Disability Law Opens Doors, but Raises Barriers for SMBs

One of the most sweeping workplace laws in the nation's history has unquestionably opened opportunities, not to mention the doors of millions of businesses, to people who are disabled. But since its enactment in 1990, the Americans with Disabilities Act (ADA) has been a nightmare for countless small businesses.

The federal Department of Justice (DOJ), which administers the ADA, has gone to great lengths to dispute that claim, but a new study by the Small Business Administration's Office of Advocacy lends credibility to many small businesses' concerns. Among the major findings, the study says the cost of compliance is up to eight times as much for small firms compared with large corporations. It also found that small businesses are vulnerable to lawsuits because key ADA provisions are too vague and ambiguous.

Almost any business open to the public (both profit and nonprofit) is subject to the law. They can range from hotels, restaurants, theaters, and museums to retail stores, private schools, banks, and doctors' offices. For those establishments and others, the report comes at a key juncture. The DOJ is currently reviewing the ADA and is considering amendments to one of its thorniest provisions.

It requires business owners to remove physical barriers to their establishments when removal is deemed "readily achievable." Therein lies the problem. The DOJ has never defined or provided guidance on what that means, the study noted. Under the law, "readily achievable" must be defined on a case-by-case basis.

Since the ADA allows attorneys to recover their fees, the ambiguity has provided an incentive for large numbers of lawsuits against small business owners, the study said. Indeed, one federal judge cited by the study said the ADA had spawned a "cottage industry" for lawyers. The lawsuits, the judge added, were "essentially driven by economics -- that is, the economics of attorney's fees."

As a result, the ADA has spawned yet another cottage industry. This one is also populated by attorneys and so-called ADA consultants. Small business owners often are forced to hire them to interpret "readily achievable" in light of their specific circumstances. "Many small firms simply do not know what their liability under the rule is," the study states. In fact, the provision may actually hinder compliance. Small business owners, unable to determine what their obligations are, often decide to wait until someone complains before taking action, the study noted. Incidentally, small businesses are still liable under the law even if they are only renting.

"It's up to entrepreneurs to stay abreast of how the broadly written statute is interpreted in courts around the country. Those who don't keep up risk getting sued -- and even if they win in court, they often lose time and legal fees and suffer damage to their reputation," William Anthony, a Florida State University management professor and expert on the ADA, told Forbes magazine in a 2005 interview.

Indeed, a number of groups and advocates representing the disabled aggressively pursue businesses. In one widely reported episode in 2003, a San Luis Obispo, Calif., man sued 90 restaurants, wineries, and other businesses over ADA compliance. The justice department, however, asserts that the ADA has resulted in "a surprisingly small number of lawsuits."

It says it tracked about 650 nationwide over a five-year period. "That's tiny compared to the six million businesses, 666,000 public and private employers, and 80,000 units of state and local government that must comply," it noted in a statement.

As for costs, the department states that, in most cases, an "appropriate reasonable accommodation" can be made "without difficulty and at little or no cost." It still cites a study that Sears, the department store chain, conducted in the early 1990s. Of the 436 accommodations the company made between 1978 and 1992, the study stated that 69 percent cost nothing, 28 percent cost less than $1,000, and only 3 percent cost more than $1,000.

But the Office of Advocacy, which took a detailed look at the problem, found otherwise. Costs to remove barriers ranged from $82,449 (typical small firm restaurant building) to $275,375 (typical small firm hospital building). On a per-employee basis, costs for a typical small firm ranged from $499 per employee for a small hospital to $17,458 for a small hotel. That's about one and a half to eight times those faced by larger firms, according to the study, which called the costs "substantial."

Under the IRS Code, firms with $1 million or less in revenue or 30 or fewer full-time employees can get a tax credit for 50 percent of the first $10,250 in costs, and a maximum tax deduction of $15,000 annually. But in light of the study's findings, the Office of Advocacy urged the DOJ to consider reducing the scope of the ADA requirements.

The ADA is certainly a commendable law, which has improved the lives of the disabled. As President George H.W. Bush said when he signed the measure: "Let the shameful wall of exclusion finally come tumbling down." But the ADA is also a case study of red tape run amok. With some simple guidance, the Department of Justice can make it far less burdensome for small businesses and open even more doors.