Lawsuit Takes Aim at Sheltered Workshops, Where Disabled Workers Make Far Less than Minimum Wage

Blind workers in Dearborn, Michigan, picket a Goodwill Industries thrift store, protesting the organization’s use of subminimum wages (Jim West / Alamy Stock Photo)

For seven years, Michael Denoewer held a job in Marysville, Ohio, unpacking and organizing instruction manuals for new Honda automobiles. Born with intellectual and developmental disabilities, including epilepsy and autism, he was paid a piece-rate that in some years averaged between $1 and $2 an hour – well below the state and federal minimum wage.

Some of his fellow workers reportedly made as little as 14 cents an hour.

Now Denoewer, 30, is at the center of a legal challenge to an obscure section of the 1938 Fair Labor Standards Act, which allows certain employers to pay disabled workers below minimum wage.

Known as Section 14(c), the 81-year-old labor law has gotten a flurry of attention in recent years as some cities and states have curtailed the practice. Advocates and some lawmakers have called for its outright elimination, arguing the law is archaic and holds back disabled workers.

Supporters maintain the law is doing just what it was intended to do: Encourage employment for workers with severe disabilities while also giving them personal satisfaction. Without the program, they say, these jobs might disappear.

Yet in scores of cases, federal labor officials are finding employers paying disabled workers even less than the law allows.

A spokesperson for the Department of Labor said the agency completed 193 subminimum wage investigations in fiscal year 2017-2018, and ordered the payment of nearly $2 million in back wages to employees. The figure was the highest amount of wages recovered in such cases in the past decade.

“It’s kind of odd that Section 14(c) still exists,” says Neil Romano, chairman of the National Council on Disability, a federal agency that advises Congress and the president. “There has been the Civil Rights Act, gay rights and women’s rights legislation. But for some reason, people with disabilities are subject to legalized discrimination.”

The exact number of Section 14(c) workers is hard to pin down – estimates range from 125,000 to half a million – but one thing is certain: they are astonishingly low paid. In 2001, more than half of these disabled workers made less than $2.50 an hour, and nearly a quarter of them made less than $1 an hour, according to a report to Congress by the U.S. General Accounting Office.

Here’s how the law is supposed to work: When a company applies for a 14(c) certificate, it must measure the productivity of each disabled worker against that of a non-disabled worker. If, say, the trial finds the disabled worker to be half as productive, the company is allowed to pay that employee half of the prevailing wage for that job, regardless of the minimum wage. If a company pays its workers too little, or if it fudges the time trials, it can be fined by the Department of Labor and forced to pay back wages. Although rare, a company also can have its 14(c) certificate revoked.

Only a handful of 14(c) employers are for-profit businesses. They include a Quality Inn in South Dakota, a Chili’s and a couple of Wienershnitzels in Southern California. According to a 2018 report by the National Council on Disability, a Super 8 Motel in Illinois employs three housecleaners with autism. They’re paid a piece rate of $4.36 per room, for an average of $4.19 an hour. The report cites another business, Riverview Productions in Wellston, Ohio, that was paying its workers as little as 25 cents an hour.

A wide range of corporations – including Firestone, Home Depot, Time Warner Cable, Whole Foods and Walmart – all contract for some parts or services from 14(c) certificate holders, the report said. So does Harvard University and the National Park Service.

Employees at Production Unlimited in Watertown, N.Y., where some disabled employees make below minimum wage. (Photo by David Sommerstein/North Country Public Radio, used with permission)

But the vast majority of disabled workers making less-than-minimum wage are employed by non-profit work centers, or “sheltered workshops,” which hire workers with intellectual and developmental disabilities to perform mostly menial tasks – for example, assembling plastic lint brushes, putting together fishing lures or stuffing backpacks with promotional items. Others do ground maintenance, janitorial work, document shredding and laundry.

Many sheltered workshops also provide support services for people living with disabilities, often receiving money from federal, state and local governments in order to serve the community. As the National Council on Disability report puts it, “by their very nature, sheltered workshops often harbor a split personality as both an employer and a service provider.”

Although these work centers are non-profits, some are large and prosperous. The Ohio Valley Goodwill takes in $41 million in revenue, according to its most recently available tax forms, and has nearly 800 workers certified under 14(c), according to the National Council on Disability report. Across the United States, Goodwill affiliated organizations account for more than 2,200 eligible workers and, in 2017, Goodwill Industries CEO James Gibbons’ total compensation was more than $700,000.

Social Vocational Services educates and provides services and jobs to thousands of people with disabilities. With 75 locations throughout California, it employs 2,090 of these workers, the most of any one 14(c) certificate holder.

In 2016, the non-profit had $104 million in revenue, while its founder and executive director, Edward Dawson, collected $1.1 million in salary and bonuses. His wife Marcia, listed on tax forms as the “associate executive director,” earned $700,000. The couple also rent properties they own to the organization, an amount that totaled $885,000 in 2016.

The Dawsons did not return requests for an interview. About a decade ago, Social Vocational Services was ordered to pay nine employees $16,504 in back wages for 14(c) violations.

Nationwide, enforcement of the law was lax for many years. That began to change in 2009 with the shocking story of Henry’s Turkey Service, a Texas-based supplier of workers for poultry processors. For decades, 32 men with intellectual disabilities were paid $2 a day to gut turkeys, all while being hit, verbally abused, denied medical care and even handcuffed by the contractors who had hired them.

When the Equal Employment Opportunity Commission took up the workers’ cause and sued Henry’s, it won a $240 million judgment – $7.5 million for each, although the figure later was reduced to $1.6 million.

In July of this year, Rock River Valley Self Help Enterprises Inc., a non-profit in Sterling, Ill., agreed to pay more than half a million dollars in back wages to 215 employees. The group’s 14(c) certificate had been revoked in 2018 after it was cited for numerous violations, including paying workers with gift cards on some weekends.

The organization did not return phone calls requesting a comment. However, in a 2018 press release, its executive director, Carla Haubrich, said she disagreed with the Department of Labor’s decision but that she would comply.

Abuses may be more rampant than Department of Labor statistics reflect. For its report, the National Council on Disability examined a large number of 14(c) applications and found many of them incomplete or suspicious, suggesting that employees had not been given individual time trials.

According to the report, the Utah State Developmental Center’s application claimed “21 people made 43 cents per hour on shredding; and at least 33 people made 38 cents per hour on wood crafts.” Even more striking, the state-run institution had “15 people making between 7 cents and 8 cents per hour on an activity called ‘pinatas.’”

Lisa Howell, Quality Manager at the Utah State Developmental Center, called those assertions “mostly inaccurate,” and said that the lowest any 14(c) employee at the center makes is 50 cents-an-hour.

Samantha Crane, director of public policy at the Autistic Self Advocacy Network, said the Department of Labor doesn’t collect the data necessary to monitor whether reduced wages are being calculated correctly. Most of the time, she said, there’s no investigation unless there’s a complaint.

The report by the National Council on Disability also pointed out that Department of Labor staff “do not follow up with employers who fail to renew a 14(c) certificate,” making it unclear whether employers are continuing to pay their workers subminimum wages.

The program is not without its defenders.

Kate McSweeny is the vice president of government affairs and general Counsel of ACCSES, an advocacy group that represents disability service providers, some of whom are 14(c) certificate holders.

“Getting rid of the certificate doesn’t help anybody,” McSweeny said. “Not one person would benefit. But a lot of people who love their jobs would lose their jobs.

“People want to work. There’s a lot of satisfaction that goes with work.”

Neil Romano, chairman of the National Council on Disability, which advises the President and Congress

Neil Romano shares McSweeny’s concern that people would lose their jobs if the 14(c) program disappears.

“You have to be respectful of the 75-year-old parent, with a 55-year old son who’s been in the program for 40 years,” he said. “We have to wind the program down in a measured, orderly way.”

Romano said he believes that most 14(c) workers, especially the younger ones, are high-functioning enough to work normal jobs with a small level of support, though he admits: “There is going to be a small segment of people where it’s going to be difficult to get them to the point where they have a job.”

According to the Bureau of Labor Statistics, just 30 percent of disabled people between the ages of 16 to 64 have jobs, compared to 74 percent of people without disabilities in that same age range.

The future of the program is uncertain. The National Council on Disability has been recommending since 2012 that the federal government wind down the 14(c) program. Although Congress has not acted on that recommendation, the number of participating employers and workers has been shrinking.

That’s partly because some states, like New Hampshire, Maryland and Alaska, have stopped allowing 14(c) employers to circumvent the states’ minimum wage. Other states have cut off public funding to certificate holders.

Perhaps most importantly, many of the jobs are being replaced by automation.

“The thing about sheltered workshops is they are very much separated in time and space from the current economy,” said attorney Regina Kline. “How can we have workers trapped in a bygone era? We’re making them do jobs that don’t exist in the market anymore.”

Kline is on the legal team representing Michael Denoewer, the Ohio man who is challenging the subminimum wages he earned at UCO Industries, a sheltered workshop that did production work for Honda.

Denoewer filed his federal lawsuit under the Americans With Disabilities Act, accusing UCO of discrimination – possibly the first time such a lawsuit has been filed against a sheltered workshop. Though he is non-verbal, he can communicate with the aid of an iPad app. But that was of little use at UCO Industries, where he would be performing one simple, rote task over and over again.

According to his suit, he was relegated to working at “the tables,” an area of UCO’s warehouse where work was “lower-paid, less fulfilling and dull.” Denoewer alleges that UCO never properly assessed his skills, and despite repeated requests from his mother and his friend, Denoewer was never given the chance to work on “the line,” where workers make at least minimum wage, or at the paper shredder, even though he had operated one previously at his mother’s accounting firm.

UCO Industries did not return phone calls requesting comment.

When the complaint was first filed in December 2017, Honda was named as a co-defendant. The Japanese carmaker filed a motion to be removed, and in February of 2018, the judge granted it, writing in his decision: “Honda has no connection to Plaintiff. Honda simply contracted with UCO as a supplier.”

In July, Denoewer’s lawyers filed a new motion for the judge to reconsider, arguing that Honda had considerable control of UCO’s operations and “their discriminatory impact.” Kline also has filed another lawsuit on behalf of three clients against another Ohio-based work center and a commercial floor manufacturer, for whom the center was making tile samples.

“All around the country, people have been brought into these facilities and excluded from opportunities,” said attorney Kline. “These are employees with rights, and not people that you can shuffle around your program as you see fit.”