On August 26, 2026, a federal court in California ruled that the current methodology used to calculate adverse effect wage rates (AEWRs) in the H-2A labor program was unlawful. The challenged methodology was implemented through an interim final rule (the IFR) published in 2025 by the Department of Labor (DOL). This article will discuss that rule, the court’s decision, and what it means for H-2A employers moving forward. Because the AEWR plays a significant role in determining the wages paid to H-2A workers, this decision will impact producers across the nation.
Background
The H-2A labor program allows domestic agricultural producers to hire foreign laborers on a temporary basis when faced with a domestic labor shortage. Producers are required to satisfy numerous procedural requirements and may only employ foreign laborers for a strict period, usually no more than a year. DOL is required by federal law to ensure that employment of H-2A workers will not “adversely affect the wages” of similarly employed U.S. farmworkers. 8 U.S.C. § 1188(a)(1)(B). One of the primary tools used to fulfill that obligation is the AEWR. To learn more about previous AEWRs and how they function, click here.
On October 2nd, 2025, DOL published the IFR which changed the methodology used to calculate AEWRs in the H-2A program in four relevant ways. First, the IFR selected the DOL’s Occupational Employment and Wage Statistics survey (OEWS) as the new data source to be used in AEWR calculations. Second, the IFR identified five “Standard Occupational Classification” (SOC) codes to be applied to most H-2A jobs. SOC codes are used in the OEWS survey to identify and classify various job categories. A worker will be assigned an SOC code based on the work they spend most of their time performing. The court refers to this as the “greater than 50% rule.”
Third, the IFR establishes a “tier system” for calculating AEWRs. This tier system divides H-2A workers into two distinct tiers, Skill Level I (Entry-Level) and Skill Level II (Experience Level). Finally, the IFR established a “housing adjustment” to be used when calculating AEWRs. Federal law requires that employers provide housing at no cost to H-2A workers and “those [U.S.] workers in corresponding employment who are not reasonably able to return to their residence within the same day.” 20 C.F.R. § 655.122(d)(1). According to DOL, the “free housing” for H-2A workers creates a compensation disparity between H-2A workers and domestic workers who do not receive free housing. The IFR deducts the value of housing from AEWRs to remedy that alleged disparity between domestic and H-2A laborers.
On November 21, 2025, the IFR was challenged in federal court by United Farm Workers (UFW), a nationwide labor union. According to UFW’s complaint, the IFR would drastically reduce wages paid to H-2A workers and in turn reduce wages being paid to U.S. workers across the nation. UFW asserted that the IFR had created the very “adverse effect” which AEWRs are intended to prevent. UFW requested that the court hold the IFR to be unlawful, vacate the IFR, and order DOL to develop a new methodology for calculating AEWRs. To learn more about the allegations in the original complaint and the changes to the AEWR, click here.
The Court’s Decision
Ultimately, the court sided with the plaintiffs and concluded that the IFR violated the law by failing to ensure that H-2A workers will not “adversely affect” the wages of U.S. farmworkers and should be overturned. In reaching its decision, the court examined the four key components of the IFR: (1) the tier system; (2) the housing adjustment; (3) the use of the OEWS; and (4) the greater than 50% rule. According to UFW, these four components “deliberately lower AEWRs to the point that they no longer track relevant market rates” and “DOL did not reasonably consider whether this comports with its statutory obligation to protect U.S. farmworkers from the adverse effects of hiring H-2A workers.” Therefore, the court examined whether DOL had adequately explained how these four components of the IFR prevent adverse effects to U.S. farmworkers.
First, the court discussed the tier system. In issuing the IFR, DOL asserted that setting the AEWR at the average for farmworker pay in an area could create an issue where similarly employed workers are paid the same amount, regardless of their experience level. To remedy this, the IFR applied its tier system, separating workers based on experience. When an SOC code is applied, that code is then divided into Skill-Level I for entry level workers and Skill-Level II for the more experienced workers. DOL concluded that this tier system was necessary to more precisely reflect market-based wages.
The court concluded that the AEWRs for Skill-Level I and Skill-Level II will not accurately reflect market-based wages. According to DOL, a Skill-Level I AEWR offers a similar entry-level wage rate found in comparable visa programs administered by the DOL, like the H-1B program. The court rejected this notion, noting that the H-1B program relies on a four-tier system. In that system, the lowest of the four tiers is set at the 17th wage percentile for all workers, rather than the mean. Comparatively, the AEWR for Skill-Level I under the IFR would also be at the 17th wage percentile. The court notes that under the IFR’s tier system, 92% of all H-2A workers would fall under Skill-Level I. Conversely, approximately 60% of all H-1B workers would fall under the bottom two tiers of its system, with only the first tier set at the 17th wage percentile. According to the court, this is a “significant distinction” and DOL failed to explain how the tier system used in the H-1B program is a “valid reference point” for the IFR. The court concluded that by setting the AEWR “for the vast majority” of H-2A workers “well below the relevant market wages,” DOL failed to reasonably consider how the tier system would fulfill DOL’s statutory duty to prevent adverse effects on U.S. farmworker wages.
Second, the court examined the housing adjustment component of the IFR. As mentioned above, the housing adjustment subtracts the value of housing provided to H-2A workers from their wages. According to DOL, this adjustment corrects the compensation disparity between H-2A workers and similarly situated domestic workers. In the DOL’s view, free housing without an adjustment results in H-2A workers receiving greater compensation than comparable U.S. workers. In simpler terms, DOL’s view was that H-2A workers were receiving free housing and wages, which meant they were being compensated at a rate above comparable U.S. workers. UFW asserted that without a deduction, the free housing requirement makes H-2A workers more expensive to employ, which should make domestic workers more appealing to employers. UFW argued that by including this deduction, the IFR protects the employers, rather than U.S. workers, from the adverse effects of hiring H-2A workers.
As discussed above, federal law requires that housing be provided at no cost to employees who cannot reasonably return to their residence within the same day. 20 C.F.R. § 655.122(d)(1). This applies to both domestic and H-2A workers. The court noted that of those two employee categories, the adjustment applies only to H-2A workers. According to the court, the IFR actually results in H-2A workers receiving far less in actual wages because when an H-2A worker and a domestic worker both require housing, only the H-2A worker will be subjected to the housing adjustment, which deducts the cost of housing from their wages. The court agreed with the plaintiffs that this aspect of the IFR could incentivize employers to hire H-2A workers over domestic farmworkers, as they may offset their cost of housing with the adjustment. The court concluded that DOL made a “clear error of judgment” when it determined that the free-housing requirement created a compensation disparity between all H-2A workers and all domestic farmworkers.
Next, the court determined that the housing adjustment directly conflicts with the free-housing requirement itself, rendering it unlawful. According to the court, by deducting the cost of housing from H-2A workers’ wages, the housing is no longer free. Instead, H-2A workers are now directly covering the cost of housing with their own wages. As a result, the court determined that DOL had violated the requirement that housing be provided “at no cost” to qualifying employees.
Third, the court examined DOL’s decision to rely on the OEWS survey. As mentioned above, DOL previously relied on the FLS to determine AEWRs. The FLS relied on data taken directly from farming operations, while the OEWS primarily surveys farm labor contractors. The court pointed out that while farm labor contractors employ 42% of all H-2A workers, all H-2A workers comprised only 16% of all farmworkers in 2024. According to the court, this means that the data taken from farm labor contractors represents only a minority of H-2A workers and an even smaller minority of all farmworker jobs. The court determined that this percentage is not representative of most farmworkers. The court cites DOL, which stated in a previous rule that workers employed by farm labor contractors “are less educated, less likely to be U.S. citizens than employees of farm establishments and typically have substantially lower wage rates.” In conjunction, this led the court to doubt the usage of the OEWS in calculating AEWRs. As a result, the court concluded that “relying on wage data from farm labor contractors to set AEWRs for all farmworkers would likely result in an AEWR that is lower than the true market rate.”
Finally, the court turned its examination towards the “greater than 50%” rule. As discussed above, this rule requires that a worker performing multiple duties be assigned an SOC code based on the work which they spend the majority of their time performing. These SOC codes are crucial to determining the AEWR for that worker. The court began its analysis by providing a hypothetical example of how the rule could be applied. If a worker spends three days per week packaging fruit and two days per week driving tractor-trailer trucks, the worker’s entire job would be classified under the SOC code for packers and packagers. This means that the worker would be compensated as packer and packager, where the median wage is much lower than that of tractor-trailer drivers. The court notes that for the worker above, the “greater than 50%” rule would result in a much lower hourly wage rate.
According to the court, the faults in the “greater than 50%” rule would create an adverse effect for U.S. farmworkers’ wages. The court cites a previous DOL publication, which claimed that such a rule could result in employers “spreading out” the higher-paying work among multiple workers. In that situation, no worker would spend a majority of their hours performing a higher paying job, thus precluding the need to pay the higher wage associated with the applicable SOC code to any worker. The court concluded that by failing to consider this issue, DOL had not acted consistently with its obligation to protect U.S. farmworker wages.
Moving Forward
Based on the reasons discussed above, the court concluded that the IFR did not fulfill DOL’s statutory obligation to protect U.S. farmworker wages and was therefore unlawful. However, the court declined to vacate the rule, instead ordering DOL on remand to “promptly produce” a new methodology for calculating AEWRs. For employers, this means that the current AEWR methodology will still be applied until DOL creates a new methodology. While the court has directed DOL to “promptly” create this methodology, no timeline has been set. The court has ordered DOL to submit a status report within two weeks of the order, which should detail the steps taken to create a new methodology, a timeline for the issuance of the new methodology, and a proposed schedule for the filing of more status reports.
Finally, there is the issue of backpay. UFW have requested that the court order DOL to require employers to provide farmworkers with backpay for the time between the order and the date DOL releases a new methodology. The court decided to not address the issue of backpay, holding that any award of backpay would depend on new AEWRs, which cannot be published until DOL creates a new methodology. In the meantime, the court has ordered DOL to notify H-2A employers that they may be required to provide backpay, depending on the new AEWR methodology. H-2A employers should be on the lookout for an updated AEWR methodology, which will likely answer many of the questions left unresolved.