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The term sheltered workshop refers to an organization or environment that employs people with disabilities separately from others. The term 'sheltered workshop' is considered outdated in the U.K. and the U.S., and increasingly in Australia.
In the U.S., both the term "sheltered workshop" and its replacement term, "work center," are used by the Wage and Hour Division of the U.S. Department of Labor to refer to entities that are authorized to employ workers with disabilities at sub-minimum wages. The term has generally been used to describe facilities that employ people with disabilities exclusively or primarily.
U.S. public policy at the Federal level has shifted away from sheltered workshops in favor of “'administer[ing] services, programs, and activities in the most integrated setting appropriate to the needs of . . . individuals with disabilities. . . . ['T]he most integrated setting' is one that 'enables individuals with disabilities to interact with nondisabled persons to the fullest extent possible . . . .'”
Sheltered workshops in the U.S. have become the subject of criticism for being exploitative, abusive and discriminatory. In January 2011, the National Disability Rights Network, or NDRN, issued a report titled "Segregated and Exploited: The Failure of the Disability Service System to Provide Quality Work." The report charged that "hundreds of thousands of people with disabilities are being isolated and financially exploited by their employers."
In March 2011, a speech by Samuel R. Bagenstos, the Principal Deputy Assistant Attorney General in the Civil Rights Division of the U.S. Department of Justice, cited the NDRN report in explicitly criticizing the entire concept underlying the sheltered workshop. Bagenstos took the position that the principle articulated in the U.S. Supreme Court decision in Olmstead v. L.C.—which he described as "that persons with disabilities have a right to spend their lives in the most integrated setting appropriate for them as individuals" -- "is just as sensibly applied to the employment setting." He argued that "a full and equal life in the community—the ultimate goal of Olmstead—cannot be achieved without a meaningful, integrated way to spend the day, including integrated 'work options.'" And he 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 the U.K., the term has been replaced with social enterprise. However, the notion of 'social enterprise' implies that the organisation would trade in the market and take on a degree of business risk, and not be completely dependent on government subsidy, as the traditional model of the sheltered workshop may allow. In this newer model, the enterprise might receive a subsidy in compensation for the reduced productivity of its disadvantaged workers, in order to allow it to compete on a "level playing field" with conventional firms.
The Australian Disability Enterprise (ADE) sector in Australia generally has its roots in the early 1950s when families of people with disability established sheltered workshops to provide vocational activity for people with disability. At this time employment opportunities for people with disability were extremely limited.
In 1986, following the introduction of the Commonwealth Disability Services Act (1986) principles and objectives for service delivery was passed into legislation. This resulted in the transition from the Sheltered Workshop system to the new business services model. In 1996, additional reforms were introduced for the purpose of improving service quality, matching service funding to the support needs of people with disability receiving assistance, and to link funding to employment outcomes. This led to a reform agenda in the ADE sector, with the introduction of legislated Quality Assurance standards that required ADEs to obtain independent verification of their compliance to these prior to receiving ongoing funding from the Australian Government. Additionally, a funding model that links payments to individual support needs was introduced.
In Australia, funding can only be used to provide training and support to 'supported' employees. This type of employment is in contrast to 'open employment' where people with disabilities enter mainstream, competitive employment alongside people without disabilities.
In some ADEs individuals are paid as little as $1.79 an hour, based on the BSWAT (Business Services Wage Assessment Tool), which was found to be discriminatory in 2013 and will be phased out by April 2015 . The BSWAT tool is not used in all ADEs, indeed, many ADEs argued it was unsuitable when it was first introduced. Wages are based on a percentage of award rates, according to the workplace competencies and productivity of the person with a disability in comparison to a worker without a disability. The work undertaken in ADEs is often of a kind that would generally be undertaken by automated processes and has a very low profit margin for the ADE - the purpose of the work is not to make a profit, but to allow the person with a disability the opportunity to engage in an employment environment, providing a sense of contribution and the dignity of work.
Following on from the court challenge on the discriminatory nature of the BSWAT, a large percentage of parents and employees of ADEs (along with the relevant Peak Body, National Disability Services) began a campaign to ensure their jobs were protected. Many raised the point that ADEs are not typical workplaces and provide significantly more support and opportunities than open employment workplaces. These parents, carers and Employees were concerned that if ADEs were forced to pay full award wages for employees with a disability, many would be financially unsustainable. An episode of the ABC's Background Briefing in September 2014 discounted many of the parents and ADE's claims as deceptive spin, for sustaining the exploitative nature of the entire scheme. 
- "U.S. Department of Labor, Wage and Hour Division, Field Operations Handbook, Chapter 64, 'Employment of Workers with Disabilities at Special Minimum Wages under Section 14(c),' Section 64k, 'Addendum,' Section 64k00, 'Glossary,' 'Sheltered Workshop or Work Center.'". Retrieved 2011-08-29.
- "U.S. Department of Labor, Wage and Hour Division, Field Operations Handbook, Chapter 64, 'Employment of Workers with Disabilities at Special Minimum Wages under Section 14(c),' Section 64b, 'Coverage,' Section 64b01, 'Enterprise Coverage,' 'Competitive employment.'". Retrieved 2011-08-29.
- "Statement of the U.S. Department of Justice on Enforcement of the Integration Mandate of Title II of the Americans with Disabilities Act and Olmstead v. L.C.". Retrieved 2011-08-29.
- "National Disability Rights Network, 'Segregated and Exploited: The Failure of the Disability Service System to Provide Quality Work,' January 2011." (PDF). Retrieved 2011-08-29.
- "Bagenstos, Samuel R., 'Olmstead Goes to Work,' Remarks as Prepared for Delivery at Case Western Reserve University School of Law, March 15, 2011" (PDF). Retrieved 2011-08-29.
- "Wage Justice Campaign - People With Disabilities Australia".
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