S. 2438 — Transformation to Competitive Integrated Employment Act

This section authorizes the Secretary of Labor to award competitive grants, from amounts appropriated to carry out this title, to states and eligible entities to assist employers issued special certificates under the Fair Labor Standards Act (i.e., section 14(c) certificates authorizing subminimum wages for workers with disabilities) in transforming their business and program models to provide competitive integrated employment (i.e., paying at least minimum wage in integrated settings) by—(1) compensating all employees at a rate that is not less than the higher of the federal minimum wage rate under FLSA section 6(a)(1) ($7.25 per hour) or the applicable state or local minimum wage, and not less than the customary wage paid by the employer to non-disabled employees performing the same or similar work; (2) assisting workers with disabilities previously employed under such certificates in finding and retaining competitive integrated employment, potentially with the same employer; (3) providing integrated community participation and wraparound services; and (4) ensuring compliance of such services with specified Department of Health and Human Services home and community-based services (HCBS) requirements (79 Fed. Reg. 2948).

This section establishes a grant program administered by the Secretary of Labor to assist states in transitioning employers from using special certificates under the Fair Labor Standards Act (FLSA) section 14(c)—which authorize subminimum wages for workers with disabilities—to competitive integrated employment (i.e., at or above minimum wage in integrated settings) or a combination thereof with integrated services. To receive a grant, a state must submit an application that includes (1) data on current special certificate employers, workers' hours and wages (disaggregated by employer and demographics), and the state's competitive integrated employment initiatives (e.g., Employment First plans, Olmstead plans); (2) planned grant activities, such as identifying all special certificate employers for transformation, building service infrastructure, recruiting employers, and setting timelines for phasing out special certificates no later than their expiration under new FLSA section 14(c)(7); (3) coordination plans across federal, state, and local programs; (4) an evaluation plan measuring impacts on workers' employment status, wages, hours, and provider capacity over two years post-transition; and (5) assurances that all special certificate employers will fully transform, prioritizing workers with the most significant disabilities, offering all affected workers competitive integrated employment opportunities, and securing commitments from key state agencies (e.g., developmental disabilities, Medicaid, vocational rehabilitation).

This section establishes a grant program administered by the Secretary for eligible entities using special certificates under section 14(c) of the Fair Labor Standards Act of 1938 (i.e., certificates authorizing payment of subminimum wages to workers with disabilities based on productivity relative to nondisabled workers) to transition to competitive integrated employment models (i.e., employment at or above the minimum wage in settings with regular interaction with nondisabled coworkers). To be eligible, an entity must submit an application containing (1) its current and historical use of special certificates, including employee numbers and demographics, counts of workers paid below the FLSA minimum wage under 29 U.S.C. 206(a)(1) or below the employer's customary wage for similar work, wage ranges from the prior year, transitions to competitive integrated employment over five fiscal years, and business models; (2) planned activities and goals for model transformation, projected employee numbers post-transition, discontinuation date for special certificates, and transformation processes (e.g., contract redesign, staff training); (3) recruitment processes for government and private employers; (4) a quarterly timeline over the three-year grant period; (5) coordination of federal, state, and local programs; (6) assurances of transformation success, data provision for evaluation, and cooperation with technical assistance; (7) an evaluation plan; and (8) collaboration assurances from state agencies (e.g., Medicaid, vocational rehabilitation).

This section revises the minimum wage rates payable, under special certificates issued pursuant to section 14(c)(1) of the Fair Labor Standards Act (FLSA), to workers whose earning capacity is impaired by physical or mental disability (previously, subminimum commensurate wages with no specified floor). It requires payment of the greater of (i) 60% of the federal minimum wage under FLSA section 6(a)(1) beginning 90 days after enactment, increasing to 70% two years after enactment, 80% three years after enactment, 90% four years after enactment, and 100% five years after enactment; or (ii) the individual's wage rate in effect the day before enactment. (Thus, most workers will transition to at least the full minimum wage within five years unless their prior rate exceeds the phased-in floor.)

This section prohibits the Secretary of Labor from issuing new special certificates under Fair Labor Standards Act (FLSA) section 14(c)—which authorizes sub-minimum wages for learners, apprentices, messengers, and full-time students in retail or service establishments (i.e., to prevent curtailment of employment opportunities)—to employers without a prior certificate before enactment of the Transformation to Competitive Integrated Employment Act. It further terminates that authority and voids all existing certificates beginning on the day after the fifth anniversary of enactment.

This section authorizes the Secretary of Labor—acting through the Office of Disability Employment Policy (ODEP) in partnership with the Employment and Training Administration (ETA), and in partnership with the Administration for Community Living (ACL) of HHS and the Office of Special Education and Rehabilitative Services (OSERS) of ED—to award a competitive grant to a qualified nonprofit entity for technical assistance and dissemination activities related to employer transitions from special minimum wage certificates (i.e., section 14(c) certificates under the Fair Labor Standards Act authorizing subminimum wages for workers with disabilities) to competitive integrated employment (i.e., employment at competitive wages with coworkers without disabilities, per the Workforce Innovation and Opportunity Act). The grant supports (1) technical assistance to employers undertaking such transitions; (2) identification and dissemination of public- and private-sector transition models; (3) development of replicable strategies to increase evidence-based practices and competitive integrated employment options; (4) collection and dissemination of related evidence-based practices and strategies implemented under WIOA, Olmstead settlement agreements (i.e., enforcing community integration under the Americans with Disabilities Act), or Medicaid home and community-based services (HCBS) rules; (5) increased awareness of and access to training from ODEP, ETA, ACL, and OSERS; (6) awareness of state Employment First initiatives (i.e., prioritizing competitive integrated employment for individuals with disabilities); and (7) coordination on ABLE accounts (i.e., tax-advantaged savings accounts for disability-related expenses) and other financial resources. Grants are awarded for 6 years and are non-renewable.

This section directs the Secretary of Labor, not later than 180 days after enactment, to contract with a nonprofit entity experienced in program evaluations to conduct a multi-year evaluation of the Act's impact—including title II amendments to section 14(c) of the Fair Labor Standards Act of 1938 (29 U.S.C. 214(c)), which authorizes special certificates permitting subminimum wages for workers with disabilities based on individual productivity—on (1) wages and employment for people with disabilities and (2) employer and state compliance actions, including transformation requirements under title I for recipients of its funds; and to prepare specified reports. The Secretary must submit to the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Education and Workforce (1) an interim report three years after the evaluation commences and (2) a final report 18 months after the legal effect of special certificates expires under new section 14(c)(7).

This section directs the Secretary of Labor (acting through the Wage and Hour Division Administrator, in coordination with the Department of Justice Civil Rights Division) to submit annual reports to the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Education and Workforce for each year of the five-year period under amended FLSA section 14(c)(1)(A) (29 U.S.C. 214(c)(1)(A)). The reports cover employers using special certificates (i.e., FLSA authorizations to pay workers with disabilities subminimum wages), including (1) the number of such workers paid less than the higher of the FLSA minimum wage under section 6(a)(1) (29 U.S.C. 206(a)(1)) or applicable state/local minimum wage, or less than the employer's customary wage for similar work by able-bodied employees with similar training, experience, and skills; (2) employment settings (e.g., segregated or competitive integrated) and integrated services; (3) average, minimum, and maximum hourly wages and average weekly hours, disaggregated by employer and state; (4) employee demographics (gender, ethnicity, race, disability type); and (5) transitions to competitive integrated employment, disaggregated by employer and state. This section further requires the Secretary to audit, within one year of enactment, at least 10% of existing special certificate holders—including their transition training and support, competitive employment placement efforts, and worker wages under the criteria in (a)(1)—and to report audit findings to the Senate HELP and Aging Committees and the House Education and Workforce Committee.

This section defines 13 terms for purposes of the Act: (1) ABLE account; (2) competitive integrated employment; (3) disability; (4) integrated community participation and wraparound services and integrated services (i.e., community-based services promoting competitive employment, independent living, and community participation for people with disabilities, excluding institutional settings such as nursing facilities and intermediate care facilities for individuals with intellectual disabilities); (5) local board and local plan; (6) Olmstead decision; (7) Olmstead plan; (8) people with disabilities (including individuals described in section 14(c)(1) of the Fair Labor Standards Act); (9) Secretary (i.e., Secretary of Labor); (10) special certificate (i.e., issued under section 14(c) of the Fair Labor Standards Act); (11) State; (12) State board; and (13) workforce development system.

This section authorizes $200 million annually for FY2026 through FY2030 to carry out the Act, of which 1% is allocated for technical assistance activities under title III.