Ethical Supply Chains, Disability, Sheltered Workshops, Segregation and Exploitation

19 April 2019

Governments and the private business and corporate community recognise the importance of ethical procurement practices in their “supply chains”. The initial focus of supply chain impacts was on verifying environmentally sustainable practices, but has more recently expanded to include prevention of human right violations (particularly economic exploitation akin to “slavery”, human trafficking and child labour).

Governments have international law duties to protect against human right abuses by business enterprises and business enterprises have corporate responsibilities to respect human rights – and accordingly to conduct human rights due diligence in relation to their business’s impact, including through its suppliers and contractors, on human rights.

Australia, like the US state of California and the UK before it, has enacted modern slavery legislation “to require some entities to report on the risks of modern slavery in their operations and supply chains and actions to address those risks” (Modern Slavery Act 2018 (Cth)). The Assistant Minister for Home Affairs, in introducing the legislation, stated:

“[Modern slavery] involves serious crimes and grave human rights abuses and taints the goods and services we use every day. Modern slavery in supply chains also distorts global markets, undercuts responsible businesses, and poses significant legal and reputational risks for companies.”

However, anti-human rights exploitation legislation does not explicitly extend to the economic exploitation and human rights violations of people with disability as a specific group – and in particular people with intellectual disability in “sheltered workshops”.

Notwithstanding recognised adverse socio-economic impacts, “sheltered workshops” remain the predominant workplaces for people with intellectual disability. The term “sheltered” denotes facilities, usually in the manufacturing sector, that are “sheltered” or “protected” from general or regular employment settings and accordingly geographically separated.

They have been tinkered with and rebranded over time and are known by many different names: for example, “Disability Enterprises” in Australia, “Work Centres” in the United States, “Social Enterprises” in the UK and “Occupational Activity Centres” in Portugal. However, there are generally four common and enduring features of “sheltered workshops”:

the segregation or ‘warehousing’ of people with intellectual disability – although operators have increasingly presented sheltered workshops as advancing the employment prospects of people with intellectual disability through training for future placement in open employment settings – it is common worldwide for less than 1% of workers per year to transition out of segregated sheltered workshops, demonstrating their ‘dead end’ character rather than ‘stepping-stone’ purpose);
atypical working conditions – despite national minimum wage regulations, exemptions allowing subminimum wages (as low as $1 an hour – but rates of a few cents an hour have also been documented in the US) are sanctioned by Governments on the basis that the productivity of workers with intellectual disability is lower than non-disabled workers undertaking the same task and a paternalistic view that the provision of ‘work’ for people with intellectual disability is a benefit in itself; and
menial, repetitive and often meaningless nature of the work – that works against the development of sufficient and varied skills required for transition of the workers to open employment settings; and
a paternalistic culture – frequently a legacy of the medical, religious and charitable institutions from which sheltered workshops have evolved, which results in the workers being treated as ‘clients’ or even ‘patients’ but does not prevent their risk of exploitation.

Like the majority of the US, Australia maintains a regulatory space for sheltered workshops and a legislative exemption from minimum wage requirements. However, the landscape in the US is changing and a number of US states have followed New Hampshire’s lead in 2015 and banned the payment of subminimum wages to workers with disabilities. Vermont has gone further and closed all its sheltered workshops and transitioned workers with intellectual disability into supported open employment in the community or involvement with other community services.

The progression in the US has been strongly influenced by the release in 2011 of the National Disability Rights Network’s report titled ‘Segregated and Exploited: The Failure of the Disability Service System to Provide Quality Work’ . In a speech that year, the Principal Deputy Assistant Attorney General in the Civil Rights Division of the US Department of Justice cited the NDRN report and stated:

“[W]hen individuals with disabilities spend years – indeed, decades – in congregate programs doing so-called jobs like these, yet do not learn any real vocational skills, we should not lightly conclude that it is the disability that is the problem. Rather, the programs’ failure to teach any significant, job-market-relevant skills leaves their clients stuck. As a recent review of the literature concludes, ‘[t]he ineffectiveness of sheltered workshops for helping individuals progress to competitive employment is well established’.”

In addition, there have been a number of high profile investigations and class-actions by the US Departments of Labour and Justice into exploitation and wage fraud involving sheltered workshops. For example, in 2017 the Department of Labour prosecuted Rock River Valley Self Help Enterprises, an Illinois non-for-profit entity, which operated as a subcontractor to local factories and provided menial tasks to workers with intellectual disability, like scraping debris from metal casts. Rock River was investigated and found to be exploiting nearly 250 workers by paying subminimum wages that were not justifiable on a productivity basis, and in some cases was not even paying money, but providing gift cards or vouchers.

The financial exploitation of workers has also been exacerbated when juxtaposed against reports of the high salaries of CEOs of the operators of sheltered workshops.

Under President Obama’s administration, the US Department of Justice became directly involved in class-action lawsuits against sheltered workshops and alleged that states were violating the Americans with Disability Act by not providing supported open employment services, and instead segregating people with intellectual disability in sheltered workshops that were exploiting workers. In response to this a number of states including New York, Oregon and Massachusetts formed alliances with disability advocacy groups to phase out sheltered workshops and transition workers to more open employment settings – and as first steps are terminating the funding of sheltered workshops and subminimum wage exemptions.

As a result of pro-“open employment” policy development, federal legal actions against states and departmental prosecution of unscrupulous operators of sheltered workshops for exploitation and wage fraud, the relevance of ‘sheltered workshops’ to ethical supply chain reporting is better recognised in the United States. One consultancy, Inclusivity Strategic Consulting, advises:

“’Made in America’ shouldn’t mean exploiting people with disabilities. We assist corporate and business clients to identify any sheltered workshops in their supply chains and check their wages, workplace conditions, and disability-related practices with precision. …

Across the country, approximately 500,000 people with disabilities work in factory settings known as sheltered workshops, where they perform manual labour, typically in exchange for sub-minimum wages, and sometimes in exploitative working conditions.

Many companies have already taken steps to ensure that their suppliers do not engage in child labour, human trafficking, unsafe work conditions, or unlawful wage practices. … But most companies have yet to find a way to identify whether people with disabilities are performing productive labour in their supply chains or are being exploited.

Today there is a strong and growing consensus among the national disability community, federal and state policy makers, and the business community that people with disabilities can and want to work in typical jobs and make valuable contributions to the workplace.

Nevertheless, companies remain invested in this cheap labour force, while advertising that their goods and services are ‘Made in America’. Other companies are unaware that they even have a footprint in sheltered workshops because the supply chain is fractured and reliance upon independent contractors has made it difficult to trace workplace conditions and practices of suppliers to their root.”

The UK-based Ethical Trading Initiative (ETI) recently released guidance on Disability Inclusion in the Global Supply Chain, which guidance is in line with the UNGC/ILO Guide for Business on the Rights of Persons with Disabilities. ETI warns companies “to check carefully to ensure that their suppliers are not exploiting people alongside others from vulnerable groups” and in that regard notes:

“Unscrupulous employers may argue that people with disabilities are not as productive as non-disabled people and use this as an excuse to pay lower wages. This is unacceptable.”

ETI specifically refers to sheltered workshops in recognising outsourcing making global supply chain analysis for positive disability inclusion practices more difficult to verify:

“Some businesses outsource jobs for people with disabilities. While some specialist facilities are empowering and geared to the open labour market … , many are segregated workshops which may not offer choice and appropriate wages and conditions.”

The adverse segregation consequences of sheltered workshops are well known. In response to paternalistic arguments that sheltered workshops provide a safe place for people with disability to meet and experience participation in a work setting, disability advocates and academics counter that menial ‘work’ in segregated sheltered workshops for subminimum or ‘token’ wages simply serves to entrench the societal stigmatisation of people with intellectual disability as unproductive and worthless, fails to respect people with intellectual disability as equal right-holders and ultimately operates to deny the realisation of their human rights and participation in society.

The UN Convention of the Rights of Persons with Disabilities (UNCRPD) does not expressly mention “sheltered workshops”, notwithstanding that during its development People with Disability Australia, as an NGO, and New Zealand, as a State delegate, submitted that the Convention must not be read as creating rights to segregated employment (i.e. in sheltered workshops), as it would merely contribute to permanent ‘warehousing’ of people with disability and their social and economic exclusion.

Article 27 (Work and Employment) of the UNCRPD provides:

“1. State Parties recognise the rights of persons with disabilities to work, on an equal basis with others; this includes the right to the opportunity to gain a living by work freely chosen or accepted in a labour market and work environment that is open, inclusive and accessible to persons with disabilities. State Parties shall safeguard and promote the realisation of the right to work … by taking appropriate steps, including through legislation, to, inter alia:

(a) Prohibit discrimination on the basis of disability with regard to all matters concerning all forms of employment, … ;

(b) Protect the rights of persons with disabilities, on an equal basis with others, to just and favourable conditions of work, including equal opportunities and equal remuneration for work of equal value … ; …

…

(i) Ensure that reasonable accommodation is provided to persons with disabilities in the workplace;

(j) Promote the acquisition by persons with disabilities of work experience in the open market;

… .”

2. State Parties shall ensure that persons with disabilities are not held in slavery or in servitude, and are protected, on an equal basis with others, from forced or compulsory labour.”

Article 16.1 (Freedom from Exploitation, Violence and Abuse) of the UNCRPD provides:

“State Parties shall take all appropriate legislative, administrative, social, educational and other measures to protect persons with disabilities, both within and outside the home, from all forms of exploitation, violence and abuse, including their gender based aspects.”

The UN Committee on the Rights of Persons with Disabilities (UN Committee) reviews and reports on the employment experience of people with disabilities in the 176 signatory countries to the CRPD. Those reviews have resulted in numerous expressions of concern by the UN Committee with the continued prevalence of sheltered workshops and subminimal wages. In the case of a review in 2012 the UN Committee determined that the daily allowance received by people in sheltered workshops in Hong Kong was so low as to have violated Article 16 as “exploitation”; and in reviewing Korea and Germany in 2014 and 2015, the UN Committee asked for the elimination of their sheltered workshops through immediately enforceable strategies.

What is clear is that the continued operation of sheltered workshops is increasingly exposing private businesses to ethical supply chain risks and corporate social responsibility considerations. Corporations should consider their supply chain exposure to sheltered workshops and what they as corporate citizens can do through their own workforces and procurement policies to:

avoid and minimise the segregation and exploitation of people with intellectual disability; and
respect and advance the human rights of people with intellectual disability.

Corporations should consider the following human rights due diligence questions:

Do they or their supply chains (suppliers and contractors) utilise products or services produced in sheltered workshops?
If yes, what are the practices and conditions (including wages) prevailing in the sheltered workshop?
Is the sheltered workshop geared to transitioning people with intellectual disability into open employment settings? As an indicator, what percentage of its workers have been transitioned to open employment in the last 12 month period?

But as a matter of corporate social responsibility, corporations should also ask:

What can we do to promote the employment of people with intellectual disability in open employment settings, with appropriate support, on standard working conditions and wages?

Without corporations adjusting their employment and procurement practices and workplaces to be more inclusive of people with disability, particularly intellectual disability, the rate of progression from sheltered workshop practices to open employment will continue to be glacial and thereby prolong the denial of human rights of people with disability.

Little has changed internationally, including in Australia. The missing participant in the necessary socio-economic solution of open employment, with necessary supports, for people with intellectual disability being the private business community. The increasing prominence of ethical supply chain analysis and corporate social responsibility reporting – inevitably extending into the disability context – provides a substantive basis for engagement with the private business sector that will resonate for it at a commercial, legal and reputational level.

A decade ago – in 2010 – before the influential NDRN report in the US – the Australian Federation of Disability Organisations stated the following in a submission to the Australian Government [but it could have been written yesterday]:

“An End to Low Wages

In discussions about Sheltered Workshops/Business Services/Australian Disability Enterprises it is important to be transparent and frank. The issue that has been an obstacle is real wages. The reason an artificial distinction has been made between ‘supported employment’ and ‘open employment’ is the low wages paid to most employees in ‘supported employment’; $72 per week for ‘supported employment’ employees v/s $309 per week for ‘open employment’ employees.

The excuse used by ‘supported employment’ managers is that their employees ‘have a great severity of disability’ and that they provide ‘social support’. But, over many years of ‘reform’, the managers have produced no evidence to support either of these claims, either national or international.

The main obstacle to people with disability to having real jobs with real wages is often service provider employers. It appears that these service providers are often protecting their own jobs at the expense of employees with disability. These service providers are heavily subsidised by taxpayer funds and must be held accountable for their outcomes.

Leading practice in Australia for people with intellectual disability (IQ less than 60, including employees with IQs less than 40) is an average wage of $330 per week at 21 hours per week – this is close to the federal minimum wage of of approx. $15 per hour. This has been achieved outside the [segregated] supported employment system.

…

An End to Segregation

The Disability Services Act’s objective was that of ‘integration’. The intent was to move to employment assistance that supported people in the open labour market. ‘Supported employment’ was meant to provide employment assistance to people who were unable to work at full award wages and who needed substantial ongoing support. Supported employment was never meant to be a term used for the segregation of people with disability in Sheltered Workshops/Business Services/Australian Disability Enterprises. The distinction applies to the person with disability, not to define a segregated model of employment support.

The UNCRP[D] calls for the labour market to be open and inclusive of people with disability, and does not make exception due to the degree of disability or support need.

The vision of ‘inclusion’ in employment for people with disability requires an employment service response that supports all people with disability to find a job, receive the necessary training an support, and be assured of long-term ongoing support if needed.

Sheltered Workshops/Business Services/Australian Disability Enterprises still operate on an old model that is contrary to the objects and intent of the DSA and the UNCRPD. The grouping of people with disability is not a need but an old model based on an ideology of segregation and exclusion from full participation in the community.”

With deeper engagement by the private business sector in supply chain analysis and corporate social responsibility reporting as to their impact on the human rights of people with disability – and initiatives like The Valuable 500 – the currency of AFDO’s submission – and sheltered workshop practices – hopefully will have a proximate end date.

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