`[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.
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    \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.
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    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\
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    \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.
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    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.
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    \8\ 29 U.S.C. 206.
    \9\ 29 U.S.C. 214(c)(1).
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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.
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    \10\ 29 U.S.C. 214(c)(1).
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    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\
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    \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.
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    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.
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    \12\ Portland Terminal, 330 U.S. at 151.
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    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\
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    \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.
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    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.
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    \18\ See Walling v. Portland Terminal, 330 U.S. at 151-52.
    \19\ Portland Terminal, 330 U.S. at 151-52.
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    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.
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    \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.).

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[[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.
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    \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).
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    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\
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    \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.
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    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.
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    \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).
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    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\
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    \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.
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    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\
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    \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.
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    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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
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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.
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    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/.
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    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)).
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    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\
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    \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).
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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.'')
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    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\
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    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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/.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
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    \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/index.html. 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.
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    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\
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    \180\ See discussion in section III.A.
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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.
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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.
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    \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\
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    \185\ Id. at i.
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    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.
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    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\
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    \192\ Id. at 143-45.
    \193\ Id.
    \194\ Id. at 217.
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    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\
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    \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.

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[[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.
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    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.
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    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.
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    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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\
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    \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.
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    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 http://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

    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\
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    \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\
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    \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.
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    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\
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    \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.
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    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

    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

[[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).
---------------------------------------------------------------------------

    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 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Proportion of revenue impacted                                       ........
                                     ----------------------------------------------------------------------------------------------------------
Entity type                                 <1%
                                           1%-2%
                                           2%-3%
                                           3%-4%
                                           4%-5%
                                          5%-10%
                                           >=10%        All
                                                      entit
                                                        ies
--------------------------------------------------------------------------------------------------------------------------------------------------------
Businesses..........................      8    29.6%      1    3.7%      4   14.8%      1    3.7%      1    3.7%      4   14.8%      8   29.6%        27
CRPs................................    147    24.6%     72   12.0%     66   11.0%     57    9.5%     34    5.7%     86   14.4%    136   22.7%       598
Hospitals or Residential Care             7   100.0%      0  ......      0  ......      0  ......      0  ......      0  ......      0  ......         7
 Facilities that Employ Patients....
School Work Experience Program            2    66.7%      0  ......      0  ......      0  ......      0  ......      0  ......      1   33.3%         3
 (SWEP).............................
                                     -------------------------------------------------------------------------------------------------------------------
    Total \a\.......................    164    25.8%     73   11.5%     70   11.0%     58    9.1%     35    5.5%     90   14.2%    145   22.8%       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'' 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 
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`