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The Fair Labor Standards Act (FLSA or Act) authorizes the Secretary of Labor to issue certificates allowing employers to pay 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.

Statement of Need:

The Department proposed changes to these regulations, which have not been updated substantively since 1989. The proposal takes into consideration policy and legal developments impacting workers with disabilities, the availability of employment opportunities generally, as well as suggestions from stakeholders, including employers, non-profits, and workers with disabilities and their advocates.

Summary of the Legal Basis:

Regulations are authorized by section 14(c) of the Fair Labor Standards Act, 29 U.S.C. 214.

Alternatives:

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. 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 the NPRM, many States have already passed laws prohibiting (or planning to prohibit) the payment of subminimum wages through a phase out.

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.

Anticipated Costs and Benefits:

The Department estimates that, in Year 1, the proposed rule would impose $92,980 in regulatory familiarization costs on employers. The rule will also likely result in adjustment costs for employers, which may be offset by cost savings associated with no longer applying for section 14(c) certificates. The Department expects that if the proposed rule were to be finalized, many current section 14(c) certificate workers would be able to transition to full-wage employment opportunities, leading to benefits for workers and society. Along with the broader societal shifts in opportunities for workers with disabilities, this proposed rule could lead to spillover effects for the overall population of individuals with disabilities, such as increasing the labor force participation rate for persons with a disability. The proposed rule would result in transfers to workers if workers on section 14(c) certificates receive wage increases to the full minimum wage. For full discussion, see NPRM.

Risks:

This action does not affect public health, safety, or the environment.