In a webinar for the National Council of Agricultural Employers, Chris Schulte, a partner with Fisher Phillips, explains the latest legal developments in a court case challenging the Department of Labor’s interim final rule that established a new methodology for setting the Adverse Effect Wage Rate.
Schulte says that while there is some uncertainty about how the new methodology will look, the industry knows “there will be a different rule at some point; we don’t know when that is, and we don’t know what it is.”
Procedural Failures and the Violation of Public Comment Rules
The ruling and the judge’s comments around the Administrative Procedure Act foreshadow what that potential new rule could look like, Schulte says. The judge ruled that the Department of Labor failed to show good cause for bypassing the standard administrative process set out in the Administrative Procedure Act, in which the department solicits public comments to review before issuing a rule.
The court also agreed with the plaintiff that the Labor Department’s reliance on Occupational Employment and Wage Statistics data was problematic on multiple fronts. First, OEWS does not survey farms but instead gathers wage data for specialized positions, such as agricultural truck drivers, from massive commercial logistics employers.
The judge noted that splitting H-2A workers into skill tiers is not unreasonable but that setting the entry-level Skill Level 1 wage at the 17th percentile was arbitrary and capricious. Schulte says this was especially true given that the Labor Department estimated 92% of H-2A jobs would end up classified at this lowest entry-level rate. The judge also rejected setting the higher Skill Level 2 at the 50th percentile.
“The DOL’s choice to separate H-2A workers into two tiers is not inherently unreasonable,” Schulte says. “It’s really in how they set those tiers and where they put them. There’s room to address that.”
Why Zero-Cost Housing Rules and Dual-Duty Wage Codes Were Rejected
Also, under current Labor Department regulations, H-2A employers are legally required to provide housing to workers at no cost, but the interim final rule introduced an adverse compensation adjustment that lowers the required wage rate for employers who provide housing and transportation.
“The court said you’ve essentially violated your own rule,” Schulte says. “You can’t have it both ways where there’s a downward adjustment in wages [in the tier system] but then separately are saying that they can’t charge [for housing]. That’s essentially what they’re doing.”
Schulte says the issue can easily be remedied by removing the no-cost housing requirement from the new rule.
“Congress didn’t require it,” he says. “There’s no reason it has to be at no cost. They can take it out just as easily as they put it in. … Because that was the issue, the court said anything that lowers wages that’s connected to housing is out of bounds.”
Another portion of the interim final rule that the judge ruled against was utilizing a greater-than-50% rule to determine a worker’s wage code if performing multiple job duties. For example, if a worker performed standard farm labor 60% of the time and 40% of the time performed a higher-paying specialized task, like heavy truck driving, the worker would only receive the lower standard farm wage. The judge proposed that instead of blanket coding, the Labor Department should require employers to pay the higher specialized rate for the actual hours the worker spends performing that higher-paying work.
“To the extent the concern was that the OEWS does not fully capture the workforce, there’s a way to do that,” Schulte says. “They can start surveying farms. That’s something that the department has the ability to do. They can tell BLS [Bureau of Labor Statistics], ‘Go out there and start collecting data from farms.’ It’s not going to be a full three-year data set like they use for farm labor contractors right now, but they can at least start.”
Schulte says the judge’s Administrative Procedure Act objections in the ruling focused on the Department of Labor not explaining why rates were set — such as the 50th percentile or 17th percentile. He says the ruling leaves the opportunity for improving the data flow, not just changing the outcome.
“For some of these, they may end up in the same place,” he says. “[The Labor Department] just did a less-than-ideal job of explaining why. So, if they can explain it to them better, maybe the rule is fine. They just didn’t really articulate why that is or come up with a more robust version of it.”
Schulte says he suspects the reason for the Department of Labor’s delay in releasing the final rule is that there could have been an additional lawsuit, so the ruling on the interim final rule essentially helps the department establish what the final rule will look like, based on the judge’s input.
Timelines for Updated AEWR Rules and Navigating Back-Pay Risk
Schulte says the timeline of when the new rule will be established is a bit unclear. The judge has asked for weekly status reports on the updated rule, which Schulte says seems to lay the path for a new rule later this month.
“The sense is that the court was expecting them to do it within just a few weeks,” he says.
The big piece, Schulte says, is the threat of back pay, as the Department of Labor is required to send out notice to employers using the H-2A program that they may be liable for back pay from the time the notice went out until the new wage rate is established.
“The work that’s been done since last fall under the new wage rule, that’s all fully paid,” he says. “That’s all set. At worst — and I don’t think this is the most likely outcome — at worst it would be from the date of the notice until an order to make back pay under the new AEWR, whenever that comes out.”
The court would have to make an order for back pay; Schulte says he imagines it would be appealed by the Department of Labor and employers, but just the threat of back pay “adds uncertainty on top of uncertainty.”
Schulte says producers using farm labor contractors adds even more confusion, as the contract and wages were set for that contract, so there’s no mechanism to collect back pay. He says there’s no real authority of the court to order the back pay, but the threat leaves employers hanging.
“It’s very soft language, so we’re hopeful that he does not end up doing that,” he says.
While a quick update would lessen the potential timeline for back pay, Schulte says, “a quick decision and a good decision are good. We’d rather have a good one than a quick one.”
