California no longer allows employers to pay workers with disabilities less than minimum wage. Labor Code section 1191(b), as amended by SB 639, says that starting January 1, 2025, “an employee with a disability shall not be paid less than the legal minimum wage required by Section 1182.12 or the applicable local minimum wage ordinance, whichever is higher.” A federal certificate doesn’t change that. Any pay below the state or local minimum since then is a minimum wage claim.
What did SB 639 change?
It ended California’s special license system. Before SB 639, section 1191(a) let the state issue a special license authorizing employment “at a wage less than the legal minimum wage.” The amended statute says “No new licenses may be issued after January 1, 2022,” and the license provision became inoperative once the phaseout date arrived.
The State Council on Developmental Disabilities was required to develop a phaseout plan. Its report says “SB 639 prohibits a worker with a disability from being paid less than the legal minimum wage (subminimum wage) starting January 1, 2025.”
Does a federal 14(c) certificate still protect the employer?
Not in California. The federal Fair Labor Standards Act lets the Department of Labor issue certificates for subminimum wages, but it also preserves higher state standards. 29 U.S.C. section 218(a) says no FLSA provision “shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter.”
So a California employer holding a federal certificate still has to pay at least the state minimum, or the local minimum where it’s higher.
Which employers are most affected?
Organizations that ran work programs for people with disabilities. Sheltered workshops, vocational training programs, and nonprofits with contract production work most often relied on subminimum wage licenses and federal certificates. Some have converted to integrated employment, and others have shifted to nonwork day services.
The legal risk is concentrated in the transition. An organization that kept paying piece rates or productivity-based wages below the minimum after the cutoff, or that reclassified workers as participants or trainees without a clear basis, may face claims for the difference.
What exposure does an underpayment create?
The standard minimum wage remedies. A worker can recover the unpaid difference, and Labor Code section 1194.2(a) adds “liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon.” Subdivision (b) allows reduction if the employer shows good faith and “reasonable grounds for believing” the act wasn’t a violation.
Disability discrimination claims can follow if pay or job changes made during the transition are tied to disability rather than to legitimate program changes. Documentation of why each change was made matters.
Subminimum wage rules at a glance
| Issue | Rule | Source |
|---|---|---|
| New state special licenses | None after January 1, 2022 | Lab. Code 1191(a) |
| Minimum pay for workers with disabilities | State or local minimum, whichever is higher, from January 1, 2025 | Lab. Code 1191(b) |
| Federal 14(c) certificate | Doesn’t excuse higher state minimum | 29 U.S.C. 218(a) |
| Liquidated damages | Equal to unpaid minimum wages, with good-faith defense | Lab. Code 1194.2 |
The firm’s page on minimum wage claim defense for California employers describes its work on wage claims.
When a subminimum wage claim arrives
- Preserve payroll records, any state license and federal certificate, productivity studies, and program documents from before and after January 1, 2025.
- Calendar the response deadline on the demand, Labor Commissioner claim, or lawsuit, and check for EPLI or nonprofit D&O coverage.
- Identify the program managers who set pay and made transition decisions, and make sure no worker who complained is treated differently.
- Pull records showing each worker’s status, whether employee, participant, or trainee, and the basis for it.
- Talk to a lawyer before paying back wages or changing anyone’s status, so the payments and classifications hold up.
Subminimum wage questions from employers
Are program participants who receive stipends employees?
It depends on the facts. California applies its own tests for employment status. Calling someone a participant doesn’t settle it if they perform productive work for the organization’s benefit.
Do local minimum wages apply?
Yes. Section 1191(b) requires the higher of the state minimum or “the applicable local minimum wage ordinance.”
Can we still pay piece rates?
Piece rates are allowed if total pay meets the minimum wage and California’s separate piece-rate rules. A piece rate that produces less than the minimum for hours worked creates a claim.
What about pay before January 1, 2025?
Pay under a valid special license before the cutoff was authorized by the statute then in effect. Claims usually focus on the period after the cutoff or on licenses that had lapsed.
If your organization is facing a subminimum wage claim
If your organization has received a claim or demand over pay to workers with disabilities, the license history and the program’s transition records usually decide the exposure. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving minimum wage and disability-related pay practices. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Labor Code sections 1191 and 1194.2, and 29 U.S.C. section 218. The agency report is the State Council on Developmental Disabilities’ SB 639 phaseout plan.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.