It's in S.AMDT.1150 as part of first and second Z visa renewal.
I'm using the Republican version, can't find the "official" version of 1150 on thomas.loc.gov.
"Renewal. Z visa holders must prove continuing employment (if older than 16) (Section 601(m)), and if older than 18, take the naturalization exam (civics and English) at the first renewal. Before the second renewal, the Z visa holder must pass the exam."
However you are correct that anyone applying for N-400 naturalized citizenship must take and pass an English test (except those over 60 IIRC).