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The term sheltered workshop refers to an organisation 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 The term 'sheltered workshop' is considered outdated in the U.K. and the U.S., and increasingly in Australia.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 entitled "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 NDRM 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.
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.