Disabled workers left in the cold on minimum wage

February 12, 2014, 9:19 PM UTC

FORTUNE — In the ongoing fight to raise the minimum wage in the U.S., advocates of a nationwide hike often refer to a few notable dates to highlight how long it’s been since the hourly rate has changed.

2009: When Congress last raised the federal minimum wage to $7.25

1991: The last time Congress raised the federal minimum wage for tipped workers to $2.13.

Well, here’s another: 1938, the last time Congress addressed how disabled Americans are paid. At the time, the legislature decided disabled Americans ought to be exempt from receiving the federal minimum wage.

That year, Congress instituted what’s known as the 14c exemption to the Fair Labor Standards Act, which allows employers to obtain a special wage certificate from the Department of Labor that waives their obligation to pay disabled individuals the federally mandated minimum wage. The 420,000 disabled employees who are now subject to 14c instead earn what’s called a commensurate wage that employers determine by testing the productivity of a non-disabled person and comparing it to what a disabled person can do. That ratio dictates the disabled employee’s pay. (According to the Americans with Disabilities Act, a disability is anything that limits your everyday activities.) So if the test employee can screw on 100 pen caps in an hour, and the disabled work completes 50, the latter employee will receive as little as half the wage of his non-disabled counterpart, with some adjustment made to account for personal time, fatigue, and delay.

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Congress passed the original legislation 76 years ago because it “rightfully felt that these individuals had the desire to be part of the fabric of America,” says Anil Lewis, director of advocacy and policy for the National Federation of the Blind. But that was a different time; when “discrimination was inevitable because service systems were based on a charity model, rather than empowerment and self-determination and when societal low expectations for people with disabilities colored policy making,” the National Council on Disability says.

Today, advocates for the disabled say that the legislative relic is contributing to disabled individuals’ modern day plight.

When the 14c exemption was first passed, it required that disabled employees in competitive industries earn at least 75% of the minimum wage. In 1966, that requirement dropped to 50%, and in 1986, the floor was removed altogether. Fifteen years later, a report by the Government Accountability Office found that so-called sub-minimum wage workers earned on average $2.15 an hour. In 2011, the Bureau of Labor Statistics found that people with disabilities are three times more likely to live in poverty, and only 18.7% of people with disabilities participate in the workforce, compared to 68.3% of non-disabled individuals.

Chester Finn, now a client advocate for the New York Office for People With Developmental Disabilities and who’s visually impaired, was employed under 14c at a workshop for the disabled in western New York in the 1990s. He told Fortune that he started out making $4 for two full weeks of 8:30 a.m. to 3 p.m. work days. Six years later, his paycheck had reached $100, but still comes out to less than minimum wage.

He paid for his apartment with social security checks. “The wages never would’ve gotten me that,” he says. “I never could have even bought groceries.” He left the workshop after meeting the commissioner of the OPWDD and pitching his skills as a self-advocate.

In exiting his sub-minimum wage arrangement, Finn is an exception. The 14c program is intended to provide temporary employment for disabled workers and train them to enter a normal work environment, yet the GAO found that less than 5% of the disabled workers in the program ever leave it for a job in the broader community.

In his State of the Union address in January, President Barack Obama proposed raising the minimum wage for federal contracted workers to $10.10 by executive order, but the plan initially exempted federal contractors that use the 14c program from paying their disabled workers the new rate. Advocacy groups immediately called for the president to change course.

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The National Council on Disability said in a Feb. 3 letter that if the Obama Administration “wants to stamp out income inequality for all Americans, including Americans with disabilities” it should reconsider its decision to not apply the raised minimum wage to people with disabilities. On Wednesday, when the White House released the final version of its executive order, which is set to be signed Wednesday afternoon, it clearly stated that disabled workers would receive the new minimum wage. “Under current law, workers whose productivity is affected because of their disabilities may be paid less than the wage paid to others doing the same job under certain specialized certificate programs. Under this Executive Order, all individuals working under service or concessions contracts with the federal government will be covered by the same $10.10 per hour minimum wage protections,” the order says.

Lewis of the National Federation of the Blind says that this effort by advocates was mainly symbolic since the executive order will apply to a small population of people and because federal contracted workers often make more than minimum wage to begin with. “It’s not an argument for or against the minimum wage,” he says, “People with disabilities should not be exempted from it regardless of what it is.”

Advocates for the disabled have pushed for reform through the Fair Wages for Workers with Disabilities Act, which was introduced to the House of Representatives in February 2013. The bill, sponsored by Republican Representative Gregg Harper of Mississippi, would bar the Labor Department from granting sub-minimum wage certificates to employers and repeal the existing certificates over the course of three years. The bill has 62 co-sponsors, but not enough support to merit a committee vote.

ACCESS, a coalition of nonprofits that employ the disabled, is against phasing out 14c. In a letter opposing the National Council on Disability’s 2012 recommendation to end the program, it said that “hundreds of thousands of people with disabilities will most likely become unemployed or lose the opportunity to become employed in the future.” A commensurate wage, the letter said, is in place to “prevent the curtailment of employment” for individuals who are “not capable of meeting productivity standards.”

In a statement announcing the legislation, Harper’s office said that instead of pushing people with disabilities into sheltered, sub-minimum wage employment as current labor laws do, the new legislation would facilitate access to alternative work or training opportunities that are “more cost-effective and produce more competitive outcomes.”

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Lewis points to a program called Employment First as one viable option. It helps disabled individuals discover what they’re good at and finds customized, inclusive employment opportunities that fit those skills. For instance, if someone with disabilities can sort hangers by color in a sheltered workshop setting, he can sort color-coded mail in an office building. The difference, Lewis says, is that the employee is in an inclusive environment, where his coworkers can see him doing the job.

“When we start shifting the paradigm away from seeing the disabled as needing to be cared for to one in which they can be part of the workforce, then you’ll see the creation of other jobs,” Lewis says. Programs like Employment First “start with the belief that the person can,” Lewis says. The sub-minimum wage system “starts with the person cannot.”