Federal District Court Holds the 2025 Adverse Effect Wage Rate Interim Final Rule Unlawful

Image of migrant workers in a field working. Image is by USDA

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On August 25, 2026, the U.S. District Court for the Eastern District of California issued a ruling in United Farm Workers v. United States Department of Labor, 1:25-cv-01614-KES-EGC, holding that the 2025 Adverse Effect Wage Rate (AEWR) Interim Final Rule (IFR) was unlawful under the Administrative Procedures Act (APA).

Background

On October 2, 2025, the U.S. Department of Labor (DOL) published an IFR altering the methodology used to calculate the AEWR for the H-2A Program. There were four key components of the new rule:

1.      DOL will utilize the Occupational Employment and Wage Statistics (OEWS) survey, instead of the discontinued USDA Farm Labor Survey (FLS) as its data source for wages.

2.      DOL selected five Standard Occupational Classification (SOC) codes that most H-2A jobs are performed under. The job duties that the worker spends most of their time performing will be used to determine which classification code and AEWR they are paid.

3.      DOL created a tiered system, dividing H-2A workers into skill level I and skill level II. Each skill level will get a separate AEWR.

4.      The new AEWR methodology will include an adjustment on the worker’s hourly wage for the cost of hosting provided by the employer.

Typically, under the APA, final rules must go through a notice and comment period, where the public can submit comments and the agency must consider the comments when promulgating the final rule. For the AEWR IFR, DOL utilized the “good cause” exception under the APA to bypass notice and comment rulemaking.

On November 21, 2025, the plaintiffs filed suit alleging that the IFR violated the APA because it was “arbitrary and capricious,” and DOL “failed to demonstrate good cause to bypass notice-and-comment rulemaking.”

Arbitrary and Capricious Challenge

The plaintiffs alleged that all four components of the IFR are “arbitrary and capricious” under the APA. Under the APA, an agency action is arbitrary and capricious if “the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”[i] The court evaluated each component separately under the arbitrary and capricious standard.

Tiered System

Historically, the DOL set the AEWR at the mean wage for all workers in a specific state or region. Within the IFR, DOL stated that “setting AEWRs at the mean would tend to overstate wages for similarly employed American agricultural workers with less experience and understate wages for similarly employed American agricultural workers with more experience.”[ii] To remedy this, under the new tier system, DOL will set a wage for each of the five SOC codes under two tiers. The wage for a skill level I worker will be set at the 17^th wage percentile for all workers and the wage for a skill level II will be set at the 50^th wage percentile. DOL claims that over 90% of H-2A workers will fall under skill level I. The plaintiffs alleged that setting most H-2A wages at the 17^th percentile would decrease wages below the market-based wage rate and negatively impact U.S. workers who perform the same duties, violating the statutes under the H-2A program. The court agreed with the plaintiffs, holding that while using a tier system is not necessarily unreasonable, the wage rates that DOL used under the tier system it chose are unreasonable, and arbitrary and capricious. The court held that wages under the H-2A program must not adversely affect domestic employees and the “IFR failed to reasonably consider whether its methodology could fulfill DOL’s statutory duty.”[iii]

Housing Adjustment

Under the H-2A Program requirements, employers are required to provide free housing to their H-2A workers and any domestic workers who cannot return to their home within the same day. DOL claims that the housing requirement creates a disparity between H-2A and domestic workers. The IFR will calculate AEWRs with an adjustment in the hourly rate to account for the costs of housing provided to H-2A workers, but will not change its requirements to provide free housing to all H-2A workers and some domestic workers. The housing adjustment will be based on a forty-hour work week and the average fair market rent of a four-bedroom unit within the state. The plaintiffs claim that the housing adjustment is contrary to H-2A program requirements and violates the APA for three reasons. First, the plaintiffs argued that H-2A workers end up being less expensive for employers because of the housing adjustment, which violates the statutory requirement that utilizing H-2A workers cannot negatively impact domestic workers. Second, the plaintiffs argued that the wages set under the IFR charge workers for housing that is supposed to be provided to workers at no cost under H-2A program regulations. Third, the plaintiffs argued that a per hour adjustment for housing charges H-2A workers more than the value of the housing because most H-2A workers work more than forty hours per week. The court also agreed with the plaintiffs on this component, holding that DOL failed to show that the housing adjustment would not create wages for H-2A workers, and therefore adversely affect domestic workers.

OEWS Survey Data Source

Prior to the IFR, DOL utilized the USDA FLS as the data set to set the AEWR because it includes farm establishments in its data set. In August 2025, USDA discontinued the FLS. DOL replaced the FLS with the OEWS because the OEWS provides state or regional level data for agricultural jobs. However, the OEWS only includes data from farm contractors, not farm establishments. The plaintiffs claimed that OEWS is improper for two reasons. First, farm labor contractors only employ a minority of H-2A workers. Second, utilizing data that only includes farm labor contractors would lead to lower AEWRs because “those 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 wages.”[iv] The plaintiffs provided several alternative data sources or calculations that DOL could have used instead of the OEWR. The court held that DOL failed to consider what problems utilizing the OEWR would cause and reasonable alternatives in its rulemaking, which constitutes an arbitrary and capricious decision.

Greater than 50% Rule

Under the IFR, the worker receives the hourly AEWR for the job that they spend greater than 50% of their time doing. Under prior regulations, the worker received the hourly rate for the highest job classification they worked in no matter how much time they spent doing that job. The plaintiffs claimed that the greater than 50% rule would encourage employers to utilize many H-2A workers to perform higher wage work, instead of having employees whose primary responsibility is the higher paid work, decreasing the average wages, which would adversely affect U.S. workers performing similar work. The plaintiffs identified alternatives to the greater than 50% rule that DOL could have considered. The court agreed with the plaintiffs, holding that “failure to consider such an alternative – and failure to consider whether the greater than 50% rule is consistent with its statutory duty to protect U.S. farmworkers’ wages from the adverse effects of hiring H-2A workers – renders its decision arbitrary and capricious.”[v]

Good Cause Challenge

The plaintiffs further allege that DOL improperly utilized the good cause exception to bypass APA notice and comment rulemaking requirements. Under the APA, notice and comment rulemaking can be bypassed if “the agency for good cause finds that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”[vi] DOL claimed that it was facing a December 31, 2025 deadline to identify a new data source and lower wages were necessary to solve an agricultural labor shortage. The court concluded that the good cause exception was properly invoked for utilizing a new data source because the prior data source, the FLS, had been discontinued and DOL was required to publish new AEWR by December 31, 2025. The court also concluded that DOL improperly invoked the good cause exception for the housing adjustment, greater than 50% rule, and tiered wage system because these three components were not tied to a December 31, 2025, deadline. Finally, the court held that DOL failed to explain why lowering wages would solve the agricultural labor shortage when H-2A visas are not statutorily capped.

Next Steps

The court held the IFR unlawful but did not vacate the rule. Instead, the court remanded the case requiring DOL to “promptly produce a new methodology for calculating AEWRs for H-2A workers that is consistent with this Order, and to promptly publish new AEWRs under that methodology.”[vii] The court is also requiring DOL to notify all state workforce agencies, employers, and the public, within seven days of the order that employers may be required to backpay their H-2A workers. The plaintiffs asked the court to require employers to backpay H-2A workers for wages paid between the date of notice and the date a new methodology is issued. Lastly, the court is requiring both parties to brief the backpay issue once the new methodology is published. Until a new methodology is published, DOL may continue to utilize the methodology imposed under the IFR, but backpay may be awarded by the court when a new methodology that complies with the court’s order is issued.

[i] United Farm Workers v. United States Department of Labor, 1:25-cv-01614-KES-EGC, at *10 (E.D. Cal. Aug. 26, 2026) (citing Motor Veh, Mfrs. Ass’n v. State Farm Mut. Auto. Co., 463 U.S. 29, 43 (1983)).

[ii] Id. at *10.

[iii] Id. at *14.

[iv] Id. at *17 (citing 75 Fed. Reg. at 6901).

[v] Id. at *21.

[vi] Id. (citing 5 U.S.C. § 553(b)(B)).

[vii] Id. at *28.