,''
https://doi.org/10.31234/osf.io/xynwg.
---------------------------------------------------------------------------

The Department assumes that a Compensation, Benefits, and Job
Analysis Specialist (SOC 13-1141) with a median hourly wage of $35.83
will review the rulemaking.\334\ The Department also assumes that
benefits are paid at a rate of 45 percent of the base wage \335\ and
overhead costs are paid at a rate of 17 percent of the base wage,
resulting in an hourly rate of $58.04 in 2023 dollars. Therefore, the
total regulatory familiarization cost to employers is $92,980 (801
entities x 2 hours x $58.04). Although the issuance of section 14(c)
certificates would be phased out over multiple years under this
proposal, the Department assumes that most affected entities will
review the rule when it is published.\336\ Therefore, all regulatory
familiarization costs are assumed to occur in Year 1 following
publication of the rule. Total annualized rule familiarization costs
over the first 10 years are estimated to be $12,373, assuming a 7
percent discount rate.
---------------------------------------------------------------------------

\334\ U.S. Dep't of Labor, Bureau of Labor Statistics,
Occupational Employment and Wage Statistics survey (OEWS), May 2023,
https://www.bls.gov/news.release/ocwage.t01.htm.
\335\ The benefits-earnings ratio is derived from BLS's Employer
Costs for Employee Compensation (ECEC) data using variables
CMU1020000000000D and CMU1030000000000D. The Department averaged the
four quarters of 2023 to get a full-year 2023 ratio.
\336\ There may be some certificate holders who re-review the
regulations if/when they decide to re-apply for their certificate
during a phaseout period. However, the Department has not estimated
rule familiarization costs in future years. The Department welcomes
comments that would help inform this estimate.
---------------------------------------------------------------------------

2. Adjustment Costs
As discussed further in Section VII.D., if the issuance of section
14(c) certificates is phased out, employers who are certificate holders
might choose to respond in a few different ways. If certificate holders
only serve workers with disabilities who are paid the subminimum wage,
they might choose to continue operations as they are but pay at least
the full Federal minimum wage to those workers. These certificate
holders may instead choose to close their organization.\337\
Certificate holders who employ other workers (at or above minimum wage)
might choose to replace affected workers with disabilities with the
other workers; or they might choose to no longer employ workers with
disabilities who had been paid subminimum wages under section 14(c),
spread the work of those workers to other employees, and not hire any
new workers. If certificate holders are already providing
rehabilitation or other non-work services to individuals with
disabilities, they may alternatively decide to discontinue the
employment of these workers while still providing them with those
services. Certificate holders will likely incur some adjustment costs
under each of these scenarios. If they choose to transition all workers
with disabilities to at least the full minimum wage, the increased wage
cost would be considered a transfer (discussed below), but they could
still incur some adjustment costs associated with updating payroll
systems, etc. If entities choose to hire new workers or spread work to
existing workers, they may incur hiring costs or adjustment costs
associated with these activities. The Department assumes that these
costs would likely be incurred by each certificate holder at different
points in time prior to when their current certificate expires, so the
total costs would be spread out over multiple years.
---------------------------------------------------------------------------

\337\ The Department does not have data to estimate how many
certificate holders would close their organization following the
changes proposed in this rule but welcomes comments from certificate
holders to help inform this estimate.
---------------------------------------------------------------------------

Because there are many uncertainties in exactly how each
certificate holder would respond to this proposed rule, and how the
costs would be spread over the proposed phaseout period, the Department
has not provided a definitive estimate of adjustment costs. However, as
an example, if all certificate holders incurred an average of 1 hour of
adjustment costs, the total cost would be $46,490 (801 entities x 1
hour x $58.04). These costs would be spread over multiple years as
employers transition their pay practices or change their operation
models. The Department welcomes comments and data from certificate
holders that would help inform an estimate of adjustment costs.
3. Costs to Workers Employed Under Section 14(c) Certificates
The Department acknowledges that this rule may also result in some
costs to workers currently paid subminimum wages under section 14(c)
certificates. Although any changes in the wages they receive, the hours
they work, or their employment status would be considered a transfer
and are discussed below, there could be follow-on effects that would
lead to costs for these workers. For example, if a certificate holder
does not retain its section 14(c) workers at the full minimum wage, the
worker may need to spend time looking for employment at or above the
full Federal minimum wage or may need to obtain

[[Page 96502]]

additional support services or other meaningful non-work activities to
replace the time previously spent in subminimum wage employment. They
could incur transition and job search costs associated with these
activities. These transition costs include the cost of time spent
learning about available resources, time for eligibility
determinations, time spent on waitlists, training costs, etc. There may
be some employers who will choose not to retain the workers working
under section 14(c) certificates; a subset of those workers may be
unable to find replacement employment or support services. For this
group of workers, they may incur costs associated with reduced well-
being from no longer being employed or due to a reduction in hours
worked. Some of their families may also incur increased care costs, if
they need to find or provide care for their family member for the time
that was previously spent working at subminimum wages. However, as
discussed throughout this rulemaking, the Department believes that a
wide range of strategies, opportunities, and supports exist that can
minimize this outcome. Although there may be time required for workers
to transition from subminimum wage jobs, the Department believes that
the phaseout approach proposed in this rule would help ensure that
workers will ultimately be able to make this transition.
Additionally, the Department acknowledges workers may also have
concerns about potential limitations on their disability benefits due
to an increase in their wages. In response to such concerns, some
workers with disabilities may choose to leave the workforce or limit
the number of hours they work. The Department is unable to specifically
quantify these potential cost impacts but notes workers receiving
Supplemental Security Income or Disability Insurance have access to
free employment support resources, such as the Social Security
Administration's ``Ticket to Work'' program, that allows enrolled
workers with disabilities to improve their earning potential. Likewise,
as addressed in the preamble, the availability of resources such as
ABLE accounts, allow workers with disabilities to accumulate savings
without jeopardizing access to certain public benefits, thus minimizing
this concern.
The Department does not have data to quantify costs to workers
currently employed under section 14(c) certificates but welcomes
comments and input to help inform this estimate, including comments on
available resources that address the impacts that earnings may have on
disability benefits.

D. Cost Savings

Any increased costs for certificate holders could be balanced out,
in part, by the cost savings of no longer applying for section 14(c)
certificates and no longer participating in the activities required to
maintain their certificate and determine appropriate commensurate
subminimum wage rates for workers. Currently, employers who wish to
apply for a section 14(c) certificate may submit their application to
WHD in one of two ways: completing their application online or
submitting completed forms WH-226 and WH-226A. When applying for a
certificate, applicants are responsible for providing information
related to their employment operations and the subminimum wage workers
employed during the applicant's most recently completed fiscal quarter,
including details on hours, wages, job descriptions, and primary
disability. Any affected entity that would have renewed their
application in absence of this rule could likely experience some cost
savings following this rule, since they no longer would be filling out
an application for and maintaining a section 14(c) certificate. As an
example, in the Paperwork Reduction Act Supporting Statement for these
regulations, the Department estimates that for employers who are
renewing their application for a section 14(c) certificate, it will
take them 75 minutes to fill out form WH-226 and 2 hours to fill out
form WH-226A, for a total of 3.25 hours. If these forms are filled out
by a Compensation, Benefits, and Job Analysis Specialist (SOC 13-1141)
with a full-loaded wage of $58.04, each employer who was planning to
renew their section 14(c) certificate application would save $188.63
per application cycle. In order to calculate an illustrative estimate
of the potential total maximum cost savings, the Department assumes all
447 certificate holders with certificates expiring in the next year
(between the dates of May 1, 2024, and May 1, 2025) would decide to
renew their application for a section 14(c) certificate in absence of
this proposed rulemaking. If these certificate holders no longer have
to fill out the application following the rule, the total potential
annual cost savings would be $84,318 ($188.63 x 447). The true cost
savings is likely somewhat lower, because all certificate holders may
not choose to re-apply when their certificate expires, due to both
overall downward trends in the number of certificate holders and
potential expectations of a phasing out of section 14(c) certificates
based on the publication of this proposed rule.
Employers who no longer hold a section 14(c) certificate to pay
subminimum wages would also be relieved of several operations costs
required to remain in compliance with the section 14(c) provisions. For
example, employers would no longer conduct prevailing wage surveys used
to determine worker commensurate wage rates for each type of work paid
at a subminimum wage. This would relieve the employer of their at least
annual task of ascertaining the wage rates paid to the experienced
nondisabled workers of other employers in the vicinity, usually
obtained by surveying comparable firms in the area that employ
primarily nondisabled workers doing similar work. The appropriate size
of such a survey sample depends on the number of firms doing similar
work but generally would include at least three firms. Employers would
also be relieved of conducting time studies of both hourly paid workers
as well as staff that do not have disabilities for the work being
performed (``standard setters''). To maintain compliance with section
14(c), employers must review the wages of all subminimum wage employees
at least once every 6 months. The work measurement or time study
process involves a review with respect to the quantity and quality of
work of each hourly-rated worker with a disability as compared to that
of workers engaged in similar work or work requiring similar skills
that do not have a disability for the work performed. With the
prevailing wage rate for each job and the productivity measurement of
each individual worker, the employer must calculate the commensurate
wage rate for each worker and implement that wage rate no later than
the first complete pay period following the evaluation. These steps
would have to be repeated more frequently if an employee changes jobs
or the job's structure is changed. Section 14(c) certificate holders
also have compliance responsibilities under section 511 of the
Rehabilitation Act that require them to obtain, review, and maintain
certain documentation of services provided to youth employees prior to
subminimum wage employment as well as services required for all
subminimum wage employees every 6 months for the first year of
employment and annually thereafter. Also, employers must inform each
worker paid subminimum wages of local training opportunities for self-
advocacy, self-determination, and peer mentoring. (See section
III.B.2.ii. for an overview of these requirements.)

[[Page 96503]]

Therefore, section 14(c) certificate holders would no longer be
conducting many hours of work for each worker that was previously
employed under their certificate.
While the Department does not require a specific method for
employers to conduct time studies and therefore does not have
definitive data on how long it takes employers to complete all these
activities, a common method for performing time studies is for the
employer to conduct at least 3 separate 25-minute time studies for both
the standard setter and hourly paid worker with a disability, which
would be at least 75 minutes per typical time study per job worked for
each worker.\338\ Because time studies of workers with disabilities
must occur at least every 6 months, this cost could be 2.5 hours per
year per worker. If we were to attribute this cost savings to all
current employers with pending or issued certificates (801), and
assuming even only 1 employee per each employer, the total cost savings
could be at least $116,225 (801 employers x 2.5 hours x $58.04), spread
over multiple years as certificates expire. Given that, at the time of
drafting, WHD data shows employers with issued certificates employed
approximately 40,579 workers under section 14(c) certificates,\339\ the
Department anticipates the cost savings would be significantly greater.
---------------------------------------------------------------------------

\338\ Guidance based on WHD Section 14(c) Online Calculators
User Guide, https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/calculatorGuide.pdf.
\339\ WHD, 14(c) Certificate Holders, May 1, 2024, https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders.
---------------------------------------------------------------------------

The Department welcomes comments and data to help inform an
estimate of cost savings to certificate holders, including data
specific to section 511 compliance responsibilities.

E. Transfers and Other Aspects of Changing Employment Arrangements

The Department expects that if the issuance of section 14(c)
certificates is phased out as discussed in this proposed rule, workers
currently paid subminimum wages under these certificates would be
impacted in various ways. Some of these workers will transition to
employment at the full minimum wage while others may lose their
subminimum wage employment but will be able to transition to other
vocational rehabilitation services and supports available to them.
Workers may observe impacts on their earnings, employment status, or
hours worked. In this section, the Department discusses a full range of
potential transfer impacts associated with this proposed rule and
presents evidence to help narrow that potential range. Because of the
many uncertainties discussed throughout this section, the Department
has not provided quantitative estimates but has instead provided
information to help illustrate the potential impact. The Department
welcomes comments providing additional data that would help inform an
estimate of transfers or other effects not already quantified.
1. Potential Range of Effects
The Department acknowledges that workers employed under section
14(c) certificates may be affected differently by this proposed rule
and, therefore, has presented a range of effects here to provide
context on potential transfers. The highest potential transfers to
workers would be if 100 percent of current workers employed under
section 14(c) certificates transition to full-wage employment for the
same number of hours they are currently working following the phaseout
of section 14(c) certificates, resulting in all affected workers
receiving wage increases to the full minimum wage.\340\ The other end
of the range of possible impacts would occur if only a fraction of
workers currently employed under section 14(c) certificates transition
to full-wage employment, resulting in a significant loss of earnings
(some portion of which would be lost surplus, or the value of the
earnings above and beyond the value of leisure). To provide points of
reference, the Department has conducted a sensitivity analysis using
the following assumptions of the percentage of section 14(c) workers
who transition to full-wage employment: 100 percent, 75 percent, 50
percent, and 25 percent.
---------------------------------------------------------------------------

\340\ Workers receiving wage increases as a result of the
proposed rule would be subject to both Federal and State minimum
wage requirements. Estimates of transfers in States with minimum
wage rates higher than the Federal minimum wage incorporated the
cost increase to the higher State minimum wage rate.
---------------------------------------------------------------------------

In order to calculate the upper bound of transfers for the
sensitivity analysis, the Department calculated the difference between
each worker's reported average hourly earnings and the greater of the
Federal minimum wage or State minimum wage for the State in which their
employer operates.\341\ If all workers on section 14(c) certificates
receive wage increases to minimum wage (either as a result of wage
increases from their current employer or if they find new employment at
the minimum wage) while maintaining their current hours, the total gain
in annual earnings would be $174.8 million.\342\ This annual estimate
would likely take multiple years to phase in as employers make changes
leading up to the expiration of their certificate.
---------------------------------------------------------------------------

\341\ Due to difficulties in assessing each certificate holder's
local area, the analysis did not take into account that some
localities may have minimum wages that are higher than the State
minimum wage. The differences between a worker's average hourly
earnings and local minimum wage could be greater than the difference
calculated here, leading to an underestimate of transfers.
Additionally, some workers may find new employment at a wage rate
above their State or local minimum wage, which could also lead to an
underestimate of transfers.
\342\ The average of the difference between the applicable
minimum wage and the section 14(c) wage is $6.49 and the average of
the reported average number of hours worked per week is 11.45.
Multiplying the increase in weekly earnings when section 14(c)
workers earn the applicable minimum wage by the number of workers by
52 weeks ($76.86 x 43,748 x 52) equals $174.8 million per year.
---------------------------------------------------------------------------

For additional potential transfer estimates (i.e., total increased
earnings to workers who keep their job at a higher wage, accompanied by
loss in earnings to those workers who lose their job), the Department
assumed that a percentage (75 percent, 50 percent, and 25 percent) of
randomly selected workers would remain employed and be paid the minimum
wage. See Table 3. If 75 percent of current workers under section 14(c)
certificates remain employed and are paid the minimum wage, the
Department estimates that transfers from employers to workers would be
$131.7 million (additional wages to the workers remaining employed),
and the changes from workers to employers would be $27.1 million in
wages no longer being paid to the quarter of workers who are no longer
employed. With 50 percent or 25 percent of workers remaining employed,
transfers (i.e., decrease in wage costs to still-employed workers) and
changes (i.e., wages lost by newly-unemployed workers) would be as
shown in Table 3, below.

[[Page 96504]]

----------------------------------------------------------------------------------------------------------------
Newly-
Percentage of Total transfers unemployed
Percentage of workers in minimum wage employment (%) workers who from employers workers' lost
lose employment to workers (in wages (in
(%) millions) millions)
----------------------------------------------------------------------------------------------------------------
100.......................................................... 0 $174.8 $0
75........................................................... 25 131.7 27.1
50........................................................... 50 87.7 54.7
25........................................................... 75 43.8 81.7
----------------------------------------------------------------------------------------------------------------

The Department requests comments providing quality empirical
research on the effects of phasing out the payment of wages below the
Federal minimum wage on employment, earnings, or other outcomes for
workers with disabilities.
2. Illustrative Analysis To Help Inform Estimates
In order to help narrow the range of potential effects, the
Department has performed an illustrative analysis to help assess the
impact of phasing out section 14(c) certificates on labor force
outcomes for workers with disabilities. As discussed above in section
III.D., in recent years, an increasing number of States and localities
have prohibited, limited or planned to phase out the payment of
subminimum wages to workers with disabilities. The Department conducted
an analysis looking at employment and earnings outcomes for individuals
with I/DD in states that have phased out the issuance of section 14(c)
certificates compared to the states that continue to allow the payment
of subminimum wages to workers with disabilities. If, as the Department
has stated, the cessation of section 14(c) certificates does not lead
to adverse labor market outcomes for workers currently employed under
these certificates, then one would expect to find no statistically
significant difference between the employment and labor force
participation outcomes for workers with disabilities in states that
have phased out the payment of subminimum wages for workers with
disabilities compared to those that have not. Thus, the Department used
data from the American Community Survey (ACS) from 2013 to 2023 in
regression analyses to look at employment and labor force status for
workers with cognitive difficulties in states that have banned the
payment of subminimum wages for workers with disabilities versus those
that have not.\343\
---------------------------------------------------------------------------

\343\ ACS identifies other groups of individuals with
disabilities, such as hearing and visual disabilities, independent
living difficulties, self-care difficulties, and ambulatory
disabilities. This analysis focuses on individuals with cognitive
difficulties, as this group would be more directly affected by the
proposed rule due to its larger participation in section 14(c)
certificate employment. For purposes of this analysis, the
Department assumes that the ACS category of cognitive difficulties
is most similar to the population of interest, workers with I/DD. As
noted above, based on WHD section 14(c) certificate data as of May
1, 2024, individuals with I/DD comprised about 91 percent of the
workers with disabilities being paid subminimum wage.
---------------------------------------------------------------------------

The Department notes that there may be some uncertainties in the
data that prevent the conclusions of the analysis from being applied to
a definitive transfer estimate. First, phaseouts of the payment of
subminimum wages were implemented gradually in many states and in some
instances are still ongoing. This phased elimination complicates the
measurement of the timing of the effect of disallowing subminimum wages
because it is unclear how much of the impact will occur immediately
versus what will occur over time as current certificates expire.
Second, multiple states have prohibited the payment of subminimum wages
to individuals with disabilities in recent years; thus, state data
representing their prohibition are not yet fully represented in the
ACS.\344\ Third, complete ACS data on disability status and other
variables is not available for the year 2020 due to data collection
issues during the COVID-19 pandemic. Lastly, the overall population of
workers with cognitive difficulties in the ACS is not a perfect
representation of the specific population of workers employed under
section 14(c) certificates.\345\
---------------------------------------------------------------------------

\344\ For a fuller discussion of the States that have enacted
legislation prohibiting or limiting the payment of subminimum wages,
see section III.D. of this proposal.
\345\ As noted in section VII.B.1., most workers employed under
14(c) certificates have I/DD listed as their primary disability. The
disability questions in the ACS are much more general than the
specific requirements of an I/DD diagnosis. Thus, it is likely that
respondents with cognitive difficulties in the ACS include
individuals who do not meet the definition for having I/DD. It is
uncertain how well the ACS respondents with cognitive difficulties
represent the labor market behaviors of individuals working under
section 14(c) certificates, but the Department believes that there
is no clearly better data available. For a more detailed discussion,
see Havercamp, S.M., Krahn, G., Larson, S., Weeks, J.D. and the
National Health Surveillance for IDD Workgroup (2019), ``Working
Through the IDD Data Conundrum: Identifying People with Intellectual
Disability and Developmental Disabilities in National Population
Surveys,'' Washington, DC: Administration on Intellectual and
Developmental Disabilities, https://acl.gov/sites/default/files/Aging%20and%20Disability%20in%20America/National_Data_Paper_AIDD-ACL_09.25.2019%20508%20compliant.pdf.
---------------------------------------------------------------------------

The Department conducted an analysis comparing the change in labor
force outcomes for workers with disabilities in states that stopped the
payment of subminimum wages with the changes in outcomes for workers
with disabilities in states that did not. Specifically, the Department
looked for differences in employment status (measured by the variable
asking if an individual worked last week) and labor force status
(whether an individual was in the labor force).\346\ In the regression
model, the Department used year fixed effects to control for any common
factors that affected all states equally in each year, such as the
business cycle or the COVID-19 pandemic. The Department used state
fixed effects to control for any unobserved characteristics that are
specific to each State and do not vary over time, such as the relative
size of the population of individuals with disabilities or the
availability of social services. The Department also controlled for
observable factors that vary by State and year and could affect the
outcomes of interest, such as the labor market outcomes for workers
with no cognitive disabilities, since that could reflect overall labor
market conditions.
---------------------------------------------------------------------------

\346\ The Department used a differences-in-differences approach
to compare changes in these measures before and after payments were
stopped to States that did not stop payment of subminimum wages.
---------------------------------------------------------------------------

Despite including year fixed effects to account for common yearly
shocks, analyzing workforce trends by State and year highlights a
potential pitfall in using 2020 data. The differences-in-differences
approach assumes that State-specific trends in the relevant labor force
measures prior to the change in subminimum wage laws are similar across
all States, known as the ``parallel trends'' assumption. The pandemic
caused significant disruptions in each State's labor markets, which are
reflected in the outcomes for that year. As a result, the assumption of
parallel trends is less likely to hold as systemic changes such as the
pandemic may have disproportionately affected different

[[Page 96505]]

groups in each State's labor force. Moreover, the ACS was also heavily
affected in 2020, leading the data to fail the Statistical Data Quality
Standard from the Census Bureau for that year.\347\ Given these
concerns, the 2020 data were excluded from the analysis. To check the
validity of the parallel trend assumption, the Department visually
inspected these States' trends from 2010 to 2022, which indicated that
the pre-treatment trends were largely parallel despite variation around
each State's average that makes the visual interpretation less clear.
These findings remain consistent when controlling for State- and year-
fixed effects.\348\ While it is impossible to completely ascertain the
validity of the parallel trend assumption because it relates to a
counterfactual world where the policy change did not occur, this
evidence suggests that the estimation assumption is reasonable in this
context.
---------------------------------------------------------------------------

\347\ According to Census documentation, ``[B]ecause of the
underlying quality concerns, the Census Bureau urges caution in
using the experimental estimates as a replacement for standard 2020
ACS 1-year estimates. Users should evaluate the estimates and
alternatives to determine if they are suited for their needs.''
https://www.census.gov/newsroom/press-releases/2021/experimental-2020-acs-1-year-data.html. Specifically, ``the Census Bureau does
not recommend comparing the 2020 ACS 1-year experimental estimates
with our standard ACS estimates or the decennial census, or
comparing the 2020 1-year PUMS data with standard pre-tabulated
products or PUMS-based estimates from previous years.'' https://www.census.gov/newsroom/press-releases/2021/changes-2020-acs-1-year.html.
\348\ A formal statistical analysis to confirm parallel trends
in the pre-treatment period would need to test the divergence in the
outcomes before the policy change. However, there are difficulties
to applying the test in this context. First, subminimum wage bans
were implemented at different times across States, resulting in a
staggered treatment period. Second, the partial introduction of the
policy in some States introduces further complexity. This makes it
challenging to select a single year as the benchmark that applies
uniformly to all States, rendering a formal statistical test
impractical.
---------------------------------------------------------------------------

The Department performed two different analyses, one focusing on
the States that enacted an immediate transition away from the payment
of subminimum wages, and one including states that gradually phased out
the policy. The Department did not find significant differences in the
results of these two analyses on employment or labor force
participation.
The Department's analysis yields no statistical evidence that
employment or the labor force participation rate of individuals with
cognitive disabilities differed in States that stopped the payment of
subminimum wages.\349\ The findings of this analysis do not support
that the changes in this proposed rule would lead to statistically
detectable adverse labor force outcomes for workers employed under
section 14(c) certificates. Due to the uncertainties discussed above,
the Department has not applied the results of this analysis to a
definitive transfers estimate. However, these results can help to
narrow the range of potential transfer effects, suggesting that the
lower loss of employment estimate of transfers may be more likely to be
realized than the higher loss of employment.\350\
---------------------------------------------------------------------------

\349\ The Department notes that, given the nuanced and evolving
nature of these State laws, the classification of these States,
laws, and relevant enactment dates is complex. The Department
welcomes comment and data from the public on this analysis and the
Department's preliminary conclusion that there is no statistical
evidence that employment or the labor force participation rate of
individuals with cognitive disabilities differed in States that
stopped the payment of subminimum wages.
---------------------------------------------------------------------------

3. Additional Evidence
In 2015, in response to a class action complaint that was filed on
behalf of individuals with I/DD, the State of Oregon entered into a
statewide settlement agreement that required, among other things, that
Oregon decrease State support of sheltered workshops for individuals
with I/DD and expand access to supported employment services that allow
the opportunity to work in CIE settings. Oregon implemented competitive
and supported employment strategies, ultimately ending the payment of
subminimum wages to workers with disabilities in Oregon. A 2022 report
on the changes made following the settlement agreement reported that in
2016--the year the settlement was reached and approved by the court,
there were 1,405 people working in sheltered workshops in Oregon, and
by 2021, that number had declined to zero.\351\ This report also noted
that Oregon placed 1,138 individuals from the class who had previously
worked for subminimum wages into CIE.\352\ This data shows that it is
possible, with the right supports, for large numbers of workers with
disabilities earning the subminimum wage to transition to full-wage
employment opportunities. Although the evidence comes from just one
State, the Department believes that the results could be scalable, and
that it further serves to narrow our estimated impacts in the direction
of more affected workers finding employment at the full Federal minimum
wage. See discussion in section VII.B.; Figure 1, Panel A (Employment-
Population Ratio--With a Disability, 16 Years and Over, 2014--2024).
---------------------------------------------------------------------------

\351\ Oregon Department of Human Services, ``Lane v. Brown
Settlement Agreement Report,'' https://www.oregon.gov/odhs/employment-first/Documents/lane-v-brown-settlement-message-2022-06-21.pdf.
\352\ Id.
---------------------------------------------------------------------------

As discussed in section III, legislative, policy, and programmatic
changes have broadly influenced available options for workers with
disabilities today. Because of these changes, and the evidence
discussed above, the Department believes that this proposed rule would
not result in widespread negative labor force outcomes for individuals
with disabilities.
4. Other Transfers or Behavior-Change Effects
The Department also considered additional impacts that may occur as
a result of this proposed rule. For example, it could be possible for
some affected workers to see a reduction in hours worked. If the
certificate holder chooses to retain the section 14(c) workers and pay
them the full Federal minimum wage, they may also choose to offset
increased labor costs by providing fewer hours of work for these
workers. The Department has not estimated a change in hours that may
result from this rule but believes that the change could be minimal
given that the current average number of hours worked by workers on
section 14(c) certificates is very low (as discussed in section VII.B.,
the mean number of hours worked by this population is 11.45 hours per
week.) Nevertheless, the Department welcomes comments on the extent to
which this could occur.
Following the changes proposed in this rule, some workers who were
previously employed under section 14(c) certificates could also
experience a change in eligibility for certain entitlement programs,
and therefore a change in the public benefits that they receive. Any
change in benefits would depend on a number of factors, including
whether each individual finds employment at or above the full minimum
wage following the phaseout of section 14(c) certificates, the number
of hours they work, and other factors. The Department has not
quantified this change in benefits, because there is no data available
on all of the benefits currently received by workers under section
14(c) certificates, and any change in benefits depends heavily on the
situation of each individual. However, the Department welcomes comments
or data to better understand this potential transfer.
Additionally, there may be some impacts that go beyond the affected
workers employed under section 14(c) certificates. For example, some
certificate holders employ support staff to assist the workers with
disabilities

[[Page 96506]]

being paid subminimum wages. These support staff generally provide job
coaching, assist the worker with their tasks, and may perform portions
of the job, if necessary. They may also assist in communicating on
behalf of the employee or providing necessary training including job-
related and soft skills. If a certificate holder chooses to no longer
employ workers with disabilities, they may also no longer require the
services of the support staff, potentially leading to a reduction in
employment for the support staff workers. Conversely, if a certificate
holder chooses to transition by providing non-work rehabilitation
services to individuals with disabilities, they may need to increase
their support staff to help with these activities. Even if an employer
chooses to transition workers with disabilities to full-wage
employment, they may also choose to retain existing support staff,
increase these staff, or hire other support staff to assist workers.
The Department welcomes comments and data on additional impacts
that could occur following this rule.

F. Benefits

As discussed above, the Department expects that, following the
changes proposed in this rule, many current workers with disabilities
paid subminimum wages under a section 14(c) certificate will transition
to full-wage employment opportunities. The increased wages could
improve the financial strength and personal well-being of these
workers, while also enhancing the overall equity and inclusion of
workers with disabilities in the workplace. For example, in a review of
17 studies on the impacts of CIE on economic, psychological, and
physical health outcomes for individuals with intellectual and
developmental disabilities, researchers found that workers in CIE are
paid higher wages and have better career prospects than individuals in
sheltered workshops or non-work activities.\353\ They also found a
positive relationship between CIE and health outcomes such as quality
of life, self-determination, personal independence, locus of control,
autonomy, and reduced support needs. On the other hand, the Department
has heard from some individuals with disabilities and their families
about the benefits that they have experienced in section 14(c)
employment. For example, some individuals have explained that they feel
safe in their current jobs, view their jobs as providing a secure and
stable work community, and feel proud to earn wages, regardless of the
amount of those wages. The Department welcomes comments from the
public, including individuals with disabilities, their family members,
and entities employing workers on section 14(c) certificates, on the
benefits of section 14(c) employment. Working in concert with the
broader societal shifts in opportunities for workers with disabilities,
this proposed rule could also lead to spillover effects for the overall
population of individuals with disabilities. In 2023, the labor force
participation rate for persons with a disability was 24.2 percent,
compared to 68.1 percent for persons with no disability.\354\ The
changes in this proposed rule could help reduce this gap in labor force
participation. If individuals with a disability view subminimum wage
employment as the only option for them, they may choose to remain out
of the workforce. They may be more likely to look for a job if they
know that they would be paid at least the full minimum wage. For
example, the National Longitudinal Transition Study-2 (NLTS2) found
that there was a strong desire among youth with disabilities to
participate in competitive employment. Specifically, the NLTS2 found
that among the 70 percent of secondary school students with
disabilities who identified employment as a goal for the post-school
years, 62 percent had a goal to work in competitive employment, while
only 3 percent wished to work in ``sheltered'' employment.\355\ By
phasing out the issuance of section 14(c) certificates and ending
subminimum wage employment for workers with disabilities, this rule
could lead to an increase in labor force participation among
individuals with disabilities more broadly.
---------------------------------------------------------------------------

\353\ Taylor, Joshua et al., ``The Impact of Competitive
Integrated Employment on Economic, Psychological, And Physical
Health Outcomes for Individuals With Intellectual and Developmental
Disabilities,'' Journal of Applied Research in Intellectual
Disabilities: JARID vol. 35,2 (2022): pp. 448-459, https://doi.org/10.1111/jar.12974.
\354\ U.S. Dep't of Labor, Bureau of Labor Statistics Bureau of
Labor Statistics, Current Population Survey, Table A-6. Employment
status of the civilian population by sex, age, and disability
status, not seasonally adjusted, https://www.bls.gov/webapps/legacy/cpsatab6.htm.
\355\ Mary Wagner, Lynn Newman, Renee Cameto, Nicolle Garza, and
Phyllis Levine, ``After High School: A First Look at the Postschool
Experiences of Youth with Disabilities. A Report from the National
Longitudinal Transition Study-2 (NLTS2),'' SRI International, April
2005, pp. 5-3 to 5-4, https://www.nlts2.org/reports/2005_04/nlts2_report_2005_04_complete.pdf.
---------------------------------------------------------------------------

Businesses may also find it beneficial to integrate workers with
disabilities into their workplace. For example, employers working with
job coaches can identify work solutions that will resolve company needs
and result in mutually beneficial employment relationships for
employers and employees with disabilities. Additional potential
benefits to employers are expansion of their talent pool, creation of
more inclusive workplaces, and promotion of compliance with EEOC
law.\356\ The Department also welcomes comments providing additional
information on the impacts of increasing labor force participation of
people with disabilities.
---------------------------------------------------------------------------

\356\ Virginia Commonwealth University, ``Supporting Individuals
with Significant Disabilities: The Roles of a Job Coach,'' https://dors.maryland.gov/crps/Documents/RSM2_0800-4.pdf.
---------------------------------------------------------------------------

As explained throughout this notice of proposed rulemaking, the
Department has proposed to phase out section 14(c) certificates because
the Department's preliminary conclusion is that such certificates do
not continue to be necessary in order to prevent the curtailment of
employment opportunities for individuals with disabilities. The
Department also predicts, as evidenced in the transfers analysis above,
that a significant share of workers currently employed under section
14(c) certificates will be able to transition to full-wage employment.
The Department would welcome additional data to quantify the various
benefits of this proposed rule.

VIII. Initial Regulatory Flexibility Analysis (IRFA)

The Regulatory Flexibility Act of 1980 (RFA) as amended by the
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),
hereafter jointly referred to as the RFA, requires that an agency
prepare an initial regulatory flexibility analysis (IRFA) when
proposing, and a final regulatory flexibility analysis (FRFA) when
issuing, regulations that will have a significant economic impact on a
substantial number of small entities.

A. Reasons Why Action by the Agency Is Being Considered and Statement
of Objectives and Legal Basis for the Proposed Rule

[[Page 96507]]

or productive capacity at wage rates below the Federal minimum wage.
That statutory provision, however, has always imposed an important
prerequisite: such certificates may only be issued to the extent
``necessary to prevent curtailment of opportunities for employment.''
\357\ Given the profound legal and policy developments that have vastly
expanded employment opportunities and rights for individuals with
disabilities since the Department last substantively updated
regulations governing section 14(c) in 1989, and even more so since the
Department first promulgated regulations upon enactment in 1938, the
Department preliminarily concludes that subminimum wages are no longer
necessary to prevent the curtailment of employment opportunities for
individuals with disabilities.
---------------------------------------------------------------------------

\357\ 29 U.S.C. 214(c).
---------------------------------------------------------------------------

B. Description of the Number of Small Entities to Which the Proposed
Rule Will Apply

The proposed rule will impact entities who currently hold a section
14(c) certificate at the time of publication of the final rule. While
it could, in theory, also impact those who were previously interested
in applying for a section 14(c) certificate, the percentage of
applications that WHD receives from initial applicants (i.e.,
applicants who have not previously applied for a section 14(c)
certificate) is very small. From the May 1, 2024, WHD data, only 3
percent of applicants indicated that they were filing an initial
application. Both the number of total certificate holders and initial
applicants has been trending downward over time and the Department
expects that the trend would continue even in absence of this proposed
rule. Therefore, the Department does not expect the net number of
affected entities to be higher than the number of current certificate
holders.
The overwhelming majority of current certificate holders are
Community Rehabilitation Programs (CRPs), representing approximately 93
percent of current certificate holders as of May 2024. In the context
of section 14(c), WHD defines CRPs as ``not-for-profit agencies that
provide rehabilitation and employment for people with disabilities.''
Only a small percentage of current certificate holders are private-
sector, for-profit businesses, as discussed in section VII.B.
To estimate the impact of eliminating section 14(c) certificates on
small entities, the Department first determined whether current section
14(c) certificate holders were ``small'' as defined by the SBA. SBA
broadly defines an entity (whether a ``business'' or a nonprofit
``organization'') as ``small'' if it is ``independently owned and
operated'' and is ``not dominant in its field of operation.'' More
concretely, SBA defines an entity as small if its employees or annual
revenues are less than the threshold published in its Table of Size
Standards.\358\ Although affected entities fall under different NAICS,
for the vast majority of section 14(c) certificate holders, the
applicable size standard is $20 million in revenues. To perform this
task, the Department began with the list of entities currently holding
a valid section 14(c) certificate, then used the entity's name, IRS
Employer Identification Number (EIN), and address to ascertain the
primary NAICS code, sales/revenue, and number of employees in business
databases and other online searches.\359\ The Department determined
that 636 of these firms, which consists of both non-profit and for-
profit entities, are small using the SBA size standard based on the
primary NAICS code of each entity, which represent the Department's
best estimate given inherent uncertainties in publicly available data,
especially for for-profit organizations. Table 4 contains the number of
and percentage of small entities by major industry NAICS code. Table 5
contains the distribution of these small entities by NAICS code and
entity type, as reported on form WH-226.
---------------------------------------------------------------------------

\358\ SBA size standards by NAICS code are available at https://www.sba.gov/document/support-table-size-standards. SBA guidance
defines both small businesses and small non-profit organizations as
entities that are ``independently owned and operated and not
dominant in its field, with no indication that the size standards
for businesses are not applicable to organizations.'' See ``How to
Comply with the Regulatory Flexibility Act,'' https://advocacy.sba.gov/wp-content/uploads/2019/07/How-to-Comply-with-the-RFA-WEB.pdf. SBA defines a governmental jurisdiction as ``small'' if
it has a population of less than 50,000 residents.
\359\ The IRS Tax Exempt Organization Search Tool, https://apps.irs.gov/app/eos/, was used to obtain revenue from tax-exempt
filings, which includes all public support. DemographicsNow and
AtoZdatabases were also used to obtain more recent revenue than
available on the IRS Tax Exempt Organization Search Tool, to collect
information on the number of employees, and for revenues of for-
profit entities.

Table 4--Number and Percentage of Small Entities by NAICS
----------------------------------------------------------------------------------------------------------------
Percentage of
Number of small entity
6-digit NAICS NAICS description small entities certificate
holders (%)
----------------------------------------------------------------------------------------------------------------
623220.................................... Residential Mental Health and 29 4.6
Substance Abuse Facilities.
624120.................................... Services for the Elderly and Persons 39 6.1
with Disabilities.
624190.................................... Other Individual and Family Services 68 10.7
624310.................................... Vocational Rehabilitation Services.. 277 43.6
813319.................................... Other Social Advocacy Organizations. 20 3.1
Other NAICS \a\........................... .................................... 203 31.9
-------------------------------
All................................... .................................... 636 100
----------------------------------------------------------------------------------------------------------------
Note:
\a\ The five most frequent NAICS codes within the ``Other NAICS'' category are 611110 (Elementary and Secondary
Schools), 621420 (Outpatient Mental Health and Substance Abuse Centers), 623990 (Other Residential Care
Facilities), 621498 (All Other Outpatient Care Centers), and 623110 (Nursing Care Facilities (Skilled Nursing
Facilities)). Of the 203 entities in the ``Other NAICS'' category, 66 entities are in one of these five NAICS
codes.

[[Page 96508]]

Table 5--Distribution of Small Entities, by Entity Type and NAICS Code
----------------------------------------------------------------------------------------------------------------
Hospitals or
residential
care
6-Digit NAICS NAICS description Businesses CRPs facilities SWEPs Total
that employ
patients
----------------------------------------------------------------------------------------------------------------
623220........................... Residential Mental 2 27 0 0 29
Health and
Substance Abuse
Facilities.
624120........................... Services for the 0 39 0 0 39
Elderly and Persons
with Disabilities.
624190........................... Other Individual and 2 66 0 0 68
Family Services.
624310........................... Vocational 8 267 0 1 276
Rehabilitation
Services.
813319........................... Other Social 0 19 1 0 20
Advocacy
Organizations.
Other NAICS \b\.................. .................... 15 180 6 2 203
--------------------------------------------------------
All \a\...................... .................... 27 589 7 3 635
----------------------------------------------------------------------------------------------------------------
Note: ``Entity Type'' is as designated based on the ``Certificate Type'' listed in the current section 14(c)
certificate holders list, available at https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/certificate-holders/archive. If an entity lists more than one certificate type, and one of those types is
Community Rehabilitation Program, the entity is categorized as a CRP. Entities with certificate types of
``Business Establishment'' only are categorized as Businesses and entities with certificate types of
``Hospital/Patient Worker Facility'' only are categorized as Hospitals or Residential Care Facilities that
Employ Patients.
\a\ One entity has a Certificate Type of ``Unknown'' in NAICS code 624310 (Vocational Rehabilitation Services)
and is excluded from this table.
\b\ The five most frequent NAICS codes within the ``Other NAICS'' category are 611110 (Elementary and Secondary
Schools), 621420 (Outpatient Mental Health and Substance Abuse Centers), 623990 (Other Residential Care
Facilities), 621498 (All Other Outpatient Care Centers), and 623110 (Nursing Care Facilities (Skilled Nursing
Facilities)). Of the 203 entities in the ``Other NAICS'' category, 66 entities are in one of these five NAICS
codes.

C. Projected Reporting, Recordkeeping, and Other Compliance
Requirements of the Proposed Rule

There are no reporting or recordkeeping requirements associated
with this proposed rule. Thus, the direct costs to affected entities
would be rule familiarization costs, adjustment costs, and potential
payroll increases if they choose to retain their workers currently
employed under section 14(c) certificates and pay the full minimum
wage. As discussed in section VII.C.1, total rule familiarization costs
are $92,980 (801 employers x 2 hours x $58.04), and the per entity cost
is $116 ($58.04 x 2 hours) in Year 1. As discussed in section VII.C.2.,
the Department did not provide a definitive estimate of adjustment
costs, because of the uncertainties of how and when each certificate
holder would respond to the rule. However, as an example, if
certificate holders incurred an average of 1 hour of adjustment costs,
their per entity cost would be $58.04.\360\
---------------------------------------------------------------------------

\360\ For additional discussion of adjustment costs, see section
VII.C.2.
---------------------------------------------------------------------------

Using aggregate data on workers employed under section 14(c)
certificates as submitted by employers on form WH-226A, the Department
calculated the mean increase in wage cost per employee and the total
number of section 14(c) workers by State. These additional wage costs
represent the maximum transfers from employers to workers because they
are calculated based on each section 14(c) worker being paid the
applicable minimum wage (i.e., the greater of the State or Federal
minimum wage) and working for the same number of hours as they
currently work. The Department calculated total wage cost by
multiplying the mean increase in wage cost per employee in each State
by the sum of the number of section 14(c) workers for all certificate
holders in the state. The Department added the upper bound of wage
costs, regulatory familiarization cost, and adjustment costs to
estimate the total cost of the rule for small entities.
The Department calculated the sum of the revenue of the small
entities holding section 14(c) certificates by state using the revenues
associated with each small entity identified in the business databases
as described in the previous section.\361\ The Department then divided
total cost to small section 14(c) certificate holders by aggregated
revenues to yield the estimated cost to revenue ratios by NAICS code as
shown in Table 6. Many of these ratios of cost to revenue are greater
than the generally accepted threshold of one percent that indicates a
significant impact. The results presented in this table assume that
public funding streams to nonprofit CRPs remain constant. To the extent
that public funding streams change as a result of implementation of
this proposal, nonprofit revenues from that source will directly
increase or decrease.
---------------------------------------------------------------------------

\361\ The Department imputed revenue using the number of
employees for five entities for which revenue was not found.

[[Page 96509]]

Table 6--Estimated Ratios of Compliance Cost to Revenue for Small Entities Currently Holding Valid Section 14(c) Certificates, by NAICS Code
--------------------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------------------
Proportion of revenue impacted .......
----------------------------------------------------------------------------------------------------------------
6-Digit NAICS \a\ <1%
1%-2%
2%-3%
3%-4%
4%-5%
5%-10%
>=10% Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
623220......................... 15 51.7% 4 13.8% 2 6.9% 5 17.2% 1 3.4% 2 6.9% 0 ...... 29
624120......................... 10 25.6% 4 10.3% 7 17.9% 3 7.7% 2 5.1% 6 15.4% 7 17.9% 39
624190......................... 13 19.1% 13 19.1% 10 14.7% 5 7.4% 2 2.9% 12 17.6% 13 19.1% 68
624310......................... 51 18.4% 30 10.8% 28 10.1% 30 10.8% 16 5.8% 45 16.2% 77 27.8% 277
813319......................... 7 35.0% 1 5.0% 5 25.0% 1 5.0% 1 5.0% 1 5.0% 4 20.0% 20
Other NAICS \b\................ 68 33.5% 21 10.3% 18 8.9% 14 6.9% 14 6.9% 24 11.8% 44 21.7% 203
------------------------------------------------------------------------------------------------------------------------
Total...................... 164 25.8% 73 11.5% 70 11.0% 58 9.1% 36 5.7% 90 14.2% 145 22.8% 636
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note:
\a\ NAICS descriptions are 623220 (Residential Mental Health and Substance Abuse Facilities), 624120 (Services for the Elderly and Persons with
Disabilities), 624190 (Other Individual and Family Services), 624310 (Vocational Rehabilitation Services), and 813319 (Other Social Advocacy
Organizations).
\b\ The five most frequent NAICS codes within the ``Other NAICS'' category are 611110 (Elementary and Secondary Schools), 621420 (Outpatient Mental
Health and Substance Abuse Centers), 623990 (Other Residential Care Facilities), 621498 (All Other Outpatient Care Centers), and 623110 (Nursing Care
Facilities (Skilled Nursing Facilities)). Of the 203 entities in the ``Other NAICS'' category, 66 entities are in one of these five NAICS codes.
\c\ Of the 636 small entities affected, 598 (or 94%) are Community Rehabilitation Programs (CRPs), the majority of which are non-profit. As discussed in
the preamble, many CRPs provide employment and other services, such as rehabilitation and training, and receive public funding. Such entities also
often pay their operating costs through a mix of public funding and public and private contracts for goods or services. CRPs generally operate
differently than private, for-profit small businesses and do not focus on earning profit through their operations. For the cost-revenue ratio
calculations of the 598 CRPs, the Department used their total receipts, which includes grants and donations, instead of just revenue. Therefore, the
cost-revenue ratios in Table 6 may not accurately reflect the cost impact on their operational continuity.

Table 7--Estimated Ratios of Compliance Cost to Revenue for Small Entities Currently Holding Valid Section 14(c) Certificates, by Entity Type
--------------------------------------------------------------------------------------------------------------------------------------------------------

The Department has concerns about the accuracy of the underlying
data used to calculate these ratios. For example, although the
Department was able to verify revenue data for most nonprofit
organizations using Form 990 filings with the IRS, other entities'
revenue data listed in the business databases may be inconsistent with
other company data. Business database listings for other affected
section 14(c) certificate holders may show reasonable values for
revenue compared to employees but list a number of section 14(c)
workers on their form WH-226A that is many times larger than the total
number of employees listed in the business database.\362\ Finally, some
entities appear to have multiple conflicting records in the same
database.
---------------------------------------------------------------------------

\362\ Some examples of certificate holders for which the
respective number of section 14(c) employees greatly exceeds the
business database listing for total employees are: 182 versus 2, 102
versus 1, 42 versus 4, and 51 versus 2. Of the 655 small entities,
66 have data values such that the number of section 14(c) workers is
at least five times greater than the total number of employees
listed in a business database. The WHD application for a section
14(c) certificate requires employers to provide data about the
workers with disabilities employed at each separate work site or
location. Applicants must include workers corresponding to each work
site, and therefore, summary data may count workers multiple times
if that worker works for the employer at multiple locations.
However, these potential duplicates likely do not account for the
large differences noted. Moreover, as explained above in section
VII.B.1, the information collected from the form WH-226A is
submitted by applicants and may include inaccuracies, such as
instances when an employer reports a piece rate instead of an hourly
wage rate or miscalculates the wage.
---------------------------------------------------------------------------

The Department considered using other data sources to estimate the
impact of this proposed rule on small entities. One option is to use
revenue data from the Statistics of U.S. Businesses (SUSB).\363\
However, to estimate revenues from SUSB data would require determining
the appropriate employment size class of the entity. As described
above, due to the prevalence of part-time employment, and duplication
in counting the number of employees using section 14(c) certificates,
strong assumptions would be required to assign each entity to an
employment size class. Furthermore, SUSB only publishes revenue data
every 5 years (the Economic Census years and has not yet published
revenue data from the 2022 Economic Census). While it is

[[Page 96510]]

possible to inflate 2017 revenues to represent 2022 dollars, that again
requires a strong assumption given the impact of COVID on the economy
between 2017 and 2022. The Department welcomes comments and data that
could provide a more accurate measure of the costs of this proposed
rule relative to revenues of affected small entities.
---------------------------------------------------------------------------

\363\ United States Census Bureau, Statistics of U.S.
Businesses, https://www.census.gov/programs-surveys/susb.html.
---------------------------------------------------------------------------

As discussed in section VII.E.1., the Department estimated payroll
costs \364\ as an upper bound corresponding to a scenario in which all
workers on section 14(c) certificates were to find employment at the
full minimum wage. However, actual costs are likely to be somewhat
lower, as it is possible not all affected subminimum wage workers will
transition to employment at the full minimum wage for the same number
of hours worked at subminimum wages. For those employers that choose to
do so, their increased payroll costs will depend on the number of
current workers they have employed under section 14(c) certificates,
and their current wages.
---------------------------------------------------------------------------

\364\ For additional discussion of payroll costs, see section
VII.E.
---------------------------------------------------------------------------

In addition, the Department expects costs could be offset by cost
savings for affected employers. These cost savings consist of no longer
applying for section 14(c) certificates and no longer participating in
the activities required to maintain their certificate and determine
appropriate commensurate subminimum wage rates for workers. As
discussed in section VII.D., the cost savings of no longer filling out
the application forms for a section 14(c) certificate could save
employers $188.63 annually, while the cost savings of no longer
performing time studies of the work of a ``standard setter'' and the
hourly paid worker with a disability could save employers, at least,
$116.08 (2.5 hours x $58.04) annually.
The Department welcomes comments and data that could help refine
the estimates of payroll costs for affected small employers.

D. Alternatives to the Proposed Rule

The Department considered various regulatory alternatives in the
formation of this proposed rule. For example, the Department also
considered proposing different phaseout periods. As detailed above, the
Department proposes that WHD will no longer issue new section 14(c)
certificates for initial applications postmarked or submitted online on
or after the effective date of the final rule. For employers who seek
to renew a section 14(c) certificate, the Department proposes a
phaseout period of 3 years from the effective date of the final rule
during which those employers may continue to hold a valid section 14(c)
certificate (provided that they comply with the statutory and
regulatory requirements for certificate holders) and WHD will continue
to process renewal applications.
The Department considered proposing both a shorter and longer
phaseout period. However, the Department declined to propose a shorter
phaseout period (or no phaseout period) because some individuals with
disabilities who have been working for employers holding a section
14(c) certificate, employers who have held a section 14(c) certificate,
and government entities may need more time to mitigate potential
disruptions that might otherwise cause curtailment of employment
opportunities. A shorter phaseout period would also be more burdensome
on small entities. The Department also declined to propose a longer
phaseout period because, in most cases, 3 years should be sufficient to
allow for such transitions, and because a longer period might
incentivize delay of effective transition measures. As explained above,
States that enacted laws containing multi-year phaseouts ranged from 2
years to 7 years, with many States adopting a 2- or 3-year phaseout.
The Department has also considered proposing an extension period but
instead asks stakeholders to comment on the necessity of any extensions
and if so, their scope, structure, and length.

E. Relevant Federal Rules Duplicating, Overlapping, or Conflicting With
the Proposed Rule

The Department is unaware of any Federal rules which duplicate,
overlap, or conflict with the proposed rule.

IX. Unfunded Mandates Reform Act of 1995

The Unfunded Mandates Reform Act of 1995 (UMRA),\365\ requires
agencies to prepare a written statement for rulemaking that includes
any Federal mandate that may result in increased expenditures by State,
local, and Tribal governments, in the aggregate, or by the private
sector, of $200 million ($100 million in 1995 dollars adjusted for
inflation to 2023) or more in at least one year. This rulemaking is not
expected to exceed that threshold. See section VII. for an assessment
of anticipated costs, transfers, and benefits.
---------------------------------------------------------------------------

\365\ 2 U.S.C. 1501 et seq.
---------------------------------------------------------------------------

X. Executive Order 13132, Federalism

The Department has (1) reviewed this proposed rule in accordance
with Executive Order 13132 regarding federalism and (2) determined that
it does not have federalism implications. The proposed rule would not
have substantial direct effects on the States, on the relationship
between the National Government and the States, or on the distribution
of power and responsibilities among the various levels of government.

XI. Executive Order 13175, Indian Tribal Governments

This proposed rule would not have tribal implications under
Executive Order 13175 that would require a tribal summary impact
statement. The proposed rule would not have substantial direct effects
on one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.

List of Subjects in 29 CFR Part 525

Administrative practice and procedure, Equal employment
opportunity, Individuals with disabilities, Minimum Wages, Reporting
and recordkeeping requirements, Vocational rehabilitation, Wages.

0
1. The authority citation for part 525 continues to read as follows:

Authority: 52 Stat. 1060, as amended (29 U.S.C. 201-219); Pub.
L. 99-486, 100 Stat. 1229 (29 U.S.C. 214).

0
2. Revise Sec. 525.1 to read as follows:

Sec. 525.1 Introduction.

The Fair Labor Standards Act (FLSA) authorizes the Secretary of
Labor, to the extent necessary to prevent curtailment of opportunities
for employment, to issue certificates to employers to pay workers whose
disabilities impair their earning or productive capacity at
commensurate wage rates below the Federal minimum wage rate. In view of
the legal and policy developments that have expanded access to
employment opportunities for individuals with disabilities since
Congress first included the provision for subminimum wages in 1938 and
since the Department last substantively updated its regulations in
1989, the Secretary has determined that subminimum wages are no longer
necessary to prevent the curtailment of opportunities for employment
for individuals with disabilities, see Sec. 525.9. In light of this
determination, the Secretary will cease issuing new certificates
immediately as of [EFFECTIVE DATE OF FINAL RULE]

[[Page 96511]]

and certificates will be available only to renewing applicants for a
limited phaseout period ending [DATE 3 YEARS AFTER THE EFFECTIVE DATE
OF FINAL RULE]. See Sec. 525.13.
0
3. Revise Sec. 525.2 to read as follows:

Sec. 525.2 Purpose and scope.

The regulations in this part govern the issuance and cessation of
all certificates authorizing the employment of workers with
disabilities at special minimum wages pursuant to section 14(c) of
FLSA.
0
4. Revise Sec. 525.7 to read as follows:

Sec. 525.7 Application for certificates.

(a) As of [EFFECTIVE DATE OF FINAL RULE], an application for a
certificate may be filed only by an applicant seeking to renew a
certificate pursuant to Sec. 525.13. An applicant seeking to renew a
certificate may do so by completing an online application or submitting
paper application forms provided by the Wage and Hour Division. For
more information and to access the online application system or
download forms, see the Wage and Hour Division website at https://www.dol.gov/agencies/whd/workers-with-disabilities/section-14c/apply,
or its successor website.
(b) The employer must provide answers to all of the applicable
questions contained in the application.
(c) The application must be signed by the employer or the
employer's authorized representative.
0
5. Revise Sec. 525.9 to read as follows:

Sec. 525.9 Criteria for employment of workers with disabilities under
certificates at special minimum wage rates.

(a) As of [EFFECTIVE DATE OF FINAL RULE], the Secretary has
determined that certificates allowing for the payment of subminimum
wage rates for workers with disabilities are no longer necessary to
prevent the curtailment of opportunities for employment.
(b) Pursuant to the regulations set forth above related to
certificate phaseout, in order to be granted a renewal certificate
authorizing the employment of workers with disabilities at special
minimum wage rates during the phaseout period, the employer must
provide the following written assurances concerning such employment:
(1) In the case of individuals paid hourly rates, the special
minimum wage rates will be reviewed by the employer at periodic
intervals at a minimum of once every six months; and,
(2) Wages for all employees will be adjusted by the employer at
periodic intervals at a minimum of once each year to reflect changes in
the prevailing wages paid to experienced nondisabled individuals
employed in the locality for essentially the same type of work.
0
6. Revise Sec. 525.11 to read as follows:

Sec. 525.11 Issuance of certificates.

(a) Upon consideration of the criteria cited in these regulations,
a special certificate may be issued.
(b) If a special minimum wage certificate is issued, a copy will be
sent to the employer. If denied, the employer will be notified in
writing and told the reasons for the denial, as well as the right to
petition under Sec. 525.18.
(c) Certificates will not be issued to any employer after [3 YEARS
FROM THE EFFECTIVE DATE OF FINAL RULE].
0
7. Revise Sec. 525.13 to read as follows:

Sec. 525.13 Renewal of special minimum wage certificates.

(a) Applications may be filed for renewal of special minimum wage
certificates.
(b) If an application for renewal has been properly and timely
filed, an existing special minimum wage certificate will remain in
effect until the application for renewal has been granted or denied. No
certificate will be valid as of [DATE 3 YEARS AFTER EFFECTIVE DATE OF
FINAL RULE] regardless of any pending renewal application.
(c) Workers with disabilities may not continue to be paid special
minimum wages after notice that an application for renewal has been
denied.
(d) Except in cases of willfulness or those in which the public
interest requires otherwise, before an application for renewal is
denied facts or conduct which may warrant such action shall be called
to the attention of the employer in writing and such employer shall be
afforded an opportunity to demonstrate or achieve compliance with all
legal requirements.
0
8. Revise Sec. 525.18 to read as follows:

Sec. 525.18 Review.

Any person aggrieved by any action of the Administrator taken
pursuant to this part may, within 60 days or such additional time as
the Administrator may allow, file with the Administrator a petition for
review. Such review, if granted, shall be made by the Administrator.
Other interested persons, to the extent it is deemed appropriate, may
be afforded an opportunity to present data and views. Any review
granted cannot result in section 14(c) certificate authority being
extended beyond [DATE 3 YEARS AFTER THE EFFECTIVE DATE OF FINAL RULE].
0
9. Add Sec. 525.25 to read as follows:

Sec. 525.25 Severability.

The provisions of this part are separate and severable and operate
independently from one another. If any provision of this part is held
to be invalid or unenforceable by its terms, or as applied to any
person or circumstance, or stayed pending further agency action, the
provision must be construed so as to continue to give the maximum
effect to the provision permitted by law, unless such holding will be
one of utter invalidity or unenforceability, in which event the
provision will be severable from this part and will not affect the
remainder thereof.

Jessica Looman,
Administrator, Wage and Hour Division.
[FR Doc. 2024-27880 Filed 12-3-24; 8:45 am]
BILLING CODE 4510-27-P

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