Seneca Re-Ad Industries Reinforces Why Congress Should Eliminate 14(c) Certificates

By: Matthew Schmitz*

Early this year the District Court for the Northern District of Ohio reviewed the application of a key component of American minimum wage law: Section 14(c) certificates.[1] The case, brought by workers with disabilities and appealed by their employer, seems to represent a win for those individual employees.[2] In the process of winning, however, the plaintiffs displayed that even the best case scenario under this legislative program still provides inadequate protection against disparate treatment. As such, the decision adds support to the current legislative push to phase out Section 14(c) certificates.

 

1. Section 14(c) Certificates and Their Critics.

 

14(c) certificates are one enumerated exception to the Fair Labor Standards Act (FLSA) minimum wage requirements.[3] By the statute’s own terms, these certificates look to boost employment opportunities for young, disabled, and injured workers by allowing employers to pay subminimum wages that relate “to the individual’s productivity.”[4] The section was last amended in 1989, prior to the enactment of the Americans with Disabilities Act (ADA).[5] To support employee protections, the statute requires periodic review of wages,[6] adjustments to reflect prevailing wage changes,[7] and an administrative process for employees to petition subminimum wage determinations.[8] 

By all accounts, this might seem to be a robust and supportive effort to bring disabled workers into the workplace. In reality, the Government Accountability Office (GAO) recently noted a decrease in the number of workers and employers participating as well as an estimated fifteen million dollars in unpaid back wages for violations between 2012 and 2021.[9] Many employers who did participate at the time also operated on expired certificates, decreasing government oversight of their subminimum payments.[10] According to a recent report from the National Federation of the Blind, 35,000 disabled workers continue to receive subminimum wages despite sixteen states passing laws limiting such programs.[11] The federation also noted that both political parties have called for ending 14(c) certificates since at least 2016.[12] That push came to a head with proposed legislation over the past several years.

 

1. The Legislative Push to Remove 14(c) Certificates.

 

The Transformation to Competitive Integrated Employment Act (TCIEA) would work to phase out 14(c) certificates.[13] The act would require raising employee wages by ten percent of the FLSA minimum wage, starting at sixty percent on enactment and ending at one hundred percent by year four.[14] On the same timeline, the act would also sunset existing certificates and prohibit new authorizations.[15]

The key to the proposed scheme is supporting employers navigating this transition. The first stated purpose of the act is to assist employers with the transition.[16] The first form of such assistance is a competitive grant system for states to support employers and disabled individuals through the process.[17] The state grants, under Section 102, are set to run between two and ten million dollars each and have various application requirements.[18] Section 103 of the act also proposes to provide grants to certificate holders themselves.[19] Titles III and IV of the proposed act provide technical assistance and reporting requirements.[20]

In helping sponsor the bill, Republican senator Steve Daines cited the “dignity and hope in work” as a reason Congress should remove this obstacle to fair and full pay.[21] Democratic co-sponsor Bob Casey noted competitive and integrated employment is a key way to support financial independence and community engagement for disabled workers.[22] The bill, introduced and referred to the House Committee on Education and the Workforce in 2023, has yet to proceed beyond referral to committee.[23] Early in 2024, advocates for disabled workers returned to Congress to press the bill forward, claiming subminimum wages have pushed many to pursue self-employment rather than face debasing low pay.[24] This aligns with a 2022 Bureau of Labor Statistics report that found disabled persons more likely to be self-employed than their non-disabled peers.[25] One possible reason for the delay in enacting the bill could be the strong workplace progress disabled workers have made in recent years, especially through increased teleworking opportunities.[26]

 

• Seneca Re-Ad Industries Makes the Case for the TCIEA.

 

The Seneca Re-Ad Industries case is illustrative of the shortcomings of the current system. There, the employees availed themselves of Section 14(c)’s petition process.[27] The administrative law judge (ALJ) conducted a thorough review and found the employer could not show the employees “were impaired for the work performed” and, therefore, were not eligible for subminimum wages.[28]

On employer-requested review, the administrative review board (ARB) upheld the ALJ’s decision on the employer’s liability.[29] In that decision, the ARB made clear that Section 14(c) only allows paying subminimum wages for an employee whose “earning or productive capacity is in fact impaired by their disability.”[30] The Department of Labor (DOL) regulations, the ARB noted, suggest an individual’s disability must be the cause of their reduced productivity in the area of work performed.[31] In other words, both the ALJ and ARB found the employer needed to show more than a measure of decreased productivity; they needed to show the employee’s disability caused that productivity lapse.

On the employer’s appeal to federal district court, they argued the ARB’s causation requirement was an improperly-crafted novel standard for 14(c) petition claims.[32] The court rejected this argument, noting the ARB’s interpretation of the existing statute and regulations was “not ‘plainly unreasonable.’”[33] It is important to note that this holding only means future ARBs may reach the same conclusion, this case does not require future ARBs to apply the robust causation requirement to employers.

Even if the strong causation requirement was precedential, the process itself is instructive of the undesirability of Section 14(c). To receive judicial approval as minimum wage earners, the employees here, for no reason other than their disabled status, had to petition, persuade an ARB that Section 14(c) requires causation, and go to federal court. The best version of this process requires disabled workers to watch courts and employers openly analyze the relationship between their disability and their struggles at work. Even the most confident worker might find this distressing. At worst, the process allows employers to presume the worker’s disability is what makes them a less productive worker, perpetuating stigma and erecting “an artificial barrier to future employment opportunities.”[34]

Proponents of the program may argue it protects disabled employees from being shut out of employment due to productivity concerns, but this cannot remain an excuse forever. This is especially true when at least some measures suggest our minimum wage itself has not correlated with aggregate worker productivity for decades.[35] If the wage itself has become an arbitrary statutory number, the justification for tying subminimum wages to worker productivity has weakened as well. Continuing to subject disabled workers, who may be able to find a minimum wage elsewhere, to a productivity-tied fraction of a non-productivity-tied number seems to do little to protect employment opportunities. Instead, it protects employer interests.

Notably, employees now enjoy protection under the ADA from discriminatory hiring practices and terms of employment.[36] Advocates for Section 14(c) may point out that the class of employees the ADA protects is limited to qualified individuals with disabilities,[37] leaving the certificate program as an important gap-filler for those who would not otherwise be “qualified.” Despite this, there seems to be little reason to believe, nor does the ADA likely permit, that the same employers who have paid disabled workers to perform important tasks for them could reverse course on that judgment solely because of the new wage requirement.[38] Proponents of 14(c) may, however, be inadvertently pointing to the importance of adjusting the ADA or its regulations to clarify that the class of employees qualified to perform a specific role for $3.50 or less an hour for the past three decades is also qualified to perform that same work for $7.25 an hour.

 

1. Conclusion

 

In total, the TCIEA, which many view as overdue, strikes a thoughtful balance. Rather than punishing employers for their delay in integrating disabled workers more fully into our economy, the act proposes to provide employers with a four-year off-ramp and robust financial support. There is room, no doubt, for haggling over what shape these supports take and the length of the sunset period. What there is no longer room for, as Seneca Re-Ad Industries shows, is endlessly refusing to fully integrate disabled workers into our wage structure. As encouraging as it is that the ARB in that case provided full protection to the disabled workers, the GAO’s wage theft data suggests this may not be the norm. Disabled workers deserve more robust protection for receiving the full and fair wages they earn, while at the same time recognizing employers might not be able to make the required changes overnight. With the TCIEA, Congress can provide just that.

[1] Seneca Re-Ad Indus. v. Sec’y of the DOL, No. 3:20-cv-2325, 2024 U.S. Dist. LEXIS 1527 (N.D. Ohio Jan. 4, 2024).  Notably, the “employer” in this case is a sheltered workshop that performs work for Roppe Corporation, see Court Ruling Affirms Decision Awarding Back Pay and Liquidated Damages to Individuals Who Were Unlawfully Paid Less Than Minimum Wage, Disability Rts. Ohio (Jan. 9, 2024), https://www.disabilityrightsohio.org/news/court-ruling-affirms-decision-awarding-back-pay-and-liquidated-damages.

[2] Id.

[3] Id. at *11.

[4] 29 U.S.C. § 214(c).

[5] 29 U.S.C. § 214; 42 U.S.C. § 12101.

[6] 29 U.S.C. § 214(c)(2)(A).

[7] 29 U.S.C. § 214(c)(2)(B).

[8] 29 U.S.C. § 214(c)(5).

[9] U.S. Government Accountability Office, Subminimum Wage Program: DOL Could Do More to Ensure Timely Oversight 1, 12, 43 (2023).

[10] Id. at 32.

[11] Transformation to Competitive Integrated Employment Act, Nat’l Federation of the Blind, https://nfb.org/programs-services/advocacy/washington-seminar/washington-seminar-priorities/transformation. [Hereinafter “National Federation of the Blind”].

[12] Id. See also Subminimum Wages: Impacts on the Civil Rights of People with Disabilities, U.S. Comm’n on Civ. Rts. (2020).

[13] Transformation to Competitive Integrated Employment Act, H.R. 1263, 118^th Cong. § 201 (2023).

[14] Id. at § 201.

[15] Id. at § 202.

[16] Id. at § 3.

[17] Id. at § 102.

[18] Id.

[19] Id. at § 103.

[20] Id. at §§ 301, 401, 402.

[21] Paige Smith, Bipartisan Bill Would End Subminimum Pay for Disabled Workers, Bloomberg L. News (Nov. 18, 2021), https://news.bloomberglaw.com/daily-labor-report/bipartisan-bill-would-end-subminimum-pay-for-disabled-workers.

[22] Casey, Daines, Scott, McMorris, Rodgers Announce Bipartisan Bill to Phase out Subminimum Wage for People with Disabilities, Casey.Senate.Gov (Feb. 27, 2023), https://www.casey.senate.gov/news/releases/casey-daines-scott-mcmorris-rodgers-announce-bipartisan-bill-to-phase-out-subminimum-wage-for-people-with-disabilities#.

[23] H.R. 2373 – Transformation to Competitive Integrated Employment Act, Congress.gov (2024), https://www.congress.gov/bill/117th-congress/house-bill/2373.

[24] Diego Areas Munhoz, Push to End Disabled Workers’ Subminimum Pay Continues on Hill, Bloomberg L. News (Jan. 30, 2024), https://news.bloomberglaw.com/daily-labor-report/push-to-end-disabled-workers-subminimum-pay-continues-on-hill.

[25] Persons with a Disability: Labor Force Characteristics – 2022, Bureau of Lab. Statistics (2023).

[26] Areas Munhoz, supra note 24.

[27] Seneca Re-Ad Indus., 2024 U.S. Dist. LEXIS 1527 at *3.

[28] Id.

[29] Id. at *4. The parties also disputed the remedies awarded, which, while important under the current scheme, are beyond the scope of this discussion.

[30] Id. at *13.

[31] Id. at *14.

[32] Id. at *15.

[33] Id. (quoting Bhd. of Locomotive Eng’rs v. ICC, 909 F.2d 909, 912 (6th Cir. 1990)).

[34] National Federation of the Blind, supra note 11.

[35] Dean Baker, Correction: This is What Minimum Wage Would Be If It Kept Pace with Productivity, Ctr. For Economic Policy Research, (Jan. 21, 2020) https://cepr.net/this-is-what-minimum-wage-would-be-if-it-kept-pace-with-productivity/

[36] 42 U.S.C. § 12112(a).

[37] 42 U.S.C. §§ 12112(a), 12111(8).

[38] This may be an arguable point, but the qualified individual evaluation (see 42 U.S.C. § 12111(8)) turns on essential functions rather than any ratio of pay-to-tasks-performed.

 

Matthew Schmitz is a current Staffer for JLI