Rulings by the U.S. Supreme Court and lower courts, as well as legislation, point to the conclusion that AIDS is a physical handicap under the Vocational Rehabilitation Act of 1973. A 1987 Congressional amendment to this act excludes from the law's protection anyone with a contagious disease or infection, but only if the person is unable to perform essential job functions or constitutes a direct threat to the health and safety of other individuals. Protection for AIDS victims is not limited to the Rehabilitation Act. Courts and agencies in most States have concluded that State laws barring handicap discrimination cover AIDS. A difficult and more uncertain question is whether asymptomatic employees are covered by handicap laws. The defense most likely to be raised in AIDS discrimination cases, risk of transmission in the workplace, has little chance of success. Further, employer concern over higher health care expenses will not justify discriminatory action, and employers will seldom prevail in an argument that the absence of AIDS is an occupational qualification. Medical screening and testing of employees and applicants also raise unresolved legal issues. AIDS in the workplace additionally forces employers to address the rights of other employees, which brings labor and handicap discrimination laws into potential conflict. In view of the obvious potential for liability under Federal and State laws, employers should develop clear corporate policies and procedures on AIDS in the workplace.